Qiagen NV (QGEN) 2008 Q2 法說會逐字稿

Good morning. My name is Natasha and I will be your conference operator today. At this time, I would like to welcome everyone to the QIAGEN's second-quarter 2008 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS)

It is now my pleasure to turn the floor over to Dr. Solveigh Maehler.

Thank you very much, Natasha, and hello, everybody. Welcome to QIAGEN's second-quarter 2008 earnings conference call. I am Solveigh Maehler, Director of Investor Relations at QIAGEN. With me on the call are QIAGEN's CEO, Peer Schatz, and QIAGEN's CFO, Roland Sackers.

We issued a press release last night announcing QIAGEN's financial results for the second quarter ended June 30, 2008, describing the Company's recent business highlights. A copy of this announcement, as well as the presentation we will be using during the conference call, can be downloaded from the Investor Relations section of our home page, www.QIAGEN.com.

Please note that in the press release issued on Monday, August 4, 4:00 p.m. Eastern, in the attached contents consolidated statements of income for the three-month period and for the six-month period both ended June 30 the line description for acquisition-related intangible amortization and relocation and restructuring costs were mistakenly transposed. Importantly note that all profitability amounts in these tables were correct, as were all amounts in the press release itself.

This conference call will cover a 20-minute presentation followed by a Q&A session. The time of the conference call is set at one hour. We therefore would like to ask you to please limit yourself to only two questions during the Q&A session. The call will be archived on our website.

Before I turn over to Peer Schatz, please keep in mind that the following discussions and the responses to your questions reflect management's view as of today, August 5, 2008. As you listen to the call, I encourage you to have our press release and presentation in front of you, since our financial results and detailed commentaries are included and will correspond to the discussions that follow.

As we share information today to help you better understand our business, it is important to keep in mind that we will make statements and provided responses in the course of this conference call that state our intentions, beliefs, expectations, or predictions of the future. These constitute forward-looking statements for the purpose of the safe harbor provision.

These forward-looking statements involve certain risks and uncertainties that could cause QIAGEN's actual results to differ materially from those projected. QIAGEN disclaims any intention or obligation to revise any forward-looking statements. For a description of such risks and uncertainties, please refer to the discussions and reports that QIAGEN has filed with the U.S. Securities and Exchange Commission.

With this, I would like to hand over to Peer Schatz. Thank you.

Thank you, Solveigh, and welcome to our second-quarter 2008 conference call. The second quarter 2008 was again a quarter with a lot of developments and emerging opportunities for QIAGEN. Revenues were fully in line with our guidance and at reported currency rates were recorded at $218 million. Earnings per share came in above our expectations and were recorded at $0.20 a share. Adjusted operating income increased a strong 68%.

Q2 2008 was again very eventful for QIAGEN. We acquired Corbett, a company that contributes a key technology to QIAGEN. I will talk to that in a minute. We launched a whole suite of strategically key products in epigenetics and micro-RNA. As projected, in late June we started shipping the first QIAsymphony systems. Our new flagship medium throughput, random-access molecular testing instrument and we currently have a very strong pipeline for this platform.

We are also very active on the HPV testing front and are seeing a lot of progress in our efforts to drive this rapidly evolving market. One key milestone was a new set of guidelines issued in Germany and I will talk to that later as well. I will go into greater depth and detail on some of our strategic initiatives after Roland provides you details on our second-quarter financial performance.

Thank you, Peer, and good afternoon everyone in Europe and good morning to those joining from the U.S. As you heard, we reported a strong quarter on multiple fronts. We were in line on revenues and exceeded EPS guidance. Much of our growth remains to be driven organically. However, our acquisitions also continue to progress very well down the integration path, especially on the Digene front.

We finished a majority of the major milestone on the Digene integration in July as planned. Now we are seeing momentum with expanded and retooled molecular diagnostics sales force to address the needs of physicians and clinical labs, which builds on the recognized brand name and leadership build.

Here an overview of our key financial metrics. We had reported revenues in the second quarter of $217.9 million, representing a 61% increase over the same period last year. There is only a marginal foreign currency impact on revenue growth using our guidance rate from January 31, 2008, approximately 2%. Driven by strong operating profit our second-quarter adjusted EPS of $0.20 per share exceeded our guidance. We exclude from these adjusted figures any acquisition, integration, or relocation-related charges as well as amortization of acquired IP and equity-based compensation.

A breakdown of our product book groups shows that in the same quarter 2008 we continued to achieve strong leverage in our sample and assay technology product areas. Traditionally, we refer to this as our consumables business, but as it includes both sample technology products and assay solutions, we believe this is an easier and more consistent classification for depicting our product offerings. This area accounts for approximately 90% of total revenues.

Sample and assay technology growth remains robust with 55% growth under constant exchange rates. Across of our product groups, we had strong growth on us. In the sample technology area, AllPrep RNA/Protein Kit did exceedingly well. You may recall this product from our analyst's day. It is used for simultaneous purification of total RNA and native protein from the sample cultured cell sample. Likewise amongst assay technologies, PCR multiplex really stood out.

A very strong driver for us in the second quarter was our instrument business. With 30% growth under a constant exchange rate, driven not only by the EZ1 rollout and the QIAcube, but also, as Peer already mentioned, by the QIAsymphony, which started shipping during the second quarter. The geographic breakdown on the right-hand side, on slide number five, remains similar to last quarter.

As many of you know, we have been building consistently on our presence in Asia. Of note, two events impacted our Asian growth rate. First, as we mentioned in our last conference call, we continued to run down distribution of third-party product remaining from our 2006/2007 acquisitions in Asia.

Second, we began to consolidate the majority of our Asian distribution into the QIAGEN channel. We estimate the net impact of these two events was approximately $1 million to $2 million in the quarter and that this impact will continue at this level for both the third and fourth quarter. Despite these events, our growth forever remains strong in Asia with 24% on the constant exchange rates.

The next slide shows the development of our organic growth rate in the second quarter as we had forecasted. We came in with an 11% organic growth rate, so this is well ahead of the industry trend. The breakdown of our organic growth rate, as we shown also in previous quarters, comes from a certain price and volume component. 4% came from new products. This is again a demonstration of the success of our innovation engine supporting -- supported by 90 new product introductions in the second launch term of 2008 with a focus on epigenetics, miRNA research, and protein function analysis. 41% came from acquisitions.

Overall the second-quarter numbers break down as follows. We once again recorded strong top-line growth. Our net sales of $217.9 million this quarter compared to $135 million for the same period in 2007, reflects a very strong growth rate of 61%. Adjusted operating income demonstrated approximately 68% growth over the second quarter 2007 and a step up in adjusted operating margin from 27% in the second quarter 2007 to 28% this quarter. In fact under constant exchange rates, it would be 29%.

We are deriving great benefit from the Digene integration synergies, particularly in general administrative, but also to a good extent in sales and marketing. The administrative margin dropped to 9% of revenues this past quarter. Our adjusted net income showed strong growth of 57% in comparison to the second quarter 2007 from $25.8 million to $40.4 million.

An additional factor to the level of our net income is also the dropping tax rate. The main driver behind this has been the tax reform in Germany. The adjusted rate was 25%, compared to 31% in the first quarter 2008 and 31% for the same period in 2007. Compared to 2007, we further benefited from the ongoing shift in our business towards developing and growing countries in Asia and strong growth in implementation as well as new, more tax efficient financing structures.

For the third quarter, we expect the adjusted tax rate to be again our guidance range between 26% and 30%, due to a higher revenue share in the U.S. In respect of diluted earnings per share, we had an increase to $0.20 a share, up from $0.16 a share for the comparable quarter in 2007, which exceeded our expectations for the second quarter 2008.

I think this next slide is a good template to show our reporters where those adjusted figures are GAAP rather than non-GAAP figures. Coming from net sales, operating income included adjustments of approximately $26.6 million related to factors including a faster Digene integration process, amassing a greater proportion of the costs into the second quarter 2008. Our rebranding of the Digene franchise to QIAGEN accounted to a larger extent for the higher sum in our integration acquisition-related charges by approximately $2.5 million. On the other hand, we did come in lower on 123(R) expenses coming in at $2.4 million.

Turning to our cash flow statement, our operating cash flow increased to a record $46.5 million from $13.9 million for the second quarter 2008. This increase primarily reflects a larger depreciation and amortization expense as a result of our 2007 acquisitions, as well as a net decrease in accounts receivable. This was partially offset by an increase in inventories during the quarter, primarily as a result of our new product introductions.

The net decrease in accounts receivable includes an increase due to our growth in net sales during the second quarter offset by strong cash collections. Our DSO in the second quarter 2008 was 64 days as compared to 62 days in 2007. In 2008, we continue to -- continue our working capital management focus. For the second quarter of 2008, we have experienced a decrease in our DSO to 64 days from 65 days in the first quarter of 2008. Peer?

Yes, thanks, Roland. Turning to slide 10, as mentioned, we are active on a lot of fronts currently, but I wanted to highlight a few areas of special interest. Turning to slide 11 first, the Corbett acquisition. We are very excited about the acquisition of Corbett. The products that come to QIAGEN through this transaction represent a superb fit with QIAGEN in terms of expanding our platform technology portfolio and compatibility with already existing sample and assay technologies and instrumentation platforms at QIAGEN today.

The financial terms of the deal allow accretion at about 18 months after closing, which occurred on July 1. We have guided for $14 million in sales for the second half of this year.

One major highlight of the acquisition is that Corbett is not a development-stage company. In fact, it brings a portfolio of leading technologies, most notably its performance-leading, real-time PCR detection solutions which are proven, validated, and widely accepted technologies. We have also had a long-standing relationship with Corbett, admired their system and developed a large part of our regulated PCR artus assay portfolio for use with the Corbett real-time PCR systems.

On slide 12, here are some highlights of the Corbett portfolio. Corbett has been a very focused company. It basically has two flagship products, the Rotor-Gene family of real-time PCR cyclers, and the CAS or CAS assay setup systems. These systems are used to initiate PCR and biological amplification technology and to detect and measure their resulting signals. It is a top four market share company in this area.

There are a few things unique about the design of the instrument. While traditional instruments used plate-based formats, the Rotor-Gene uses a ring-shaped approach. This design is very amenable to random access and continuous load designs, which made the technology a perfect fit for QIAsymphony. And in combination opens many new opportunities for both existing and new customer segments.

The approach of the Rotor-Gene also allows the leading performance with the broadest range of applications for nucleic acid analysis, including quantification, HRM, or high-resolution melds, endpoint association/disassociation -- IE melting annealing kinetics -- nucleic acid concentration measure. In addition, it supports most real-time data analysis methods. The greatest optical range was six channels UV to IR wavelength and the widest range of reaction tube formats.

The second key product is the CAS assay setup instrument, a very attractively priced benchmark system used to prepare the PCR reactions. To see how these two products fit into our portfolio, please turn to the next slide, slide 13. The boxes outlined in red are the components that are now added to QIAGEN through the Corbett acquisition. Our customers can use our low throughput systems like the QIAcube or the EZ1 systems to purify nucleic acids from samples, then use the CAS assay setup system to prepare the PCR assay, and then the Rotor-Gene system to detect and measure their PCR reaction.

Our medium throughput systems can be used to purify the nucleic acids and prepare the PCR assays on board. Such systems include the BioRobot universal or the BioRobot NDX. The PCR reactions can then be moved already in ring formats to the PCR cyclers, so the existing BioRobot solutions already include the capability to prepare the ring formats for the Corbett cyclers. QIAsymphony will be able to integrate all of these elements without any human interaction and in a random-access, continuous load format. For all steps in this process, we have a very, very complete range of consumables.

Now turning to slide 14, different topic. I am pleased to announce that we have completed the project phase of the Digene integration on time. We completed all 65 project groups that we set out to complete by July 31. Some IT projects will continue through the end of the year. We are pleased today to announce that we were able to exceed the costs synergy targets we had projected. Our estimated cost synergies are well above the guided cost synergy range of $35 million to $45 million. This is also visible from the strong profitability that we once again showed in the second quarter.

The underlying opportunity in HPV testing represents a huge potential and is fully intact, as we outlined previously. Our sales of HPV-related products were soft, however, in Q2 2008 as expected, and as such we recorded sales at the lower end of the guidance range. This performance was the result of the timing of certain large government programs in countries outside the United States and the initiation of key programs and marketing activities later in the quarter -- in the second quarter 2008.

During Q2 we started a broad portfolio of initiatives around this testing area. We have seen first effects of these initiatives and expect double-digit growth in HPV-related sales primarily in the United States in Q3 and Q4. With this and factoring in the cannibalization of hybrid capture-based tests, including CT/GC, CMV, and hepatitis B, that we moved over to our performance-leading, real-time, artus PCR assays since the beginning of this year, we believe can reach the overall revenue guidance we estimated in relation to revenues we had said last year, about $260 million to $270 million associated with the acquisition of Digene.

The market is moving very rapidly and we are addressing this trend. The sales and marketing channels were integrated early this year and we are prepared for this new phase of marketing. Turning to slide 15, around the world the value of HPV testing represents the most effective measure to limit and eradicate the burden of cervical cancer. We are active on many fronts in many countries.

In Europe we are starting to see some major successes of our recently enhanced capabilities. Most notably, we are very excited to announce that Germany issued new guidelines, which we consider as very significant and which propel Germany into one of the leading positions in Europe in terms of HPV screening. The German Association of Gynecology and Obstetrics, the DGGG, published guidelines which call for co-screening, pap plus HPV, for women over 30.

What is really unique is that the superior aspect of QIAGEN's tests were specifically highlighted and explained. Remember, Germany in particular is a country where there are several approved HPV tests on the market, basically all CE-marked tests, including the tests of all major companies active in this area. The next step in Germany is now to move towards broad reimbursement, which is available currently for ASCUS reflex testing only. Broad reimbursement for screening is therefore still to come.

Turning to slide 16, a lot of activity in the area of HPV demand creation. This is an extremely complex market. In the United States, we are very active and the market is also evolving very rapidly, so we have accelerated changes to address this new market. A few words on the basic market segmentation. We know that the overall market potential is about 35 million tests and the current penetration is about 27%. That was how the market was typically looked at. It is, however, important to look at the various segments.

ASCUS reflex testing, looking at this segmentation method, ie. testing for inconclusive Pap test is about 5% of the market. In this segment of HPV testing we have a high penetration of over 80%. However, in 95% of the market potential in adjunct screening the market penetration is still very low, below 25%.

A second way to slice the market is by prescriber. There are about 40,000 OB/GYNs who prescribe over 50% of performed HPV tests. Over 200,000 family practitioners, GPs, and IMs less than half. Out of the OB/GYN, which was historically the target focused customer segment of Digene, approximately one-fourth are early adopters, which are well penetrated in the segment. About one-half are undecided and the remaining, approximately 25%, are less open to screening.

The appropriate 50% of the market that is currently still undecided was heavily influenced by early manipulative propaganda claiming that not adopting HPV screening has benefits. As the market and the constellations of the various commercial players are now changing and the evidence of the benefits of HPV testing are so overwhelming, we expect this segment to begin opening up and to adopt HPV screening. And this is what we are prepared for.

Family practitioners, on the other hand, who prescribe under 50% of the tests, are less aware of screening guidelines, however, are very open to screening. To address this, we have acted on a number of fronts by increasing our clinical salesforce to over 110, to supporting our laboratory customers. We have over 150 people in our lab salesforce and by creating new outreach channels on top of that, developing new messaging and positioning, which you will see coming out over the next few months, and enacting better segment-based selling.

Moving on, we are also seeing significant momentum in international markets to explore HPV screening strategies. In the second quarter, we saw some major programs move towards implementation and we hope to report on some of those soon.

Turning to slide 17, as seen on this slide our direct-to-consumer advertising activities significantly ramped up late in the second quarter. In this campaign we created new messaging and format and have gotten great initial response. First indications of the results show significant increases in growth rates in regions we targeted. However, we expect impacts to come in a few weeks to months after the campaigns are initiated, as for example it takes time for women to arrange for doctors visits in which they could ask for the HPV test in which then would lead to HPV tests being performed.

Our remaining molecular diagnostics business, our real-time PCR-related products, which just to note are about half of our overall molecular diagnostics business and about a quarter of our overall company, are performing very well. We just added some key regulated assays, such as a CE-marked HIV assay with record performance -- by the way, for use on the Rotor-Gene system -- and new HIV, HPV, and HCV assay's in the Asian arena.

We are very active in diagnostics overall and have significantly stepped up our activities in molecular diagnostics and HPV in particular. In HPV, I wanted to take this opportunity to add that we are also progressing very well on our next-generation HPV and women's health platform, the QIAensemble. In the meantime, we also intend to announce some significant additions and enhancements to the current hybrid capture 2 portfolio in the future.

Turning to slide 18, I really wanted to take this opportunity to address some aspects I would here like to call myths and facts of our HPV test. There is a lot of information out there currently and, therefore, this slide could help address some of these aspects that are often talked about. One myth is that the hybrid capture assay is a cumbersome assay, in particular the sample preparation steps. This statement is actually extremely interesting in that the hybrid capture 2 assay actually does not need any sample preparation at all when used with our collection devices.

On the other hand, when used with the LBC samples that are of a certain format, the sample has to be concentrated. No potential competitor on the horizon has stressed the major elements of this issue, including such tasks as unscrewing the incoming tube containing the sample and automating the transfer of the sample, ultimately then purifying the nucleic acids.

QIAGEN is, however, very actively working to improve this process, not only in our next-generation offering, but also with our current hybrid capture system. It is important to remember that currently the hybrid capture HPV test is being used by laboratories worldwide to run millions of HPV tests annually with many individual labs running hundreds of thousands of tests each year.

In its current version, the hybrid capture HPV test is an assay with one of the highest throughputs in the markets. Often times it is noted that amplification assays need internal controls, whereas hybrid capture assay actually do not. So internal controls are very often a pure marketing aspect. There is no scientific relevance, since we will include -- however, we will include internal controls in the next version of our assay.

The fact that the assay in certain circumstances picks up HPV low risk types is well-documented. One of the specific types often referred to as detected using this cross-reactivity has actually been reclassified as a high risk type. This aspect should not mask the fact that hybrid capture assay has performance metrics in terms of sensitivity and specificity that exceed other assays.

There are countless peer-reviewed studies and meta-studies confirming that. There is actually a study in this month's Journal of Clinical Microbiology that details the value of the cross-reactivity and actually showing that it enhances performance in many settings.

The last aspect is the issue of QNS, ie. situations were not enough sample was taken to perform an HPV test -- quantity not sufficient. The HC2 assay does need four milliliters from the preserved -- selected sample collection. Those assays claiming to work with lower volumes all need an additional DNA purification step up front and they start with purified DNA. While hybrid capture 2 can also perform on -- however, hybrid capture 2 can also perform on purified DNA.

There are countless studies showing that the workflow with hybrid capture 2 can be significantly improved and the sample volume significantly reduced if DNA purification is performed up front. So with simple available additions and the regulatory supplements, the currently marketed hybrid capture 2 assay can be significantly upgraded to a format which far outperforms anything that is even on the horizon.

You can assume that we are working along these lines. In addition, however, we are progressing very well on our next-generation assays and high-throughput screening platforms, QIAensemble, which are going to create a new league of their own.

Turning to slide 19, select new products, we continue to execute very well with our innovation. Over the second quarter, we launched some major new products. In the rapidly growing field of micro-RNA, we have a very powerful and broad portfolio of sample and assay technologies. We launched the first wave of assay technologies to add to our micro-RNA sample technologies and there is much more to come. In epigenetics, also a fast-growing field, and as inmicro-RNA a field with fast crossover into molecular diagnostics, we added significance news sample and assay products.

I mentioned our new assays in Europe, including HIV-1, which has a very strong performance. First data is going to come out; the market is very actively now going forward. In applied testing, we added two new veterinary assays and we also see CE-marked the packaging blood RNA product, currently already marketed in the U.S. as a 510(k) cleared product, here now for use in an automated formats on the QIAcube.

With those select highlights, I will hand back over to Roland.

Thanks, Peer. For the third quarter, we have listed a number of assumptions here. For the time being, as we don't have a comparable quarter due to the acquisition made in 2007, we will continue to provide you with this guidance as it also frames some items more precisely.

Revenue we anticipate to be approximately $225 million to $230 million using our guidance rate. Calculating this using actual rates, you would need to add another $4 million to $5 million. We are estimating the adjusted operating margin of approximately 28% and adjusted EPS of $0.19 to $0.20, which is apportioned for the dilutions from the Corbett acquisition.

On slide 21, I would like to provide you with some more details behind our assumptions. In terms of adjustments to operating income, 123(R) expenses between $2 million and $3 million; amortization of acquired IP of approximately $17 million to $18 million, including Corbett; integration and acquisition-related charges of $9 million to $10 million mainly coming from the Corbett acquisition; the tax rate, as said before, to be between 26% and 30%.

The weighted average number of fully diluted shares outstanding will be around 210 million, which is based on a share price of $22. Taken into consideration the performance of the first half of fiscal 2008 and the recent Corbett acquisition, we are updating our revenue guidance range for fiscal 2008 to $889 million to $919 million using the identical currency rates as in February 2008. Over the third and fourth quarters, we therefore see continued strong organic growth, double-digit HPV-related growth, and the revenues from the Corbett acquisition.

Given our strong outlook for the second half of the year, we are increasing our adjusted EPS guidance from the current $0.74 to $0.78, which includes the $0.02 dilution from the Corbett acquisition, to $0.79 to $0.80 on an adjusted basis. With this, I would like to hand back to Peer.

Thanks, Roland. In summary, we met our revenue targets in this second quarter and exceeded our EPS guidance. Our company is growing very rapidly and profitably. The strategic momentum is strong. We have now completed the Digene integration project management phase on time and exceeded our cost synergy targets.

We acquired Corbett, drove regional expansion and penetration, and drove a number of market opportunities. Our outlook is strong. We updated our overall guidance and increased our EPS guidance by $0.02.

With that, I will hand back to Solveigh to open up the Q&A session.

Thank you very much, Peer. We are now looking forward to taking your questions. Natasha, please open the floor for questions.

(OPERATOR INSTRUCTIONS) Quintin Lai, Baird.

Good morning, good afternoon. A question on HPV. You talked about some of the government activity and in Q2. Summer months tend to be a little bit slower, so how should we think about the back half of the year with those contracts?

Thanks for the question, Quintin. We definitely see large opportunities in HPV momentum in the second half of the year and are preparing very intensely for that and have done a lot of work around that in the second quarter. So if you look at the revenues in the first half of the year and then look at the second half of the year, you will see that there is a slight increase expected on a quarterly basis to achieve the target range that we originally had indicated.

But we believe this is possible based on the deal flow that we have in this area and also the momentum that we are creating and the investments that we are doing. So from that perspective, while we saw Q1 and Q2 approximately in the same range, Q3 and Q4 are expected to be slightly higher.

Listening to your competitors and some of the conference calls, it sounds like that traction for their HPV in Europe is also somewhat slow. So if we take a look at it, what you have talked about, longer adoption cycle and getting these governments to come over, is it safe to assume that right now the Digene platform for you is more -- still you with the market leadership and just waiting for your customers to adopt? Or are you seeing any kind of competitive pressures right now?

It's a very good question. I think the thing you are seeing here is that a lot of governments and countries have already over the last years conducted studies and in-depth reviews and have their recommendations ready. We talked about a number of countries that have done in some cases very large studies already and have formalized and put together their proposals to roll out screening.

This is really the great value of the Digene legacy, that all of this work was done using hybrid capture. The technology simply outperforms anything else in the market today and therefore has been also selected as the method of choice for a lot of government proposals. So this is something that will kick in slowly. I guess sometimes it can go a little bit more quickly than anticipated.

You probably remember we never really talked about Germany as being a large opportunity. Yes, we were very active in the German market. And you saw these recommendations now come out from the DGGG that are extremely important for us and basically call for co-screenings similar to what we see in the United States. These things can develop very quickly.

We said before certainly they can stall for a certain time period and then move very quickly. In Germany we saw now a very positive move that we are very much looking forward also to support going forward. I think that the issues other competitors might have in Europe -- everybody has very specific things, but I think we are extremely well-positioned in our capabilities and with our product portfolio.

It's also expanding and I hope to report on that in the near future what we are going to add to the portfolio as well. So we are looking -- we are there. We are already in all of these pipelines and we are very well-positioned to immediately also address when it takes off.

Thank you.

Bill Quirk, Piper Jaffray.

It's Dave Clair here for Bill. Thanks a lot for taking the questions here. I was just curious if you could give us a little bit more color on the DTC campaign. Are these brand-new cities for you and has it already launched? When can we expect to see the fruits of the effort here?

Thanks, Bill. We did start a new DTC campaign. The new ad is, by the way, also available on the website the HPV test.com. It is -- it has a new format. We are including doctors. We are including a much more educated discussion, which has been shown to be very positive for the viewers. We tested it during the course of the early second quarter in a number of cities and are now rolling it out, have started rolling it out later in the second quarter more broadly.

So here in Boston for instance, I believe that there is currently activity ongoing. It is very much focused on regions where we see a benefit of getting an increased adoption. So we have been a little bit more selective than in the past in choosing the region and following up with marketing activities in these regions to support the laboratories with further information and educational elements.

Okay, great. Can you give us a little bit more color on like U.S. versus European HPV growth? I mean, should we be thinking that Europe was a lot higher than U.S.? Can you just kind of describe what you are seeing I guess out there as far as geography?

It was pretty comparable. But as I think I said in another discussion here, the growth in HPV in the various geographic regions is tough to compare because Europe is still so small. We are really a far cry away from where the numbers should be. They should be at least five times, if not more, larger than where they are today. So we are still seeing some ASCUS screening and some private payers screening and some select insurance coverage in various regions, and especially also revenues for the studies, which are a little bit more volatile.

So as we go more into a standard algorithm-based screening in larger regions, we will probably see a steadier growth pattern, which I think will be very high in Europe. As it is currently, if you look at the CAGRs in this area and I expect this not to change going forward.

Okay, great. Then just -- sorry -- one last question. Is your -- do you think your salesforce is fully up and running here? I know that you added quite a few recently. Are those guys all trained in and fully producing now?

Yes, it's a good question. In a record time we increased the sales force, especially the clinical salesforce, by almost 40% and to a very leading salesforce in the clinical area of 110 people. I am not aware of any other molecular diagnostics company that has a pure clinical salesforce in this area. We are supporting doctors and understanding the HPV opportunity and helping them also introduce that into their practices. This is something that is very promising.

Every doctor is very different. I went through some of the physician segmentation, which is actually -- we are using even more detailed segmentation rosters here internally to support doctors at the various stages of understanding the opportunity and the need to introduce screening and also how to introduce it. So that definitely takes some time. However, we are very happy to have been able to hire some formidable people into our salesforce, into the clinical salesforce.

The laboratory salesforce is the one that goes to the laboratories and combines the molecular diagnostics offering with a one face to the customer. This is what any other diagnostic company has as well. We have a very sizable one. The QIAGEN laboratory salesforce was four times larger than Digene and that is where customers have a discussion around components about real-time PCR assays, platforms, and also the HPV testing portfolio. So that has been very, very positive for laboratories to have a very nice consolidated one face to customer approach. That has also increased.

Excellent, thank you very much.

Peter Lawson, Thomas Weisel Partners.

Peer, are you still trying to target 12% organic growth for the end of the year? What is going to drive your organic growth above that 10% to 11% level?

Thanks, Peter. Good that you asked that question. Yes, this is currently still a target. We believe we are on track to make this target. As you saw from the second quarter was above the first. In the first, remember we had a very soft growth in automation. We said this is more of a seasonal effect based on the timing of the various products.

We now saw QIAsymphony kick in in the late second quarter. QIAxcel is taking off like a rocket, that is the capillary electrophoresis system we acquired with the eGene acquisition a year ago. These products as they will be contributed to organic growth should allow us to target that range as we previously saw -- 12%.

What is the outlook on pharma R&D spend? What is the tone like from pharma at the moment? Any slow down?

That definitely is an area that people are looking at right now. The overall expectations for R&D spend, I guess, are not very strong. However, if you look at where we are currently focusing and targeting our products, it is in the area of the clinical research, where people are using our technologies and kind of crossover settings between research and diagnostics.

We have a great market share there. We have dozens of pharma diagnostics relationships ongoing and have a very strong pipeline also in terms of supplies and support, supporting these clinical studies. Remember it's about a $120 million business, approximately.

Is that the number now, correct?

It's about 17% of our sales. As we don't expect this to change significantly, we actually put some new efforts around this area and it's an area of high attention. I, myself, have also been very active in a number of pharma relationships now over the course of the first half of this year. It has been a much more concentrated and targeted effort than we saw previously.

okay. Thank you, Peer. I will jump back into the queue.

Cornelia Thomas, WestLB.

Thanks for taking my question. You mentioned earlier that sales of HPV kits or products were soft this past quarter due to some government projects. I was wondering if you could elaborate on what these projects were. Are these the trials some European countries are running? Also which governments in which countries are these?

Globally or Europe-wise?

Globally.

Well, we know about the United States. There are a number of countries that we are working on that we hope to be able to talk about soon going forward that are actually far advanced in some areas. But if you look at Europe, we traditionally always said that the Netherlands was first. Now they came out with the vaccination guidelines early this year. The screening guidelines are expected in the second half of the year, but I think it's pretty well known that they will call for HPV screening maybe even as a front-line screening.

We also saw some significant move from Italy, which is always a very early adopter in diagnostics, but also France. Germany was -- we hoped for, but not really expected that it would be so positive for the adoption of HPV screening. So we are very active in Germany right now. Those would be the more populous areas in Europe probably to mention.

The United Kingdom, unfortunately, is quite a bit behind and is still struggling with the ASCUS regime, which has now been adopted or is being adopted as we speak. So there are a number of developments in Europe, but they are all in very different stages. Germany is really a highlight in the second quarter for now, this summer.

Asia is a different story and we are active also in Asia. You probably saw that we worked with the government in a number of screening settings in China. The relationship there is very close with the key opinion leaders and we are working towards regional adoption of HPV screening. The same holds true for a number of other Asian countries. Japan, also a country where there is a regulatory clearance of product and we are already actively marketing. But there the regulations are still missing and that is a more difficult environment.

What I really am looking forward to is the rollout of our Care HPV product, which was previously called Fast HPV. This is the developing world product that is going to be a tremendous compliment to the HPV screening, high throughput screening systems that we will be able to put into developed areas of the country and then have a decentralized version that would be synchronized and harmonized with the centralized testing laboratories. So that is a very exciting development.

We are hoping to come out with details now over the next few months and potentially at the beginning of the year and have formalized rollouts in a number of settings.

Okay, thanks. Whilst these were not the reasons for you seeing slow or soft HPV sales, right? So what was the reason for that?

Well, basically, when we did the guidance for the year, we had anticipated that the first half would be a little bit flat because we were clearly not working with a much large salesforce. As Dan had previously asked, we dramatically increased the salesforce. We added new messaging. We also in some cases added new management to the overall sales force.

I think there has just been a very positive effort. We have a very energized salesforce and it's working in a very strong structured way. I think this is necessary in this new environment of the market to be able to address beyond just early adopters who are very quick to accept new guidelines or new standards anyway. So we are moving into a new era of the market and we have retooled for that and readjusted for that. That is also what we guided for in the second quarter.

So going forward we expect, certainly, some momentum from this. We have all reasons to believe that this is going to occur now in the second half of the year. This should bring us into our guidance range and, depending on the momentum, would determine how far or to what extent into that guidance range.

Okay, great. Thanks.

[Spencer Phnom], Cuomo Research.

[Ben Forest] here for Spencer Phnom. A question on the $260 million to $270 million targeted Digene revenues. Is any of that non-HPV revenues?

Yes, as we know that the Digene business was about 90% HPV-related and the remaining 10% were blood viruses. So these tests have come into the years where they needed to be replaced, and by coincidence, we basically had the same products in the real-time PCR formats. The majority are actually running on the Rotor-Gene system with very strong performance characteristics. I think we have some of the leading assays in all of these areas.

CMV, for instance, we are by far the market share leader in cytomegalovirus testing globally. We have a very strong position in hepatitis B in very many countries, especially the countries that were big for hybrid capture. A lot of these old relationships around the hybrid capture 2 blood viral assays, they were starting to consider also other options. We basically accelerated that to avoid customers being unhappy with their product.

Okay, thanks. Then quick question on the time frame for the QIAensemble. Can you remind us what that is and what steps still need to be taken?

Yes, I think some of you have seen the product in the meantime. It is very well advanced. The data that is coming out of that program is superb and the timelines continue to remain the timelines that we originally said. It was the clinical trials initiating in H1 '09 and then everything thereafter would then be also based on the discussions with the FDA. So I don't want to preempt that.

This is something we will be working with with the FDA, but I'm pretty sure that we are going to have a very, very strong lineup and setting that we want to be able to show.

Okay, thank you.

Matthew Scalo, Canaccord Adams.

I'm just looking at slide 13 here and looking at the low throughput module line. Do we now have a complete offering from sample receipt to results here? Then kind of a follow-up question, is the next generation or the next strategy here to create an integrated system of all three segments similar to QIAsymphony?

Two excellent questions. The first answer is easy. The answer is yes, we have a complete lineup. So if somebody wants to perform molecular diagnostics we have everything that she or he needs, including the performance-leading assays, the performance-leading sample processing consumables, sample processing instrumentation. What is interesting to note is that the Corbett instrument from all assay developers in the world is always considered the preferred system to develop assays for because it just has stunning performance and capabilities. So by coincidence it also exactly matched the QIAsymphony needs with random-access and continuous load.

So we are definitely moving towards integrating bleed-to-read in the medium throughput area. In the low throughput area, we have a component setting, which is by far the majority of the market currently. Now we have been thinking about standard modules across different throughput segments. Looking at the various options that are on the market today, it is not always a good solution. If you decipher a certain format in a certain throughput area, it very often does not meet the requirements in the other throughput areas.

If you, for instance, design something for a low throughput area it has a very convenient format which, however, is a little bit more expensive. It will immediately hit a killer argument in the high throughput area, which is cost. So there is a benefit of standardization, definitely, but it is very tough to make this standardization happened across the various customer segments and throughput segments that we have today. So we have today -- we are looking at a very high throughput screening segment where I think hybrid capture with an upfront amplification or without, doesn't matter, is an extremely powerful, slick, and inexpensive technology.

In the medium throughput area, QIAsymphony has bandwidth which is unseen of and probably will be very difficult to match. We have the system already out there in the marketplace. You can basically do anything in molecular processing. We are now adding the real-time PCR detection in it, which is the leading detection solution.

In the low throughput area, we are currently working with modules, but this is probably enough for some time. That is the only area where we don't have a bleed-to-read capability, which we will have -- already have in the others.

Okay, that is extremely helpful here. I wanted to just quickly go back to, as far as the cost synergies taken out of the acquisition as well. Have you quantified that? Is it material enough to quantify for Corbett?

Yes, it is mature. Roland, do you want to address that?

Yes, absolutely. Yes, we have seen often on the first and, especially also in the second quarter, on the cost synergies we guided $35 million to $45 million synergies for fiscal 2008. As of today we are very sure that we will come in excess of $45 million for the year 2008. This is driven by two factors. First of all, not only that we are fast on integration than we expected, but also we even could generate more synergy potentials.

So that means also going forward, going into 2009, we are really starting from a lower-cost level. So looking into different functional areas clearly on the general administrative side, we have more or less got everything that we planned for or in excess of that. The another area or the other areas where we have seen and get a lot of cost synergies we are clearly on the sales and marketing side, especially internationally, and of course on the cost of sales side. The cost of goods sales side as we clearly could leverage our production capabilities quite significantly.

Okay, and those numbers though, Roland, those were for Digene, right? Not for Corbett?

Those were for Digene, that is correct.

Okay, any numbers that have been disclosed on the Corbett acquisition?

On Corbett we just gave overalls. So far we have given overall numbers and the overall numbers is that we have a slight dilution for this year, the $0.02 dilution. They will be neutral for overall for next year, but give significant accretion in -- starting in the year after 2009.

More important, I think, to note is that we of course will also utilize here our worldwide sales forces. If you recall, Corbett was selling most of its instruments on redistributors. QIAGEN clearly has a global salesforce in all main locations so we should get here significant synergies as well.

Okay, just last question here. As we look to the second half, you have got QIAsymphony, you have got QIAxcel, heavy instrumentation growth, even though it's only 10% of your business. Should we be looking at the impact on gross margin returning back a 72% range in the second half?

Good question. I do believe that gross margins probably stay quite similar in the second half as we have seen in the first quarter. Because on the one hand side you are right, we see a stronger instrumentation business. On the other hand, I do believe also having more HPV sales in the second half of the year will offset to a certain extent.

More important to note is probably that the bottom line, of course, the EPS drivers also with implementation and conducting this business out of Switzerland where we have a low tax rates, EPS-wise, this clearly gives us a boost.

Terrific. Thanks, guys.

Thank you. At this time, I will turn this call over to Dr. Solveigh Maehler for closing marks.

Thank you very much, Natasha. I would like to close this conference call by thanking you all for participating. We hope to welcome you again to our Q3 results conference call on Tuesday, November 11, 2008. If you have any additional questions, please do not hesitate to contact us. Again, thank you very much and have a nice day. Goodbye.

Thank you. This concludes today's conference call. You may now disconnect.