Qiagen NV (QGEN) 2008 Q3 法說會逐字稿

Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to the QIAGEN third quarter 2008 financial results conference call. All lines have been placed on mute to prevent any background noise. (Operator instructions)

Thank you. I will now turn the conference over to Miss Solveigh Maehler, Director of Investor Relations for QIAGEN. Please go ahead.

Thank you very much, Julianne, and hello, everybody. Welcome to QIAGEN's third 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 third quarter ended September 30, 2008, describing the Company's financial results for the third quarter, describing the Company's (inaudible) and business highlights. A copy of this announcement, as well as the presentation we will be using during this conference call, can be downloaded from the Investor Relations section of our home page, at www.qiagen.com.

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, November 11, 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 discussion that follows.

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 provide 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 the 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.

Yes, thank you, Solveigh, and welcome, everyone, to this third quarter 2008 conference call. As you've seen from our press release, we experienced a very successful third quarter 2008. We exceeded our guidance in terms of revenues, margins and earnings per share.

Our revenues came in at USD $230.8 million, representing 31% growth over the prior year, and 27% growth adjusted for currencies. Overall, organic growth increased to 14%. Total sales to molecular diagnostic customers continued to show very strong growth of 38%.

Within the molecular diagnostic customer segment, our sales of HPV-related products also showed record sales coming in with an organic growth rate of 20%. Overall, organic growth rate in molecular diagnostics was comparable.

Adjusted EPS increased 24%, from USD $0.17 to USD $0.21, and also exceeded our guidance of USD $0.19 to USD $0.20, which we had for this third quarter.

As we have talked about many times, innovation is core to QIAGEN's DNA, and we pride ourselves for outpacing our peers by distance in terms of new product innovation success. In this quarter, we were very proud to record 5% of sales coming from new products launched within the last 12 months.

Our launches in Q3 included a whole suite of products -- 23 of them, new products with a focus on micro RNA and genotyping. These products are not simply repackaged, reformatted products, but truly innovative and proprietary solutions. Providing innovative solutions is how QIAGEN differentiates itself from its peers. In fact, about a quarter of our sales come from products that were launched within the last three years. This is a great testament to our teams around the world, and our research, development, marketing and other functions, who are continuing to expand our bases for the long-term sustainable growth of QIAGEN.

QIAGEN experienced a very successful third quarter, and more importantly, we built strong momentum over the course of the quarter, and have a strong outlook for the coming quarters in 2009. In terms of strategic accomplishment, a lot happened also in this quarter. We acquired the pyrosequencing technology and product portfolio from Biotage. I will talk to that later.

What we are very proud of is the very successful launch of QIAsymphony. The first module of QIAsymphony, the QIAsymphony SP, was launched in June of this year, and has introduced a new dimension of molecular processing power. Our pipeline is very strong for this new modular random access and continuous load platform. We have already been very successful in QIAsymphony placements, and have a very strong pipeline going forward.

In terms of customer segments, as I said, our sales into molecular diagnostics continued to show strong growth of about 38%. Within that segment, sales were strong across the portfolio of genetic infectious disease, and women's health related assays. In particular, sales of HP-related products showed organic growth of about 20%, and demonstrated strong momentum. This is a testament to the sales channel and messaging updates that we made over the course of this year. I will talk to this later as well.

In our molecular diagnostics portfolio, I'm particularly excited about our new K-ras test, which addresses a unique need in cancer theranostics as a first mover. More to that later as well.

But before we get to that, I would like to hand the call over to Roland for a discussion on our financial performance. Roland?

Thank you, Peer, and good afternoon, everyone, in Europe, and good morning to those of you joining from the US. As Peer mentioned, we reported one of our strongest quarters ever. At September, we grew our annual revenue run rate of approximately USD $1 billion -- clearly, a milestone for the Company.

For this past quarter, we exceeded revenue and EPS guidance, as well as expectations for our adjusted operating margin. Our financial performance reflects QIAGEN's continued ability quarter over quarter and year-over-year to generate consistent growth and profitability.

Much of this growth remains to be driven organically, with HPV sales demonstrating a notably strong contribution this quarter, which I will talk more about in a minute.

As a prevalent acquirer right now of (inaudible), we have a proven track record of identifying leading edge technology players, and integrating the businesses efficiently and quickly into QIAGEN, demonstrated again past quarter with our acquisition of the Biosystem product portfolio from Biotage.

Moving on, here is an overview of our key financial metrics for the third quarter. We reported revenues of USD $231 million, representing a 31% increase over the same period last year. Using the currency rate from January 31, this figure would be marginally higher, at USD $232 million.

We experienced a strong adjusted operating margin increase to 29% in the third quarter 2008, which corresponds to a growth rate in operating margin of 53% year-over-year. Driven by strong operating income, our third quarter adjusted EPS of USD $0.21 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 groups showed that in the third quarter 2008, we continued to achieve strong leverage in our sample and assay technology product areas. This area accounts for approximately 86% of total revenues. Sample assay technology groups remained robust with 23% growth and a constant exchange rate. In fact, across all of our product groups, we had strong growth runners.

In terms of assays, our genetic infectious disease and women's health assays showed especially strong performances during the quarter. Another impressive driver for us in the third quarter was our sales of instrumentation products, with 83% growth under constant exchange rates.

Driving this growth, the QIAsymphony platform, which was launched in June of this year, is performing very well, as it provides a new dimension of molecular processing power for our customers.

The geographic breakdown on the right hand side of slide 5 continues to be similar to last quarter. Net sales in the Americas for the third quarter represent 51% of our overall business, and recorded a growth rate of 28%. But the European sales, which represent 34% of our revenues, showed a growth rate of 21%, 14% at constant exchange rates.

Net sales in Asia remained strong, with a growth rate of 27%, 20% at constant exchange rates. Throughout the quarter, but particularly during September, we saw strong demand in molecular diagnostics and applied testing across all three geographic regions. The strong US growth rate was in part due to the success of the HPV demand creation and initiatives we instituted in the second quarter.

The next slide shows the development of our organic growth rate in the third quarter. We had a 14% organic growth rate this quarter, which continues on the sequential increase we have demonstrated over the past two quarters -- 10% and 11%, respectively. Our organic growth rate remains to be at the top end of our industry.

Please note that the 13% growth we reported from acquisitions includes both one month of Digene sales, as well as all three months of Corbett sales. For this quarter only, we state of the different organic growth rates, especially around HPV.

Moving on, significant growth in new products capped this very good growth in terms of volume, led to sales from molecular diagnostic growing organically by approximately 20%. Within that, the HPV portfolio grew organically by 20%. Laying on top of the acquired businesses in molecular diagnostics led to the total growth from molecular diagnostic customers of approximately 38%.

It is key to note that on the HPV side, on comparative years per year growth, this number is like to like.

Overall, the third quarter numbers break down as follows. We once again recorded strong top line growth. Our net sales of USD $230.8 million this quarter compared to USD $176.6 million for the comparative period in 2007.

Adjusted operating income demonstrated approximately 53% growth over the third quarter 2007, and an increase in adjusted operating margin from 25% to 29% this quarter.

Our adjusted net income also showed robust growth of 36%, in comparison to the comparable quarter last year, from USD $31.1 million, to USD $42.4 million.

Net effect diluted earnings per share, we had an increase to USD $0.21 per share, up from USD $0.17 for the comparable quarter 2007, which exceeded our expectations for the third quarter 2008.

For year to date, or nine months' results, you will find a slide in the appendix. But I wanted to highlight some of the key growth figures here -- 49% increase in net sales, 65% increase in adjusted operating income, and an adjusted net income growth of 51%.

Comparing our results, which are reported where adjusted figures, or GAAP versus non-GAAP figures, coming from net sales and operating income, included adjustments of approximately USD $28.6 million related to factors including acquisition integration and relocation related charges, as well as amortization of acquired IP and equity-based compensation. And on an adjusted basis, we reported an 18% net income margin.

Given the current economic climate, I think spending some time here on these next few slides to share with you our cash management practice, debt obligation and currency and interest rate exposure would be beneficial.

Our operating cash flow increased to USD $31.5 million, from USD $27.6 million for the third quarter 2008. This increase primarily reflects strong net income growth.

Our free cash flow this quarter was USD $20.2 million. On an annualized basis, in fact, our free cash flow is near USD $18 million, which is another significant milestone for the Company.

In regards to amortization and depreciation, the figure includes a full quarter of Digene amortization, whereas third quarter 2007 only included two months. Furthermore, the acquisition of Corbett as well as currency fluctuation, meaning the euro appreciation, are included.

For the category Others, the comparative increase in the third quarter 2007, the third quarter 2008, is due primarily to the ramp up of inventory increase, the newly launched instruments, and an increase in accounts receivable attributable to the increased sales volume we had in the third quarter.

So as you can see, our cash flow remains very strong. At the end of September 30, we had cash on hand of USD $326 million.

Moving on to the lower half of the slide, I would like to highlight a few measures relating to our liquidity and capital structure. With only approximately USD $25 million in near term debt obligations in the next 12 months, and using the Q3 number, an annualized totally free cash flow of approximately USD $80 million, I'm sure you can see we are in a very strong position.

Further highlighting our strong liquidity position is our equity ratio of 51%, and the net debt to adjusted EBITDA ratio of 2.3.

One of the key strengths we have going into this quite volatile economic time is the continuous conservative and prudent steps we have taken with regards to our investment strategy. Strong balance sheet management has always been of paramount importance to QIAGEN.

On the cash management side, we have pursued a very conservative management approach. We work with a diversified network of banks for our strategic deposits, and short-term triple-A rated global money market funds. Also, we have had no writedowns.

On the other side of the balance sheet, on the debt side, we have USD $450 million long-term convertible debt, becoming due in 2011 and 2013, and a USD $500 million credit facility in place until mid-2012.

If you look to our quarterly reported numbers, you can see we have no material currency exposure, due to the natural hedging of our P&L statement. And on the interest rate side, we have locked in spreads for our credit facility through 2012 on very attractive terms -- right now, one month's LIBOR plus 55 basis points.

In addition, we also swapped the floating interest rate of our excess debt, approximately USD $200 million, for attractive fixed terms for the next two to three years.

Peer?

Yes, thank you, Roland. As always, here are some special topics that I wanted to address in this call, so let's move to slide number 12.

We're very excited about this new addition to QIAGEN, the Biosystems business from Biotage. The pyrosequencing technology is a fundamental technology behind the next generation sequencing revolution. Biotage had licensed it out to select partners such as 454 Roche, for next generation sequencing, and we now own that royalty stream.

But what is more important is that we own the technology. We will focus on using pyrosequencing for high resolution sequence detection and quantification of shorter stretches of DNA. The platform represents a gold standard here, and the new IBD version of this instrument was just introduced.

The beauty of this technology is its reading accuracy, with 99.7% accuracy on a 100 base pair run. It is the only technology that can achieve this quality in one run, at -- and this is quite amazing -- a cost which is as low as USD $1.00 per read.

So while the technology is being employed by others for very large data reads, we are focusing on what the diagnostics and validation markets need urgently now -- affordable, highest quality sequence validation.

To make it short, you don't need to sequence three gigabases of human genome data and spend thousands of dollars per run if what you're actually looking for are a handful of mutations with known short stretches of DNA behind them.

There is a market for sequencing long stretches of DNA. It is in the foreseeable future, primarily in research, and in some areas of diagnostics -- for example, some areas of cancer or prenatal testing. However, the vast amount of sequence analysis in the foreseeable future will focus on reading clinically validated short sequences, and will be required to do so in the tens of dollars.

That is exactly where the pyrosequencing technology excels. Importantly, the K-ras assay we will talk about later is the first assay we will launch on this revolutionary technology.

Our primary focus will be on the use of the technology in, in vitro diagnostics, in genetic, pharmacogenetic assays, and also in pathogen assays. Some of the assays will be multiplexed, and we have a number of such assays in the pipeline.

What is nice about the technology is also that it has a built-in control. Something is always read, so while PCR assays need a more complex assay design, the design here is very, very simple.

Epigenetics is the next area I would like to focus on, and for this, please turn to the next slide.

I know we talked about epigenetics a few times already, but it is really an area where we're taking a great leadership position. This might be a little bit technical here, but we have a very broad portfolio sample and assay technologies, from collection of samples, to purification, to sell critical bisulfite conversion, and the amplification, detection and sequence analysis steps.

Now, the [pyromide] instruments and technologies fit in very nicely here. The most appreciated property of this technology is its highly reproducible quantification of methylation frequencies in individual consecutive methylated sites, enabling reproducible measurement of even small changes in methylation levels. So it combines reading with quantification, a feat no other technology can accomplish. And this has made pyrosequencing the gold standard in epigenetics.

The reproducibility is a result of quantitative measurement principle, inherent quality controls, a few processing steps only. QC is inherent because CPG sites are presented in the context of the DNA sequence and controls for the critical bisulfite conversion step can be integrated into the analysis process.

Turning to the next slide, I wanted to give you a short overview of how our capabilities look in detection following the addition of the pyrosequencing instrument and assay technology.

We have a great capability here, from bleed to read. I cannot tell you that it was a strategic goal of ours in 2008 to complete our detection options. This allows us to offer complete solutions in all markets we serve, with QIAxcel, from the acquisition of eGene, we have endpoint PCR detection, also multiplexed. From our partner Luminex, one multiplex PCR detection with a Rotor-Gene queue. From the acquisition of Corbett, a leading real-time PCR cycle with high resolution melting capabilities, and a pathway to integrate selected detection capabilities into the QIAsymphony family of modules, or to use a modular in combination with other respective QIAGEN modules.

All of these platform options generate consumable streams. While we're showing the low to midrange options on this slide, the next slide shows us the mid to high range throughput options.

On slide 15, we have what is a broad suite of platform options for mid to high throughput molecular diagnostics screening. I know this is a very busy slide, so let me walk you through it.

On the left side, you can see a numbering of the options that I will refer to. Let me start with option 1.

I have to give you a short story here. I was at the [ANP] conference a few days ago in Dallas, and a key opinion leader in molecular diagnostics, during a presentation, called our hybrid capture 2 test the most highly automated, most hands off test in the market. I know that some of you were there and heard it as well. This is also what you will hear in many countries in Europe.

So why is that? It is simply -- it simply has to do with the fact that the test is, indeed, extremely automated, very hands off, when our so-called STM vials are used to collect the samples. That was the original FDA approval.

However, then came along the liquid cytology technologies, which is really only broadly used in the United States, and this technology introduced a new collection device that dilutes the rare sample material in 20 milliliters of alcohol.

The subsequent change in sample collection devices at many customers' in the United States now require a new sample preparation method for hybrid capture 2 that also required a new subsequent FDA approval. And this one approval process, the DNA concentration step, could not be included on our Rapid Capture instrument, and the sample preparation became a manual process. And that is depicted here as a yellow box in line 2.

What then also happened was that the volumes increased. The sample handling of the vials themselves became very cumbersome, because the preserved [sit] vials have to be opened by twisting off the cap, and they are not very user-friendly in those high volume applications.

So the yellow box is not really a big issue for processing, but specific to QIAGEN, others have no automation at all, or also have some pipetting up front. The orange box is a real issue, and all potential competitors face it. Nothing unique for QIAGEN -- it's something all competitors have to address.

I will now show you how we are solving both challenges, and you will now understand why we all felt we have a very clear pathway into automating the superior test and what is the better automation. This has not been shared with customers yet, and we will do so once the appropriate time has come, and the regulatory requirements allow us to give the level of details as appropriate.

So basically, rows 3, 4 and 5 present intermediate, very near-term solutions to the workflow. In short, by implementing them, we achieved the highest degree in automation, and a pathway to merge the HPV testing portfolio into the broadest menu breadth in our industry, namely, the QIAGEN real-time PCR broader portfolio.

As shown in row 4, QIAsymphony SP is the cornerstone here. Using a novel sample preparation technology, we have created protocols to process liquid cytology samples on the QIAsymphony. This dramatically cuts the input volume, which is currently 4 milliliter in the manual process, and thereby eliminates any QNS, so-called Quantity Not Sufficient risks. It fully automates the process and links into the menu that the QIAsymphony can run using real-time PCR.

Up front to the QIAsymphony, we can place a newly developed biohandling solution that completely automates that process as well. The result? A completely automated solution with a degree of throughput not a single competitive solution even on the horizon provides.

In row number 5, we also have the option to reach the high throughput sample processing module from the QIAensemble screening solution, our next generation screening platform, as a high throughput front end system. This system is also here completely automated, and delivers a throughput and sample processing which is about five times faster than the fastest molecular systems in the market today.

Row number 6 shows the next generation screening platform with a link into the assay setup and detection modules of QIAsymphony. This is shown here in an exploded way, but would also here clearly be integrated.

The last two rows, row 7 and 8, include QIAensemble, a screening instrument running our magnetic particle based assay. We have talked many times about this, and this product represents nothing short than a new dimension in molecular processing power, while still basing on a heritage of validated performance. We will give further updates in the upcoming Analysts' Day in February of 2009.

Now, let's turn to slide 16. I talked a lot about platforms, and they are important for our overall business, and certainly for our business in molecular diagnostics. This business is almost half of our sales, and we are growing rapidly here. The overall business in molecular diagnostics is growing across the board, with the approximately same growth rate that we're currently seeing in the HPV related products, a sub-product group within molecular diagnostics, which is growing about 20%.

We are adding new products as well. In the last few months, HIV, malaria, [barillia] and now K-ras, and we have multiple clinical trials ongoing.

A range of HPV tests, which has become an integral part of our MDX business, our molecular diagnostics business, has also performed very well, recording, as we said before, 20% organic growth. We saw strong growth primarily in the Americas. We are very pleased to see the success of our programs that we talked about in our August Q2 call.

Our restructured and increased clinical sales channels, our market segmentation, our new messaging and collaterals, and our partnering programs have shown first fruits. We continue to look very positively into the future.

We were also very pleased to see Professor zur Hausen receive the Nobel Prize in Medicine. This was very well deserved. It should also put to rest any questions about the validity of the HPV cancer link. This link is real, and we are privileged to take the role of bringing the value of this groundbreaking research to people around the world.

Turning to slide 17. As you know, at QIAGEN, we typically record a significant contribution from new products, and in Q3, we again recorded a record contribution.

In Q3, we introduced a number of new products as well -- a new genotyping sample and assay product, micro RNA, where we, like in epigenetics, have a very strong leadership position, new molecular diagnostic assays including a new version of QIAplex Respiratory, which includes 19 targets, both DNA and RNA and one assay and controls. Early studies by key opinion leaders show stunning performance of this QIAplex Respiratory assay. It can be run on the Luminex system, and it could be adapted to run on the PyroMark platforms as well. This product is in the process of going through clinical validation and trials. Finally, we are also launching -- we also launched a new [veterinary] assay.

Now, turning to slide 18 -- and let's talk to a very exciting new product launch which we are conducting. Our new K-ras test addresses a potential blockbuster diagnostic opportunity. It is a real theranostic product -- the companion diagnostic for personalized medicine for a novel class of highly effective cancer drugs, EGFR inhibitors.

The first drugs of this class were launched for use against colorectal cancer. This new class of drugs holds great promise. The drugs, however, will not work for everyone. If that patient's gene coding for the K-ras oncogene has certain mutations, the drugs will not be effective.

I won't go into the science too deep. The K-ras gene is an important element of the cell growth pathway. If it is mutated, the intended mechanism of action of the EGFR inhibitors will not work.

What makes this important is that the percentage of mutations is quite high. This makes the need for personalized medicine very real, and with the new effective EGFR inhibitor drugs in the market, also very urgent.

Colon cancer alone is a terrible disease, with more than 1 million incidences, of which half are in the developed world. The mortality is about 50%. While the EGFR inhibitors are new, their efficiency was only very recently proven to be greatly increased by K-ras stratification.

There are some providers of tests in the market, mostly laboratory developed tests. There is one real-time PCR test, [C-Mart] assay, from DxS, licensed to Roche. While we at QIAGEN obviously love PCR as a platform, we believe it is not the right method for this assay. A few reasons.

There are many mutations current tests do not cover at all. By the nature of the pyrosequencing approach, we cover all mutations in the regions targeted. We also cover known and unknown mutations. While PCR only looked for known mutations, it is a very, very easy to set up assay. It is very fast. The signal is measured directly, and the assay can be performed within a few hours.

The method can add more genes, and because of its multiplex capability, expand as we learn more about this pathway. The current real-time PCR assays already dropped important mutations because of the lack of multiplexing bandwidth real-time PCR has.

So overall, this is an exciting new assay. I just want to say only so much. We have 120 assays and a very big pipeline. There is also a lot more in the personalized medicine area to come. In August, we launched the [Vacavir] tolerance test, now the K-ras test, and we, as I said, have a quite few more in the pipeline.

Now let me turn to our target markets on the next slide. Although we are not in the business of forecasting market conditions in general -- we can't do that -- we are, however, in a position to look out into a customer to see how the trends are moving in those customer segments. Overall, we see economically very robust markets that we sell into. In general, we have seen strong -- and in some cases, accelerating -- demand in Q3.

Going through our customer markets -- in academia, which represents about 28% of our revenues, we have a stable, positive outlook for 2009 in the United States and in Europe. While the President-elect has made some very promising statements for public research, we are not factoring this in. Overall, we expect little to no short-term reprioritization research budgets. In discussions with political leaders in Europe, we are, however, encouraged by the inclusion of research funding and fiscal stimulus initiatives.

Pharmabiotech, approximately 21% of revenues, has two very different segments. The first is discovery, blue sky research. While this can be hit in economic downturns, we have already seen a lot of this happen here very recently. We are therefore focusing more on the second segment, development. This area is rapidly growing, as molecular tools continue to reduce risks, and therefore, to reduce costs. Also, these programs are typically in the later stage clinical work, and running towards commercialization of drugs. In other words, this area is typically much better protected.

Applied testing, approximately 6% of our sales. It's typically driven by stable government demands -- forensics and veterinary are the key elements here.

And the molecular diagnostics, approximately 45% of our sales, is a rising component of a USD $30 billion market for diagnostics, and a USD $600 billion market for drugs. Our technologies are replacing existing technologies, and therefore do not require new funding. Rather, they actually reduce costs, as we saw with the K-ras tests, which substantially can reduce costs to the healthcare system.

Also, markets such as the HPV market, is only 25% penetrated, and only 5% penetrated -- only 25% penetrated in the United States, and only 5% in the United States. That's a lot of room for penetration, and we are typically not exposed to overall economic trends there.

So overall, we continue to have a positive outlook for the periods to come, and for a look on Q4 and fiscal 2008, I will turn it over to Roland. Roland?

Thank you, Peer. For the fourth quarter and fiscal year, we have listed some parameters on this on the next slide, as guidance and assumptions. We are providing this information primarily because you won't have a comparable quarter, due to the acquisitions made in 2008.

For the fourth quarter, we anticipate revenues to be approximately USD $245 million to USD $250 million, using our guidance rate established on January 31 of this year. Using actual rates, you would expect to have revenue impact of approximately USD $20 million less, but with no impact on operating margin or EPS because of our natural hedge.

We're estimating an adjusted operating margin of approximately 28%, an adjusted EPS of USD $0.21 to USD $0.22, an increase of 34% over the fourth quarter of 2007. Despite the effect of the USD $0.01 dilution attributed to the Biosystem acquisition, we are increasing our full year 2008 adjusted EPS guidance by USD $0.01, to an upward revised range of USD $0.79 to USD $0.80.

On slide 21, I would like to provide you with some more details behind our fourth quarter assumptions. In terms of adjustments to operating income, we expect 123R expenses between USD $2 million and USD $3 million, amortization of acquired IP of approximately USD $16 million to USD $17 million, including Biosystems, integration and acquisition related charges of USD $5 million to USD $6 million, including Biosystems. The tax rate could be between 26% and 30%.

The weighted average number of fully diluted shares outstanding will be around 203 million for the fourth quarter, and 206 million for the fiscal year 2008.

I know many of you are seeking to get some visibility on next year, given the general uncertainty around the currency economic situation. Although I won't be providing 2009 guidance today -- we will do this on February 10, at the time of our year end results -- I am very confident that QIAGEN's position going into 2009 is solid.

We are in an advantaged position. We target attractive customer mixes, which tends to be a first to last scale economic trends. We serve over 400,000 customers, providing over 500 consumables and automated solutions, addressing a wide spectrum of our customer needs, in markets with continued strong growth potential through the fourth quarter, and well into 2009.

With that, I would like to hand back to Peer.

Yes, thanks, Roland. So far, we are very pleased with the results of the third quarter. Sales, margins and EPS exceeded our guidance, and we see growth across the board and see strong growth on top of that, many growth opportunities as well, going forward.

With that, I will hand over to Solveigh.

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

Thank you. (Operator instructions) Your first question is from the line of Quintin Lai with Robert W. Baird.

Hi, good afternoon. Congratulations on your nice quarter.

Hi. Thanks, Quintin.

With respect to HPV, a good quarter of growth, could you kind of talk a little bit about the growth that you're seeing, U.S. versus Europe, and a little bit about what you're seeing in terms of pricing environment? And maybe length of contracts that these new customers are signing up for?

Yes, I think the growth that we're seeing was -- is something that we had been working towards. We made a lot of changes over the course of 2008, to prepare for the next waves of growth. I described some of those during the prepared statements and on the slide.

The growth that we're seeing is very much driven by the Americas. We've seen a lot of success with the programs that we started rolling out there. We're also seeing some very good uptake in Europe -- a lot of things we expect will happen there. And also, in a lot of other areas of the world, and hopefully we can talk about some going forward in a little bit more detail. We're seeing a lot of excitement about the use and adoption of this technology for cervical cancer prevention.

So this has been -- the growth has basically been across the board, very strong growth in the United States, or in the Americas. And we, in terms of pricing, have not seen any changes, actually seen some positive developments there. We have also been able to sign some newer contracts. In general, this business has been a very good one for us in the third quarter, and especially, it's very nice to see that the bases are built very nicely for periods to come.

And then, after my second question, I'll go back into the queue. As you look out to 2009, on the competitive landscape, with companies like Invitrogen and ABI coming together, do you see any dynamics that would affect your business? And then, in that regard, how do you view M&A going forward against some of these larger competitors?

Yes, I think you have -- QIAGEN has certainly passed the critical mass size. As Roland said, we -- if you look at the third quarter, you can assume that we broke through the USD $1 billion mark on a monthly basis. We clearly have a celebration to come up at some point in time when this is -- and also more visible to the outside. But the -- we have a very strong critical mass, and we have an organic growth rate which is one of the highest in the industry.

I always believe that size is not the only benefit in this industry. Our customers are very sophisticated -- they demand the best technologies in the world, and companies that can innovate and differentiate themselves will ultimately be the winners in this market. Now, this is certainly the case for the research markets, but also very much the case for the other markets that we're in, where we're basically changing the world using technologies.

We have a lot of very strong competitors that also have formidable R&D engines and other capabilities, but I think that we are very uniquely positioned, extremely focused. And again, the Company is running at now approximately USD $1 billion in size, focused on one application space, namely, molecular sample and assay technologies, and that was really -- that's really something we're quite proud of, is that we haven't diversified across multiple different product market segments, but are uniquely focused and are spending more than anybody else in research and development in this space.

So, I believe in differentiation, and bringing premium quality to customers, and this is something that, as we've seen in the third quarter, is that's clearly also being recognized by our customer bases.

Thank you, Peer. Appreciate it.

Thanks.

Your next question is from the line of Maykin Ho with Goldman Sachs.

Hi, Peer.

Hey, Maykin.

How are you?

Fine, how are you?

Good. On the K-ras test, can you expand a little bit more in terms of why you think your test is better than some of the other tests? Because certainly there are a number of labs that will be performing these tests, both PCR based and non-PCR based. I know that you talked about multiplexing as one aspect. And what about the pricing of your test?

Okay, good questions. The current standard of laboratory development tests is real-time PCR, PCR-based testing. This has a few issues. First of all, the degree of multiplexing of real-time PCR is limited, so some of the current tests, also the ones that are being commercialized with kits. The bandwidth is limited, meaning that they have to drop certain alleles, and potentially then therefore miss mutations. So they make sacrifices to the clinical sensitivity of the test.

The interesting -- and you know, I think we can be very objective about this, because we also have real-time PCR, and we also could have developed a real-time PCR assay for K-ras. But it became very obvious that pyrosequencing is the better platform for this.

The reason is that -- also, that when you target the various areas on the K-ras gene, you -- where mutations are known to occur, you can both identify known and also unknown mutations, because you're basically reading the DNA and you're not simply matching the -- or, using PCR to find a match that you originally defined the PCR reaction should look for. So that gives you a much higher degree of certainty that you're actually capturing both -- all mutations that could potentially be on this stretch of DNA.

Number three is, the K-ras gene is extremely important, but there are also other mutations within the pathway that are known to have an impact. And if you look at the assay portfolio that we currently have in the RUO, on an RUO basis, you will see the results of (inaudible), and there are a few other assays in the pipeline as well. And it would be easy to add those into the original assay subsequently. You wouldn't have to redesign the assay.

So it's not only the multiplexing feature, but also, then, the subsequent additions to an assay that are much easier using the pyrosequencing approach. And that, in addition to speed and a few other issues, are key elements.

Now, the price of these assays are -- can be anywhere between USD $50 and USD $100, would be an approximate price point for such an assay. The current target price in Europe, I think, lies at around EUR 60.

All right. And what about reimbursement?

Well, as you saw from the recent announcement, the -- there is a very heavy drive now towards reimbursement, because with both of these drugs and all the other EGFR inhibitor drugs, you're typically talking about treatment costs of, now, USD $20,000, USD $30,000, for four-week therapies, and these are very expensive treatments.

So the -- there are recommendations already out there. There are certain requirements out there in certain countries to do K-ras testing up front, and that, we expect, will increase quite a bit now going forward.

So we're still at a very early stage of this development, but if you're [exciting] to be a party to this right now, because there's a lot going on.

So when you talk about the different regions, are you talking about codon 12, 13 and 61? Can you attest to that --

Yes.

And are you planning to have any tests for EGFR mutations as well?

Good question, Maykin. I think I'd like to refer to the Analysts' Day. I did say that we have a very interesting pipeline in this area. If you look at the website, you'll see some RUO assays that indicate that you would be able to do this. There are some user-developed assays already in the market using this platform. But we have to decide which assays we want to put together as ASRs, or individual diagnostic products. And that's something that we're currently in the process of doing.

Right now we decided for K-ras, and there are a couple others that we'll put out short-term, and I think we'll have a good update in the February Analysts' Day.

Yes, and lastly, just a -- any update on your DTC campaign for HPV testing?

Yes. DTC, we're one element -- but a minor element, really -- of all of this reorganization that we did. The major changes to our programs were in the area of the clinical sales channel, training, messaging, segmentation, the way we approach markets. This is the way we also work together with laboratory partners. It's been very, very successful. We got great feedback from our laboratory partners, and we're very proud to be working together with them so successfully.

So the DTC campaigns only ran a few weeks in July, but we're not really a main element of the marketing activities that were more focused on the channel and also messaging.

Okay. Thank you very much.

Thanks.

Your next question is from the line of Dan Leonard with First [Analyst].

Hi, good afternoon.

Hey, Dan.

First question, for Roland. Roland, on the acquisition contribution in the quarter, if I assume you got one month of Digene revenue, that looks like, really, the entire 13%. So is there something -- was Corbett off in the quarter, versus the run rate you had expected?

Yes, as you can see in the numbers, I think you can see two things, and they're both modeling one thing in common. We had great HPV sales, as I said, 20% growth on the HPV sales to molecular diagnostics customers on a like to like basis, so it is purely -- well, one time is organic, and one time it's still in acquisition for a month. But we also had, of course, a strong Corbett number.

Okay. And then my second question, Roland. Your sales and marketing expense, in the third quarter, at least, was down a bit from the second quarter level, even though your sales were much higher. So was there anything one-time in the Q2 number, or is the Q3 number more the sustainable level going forward?

No. I would believe that the results were the way we planned, that fourth quarter in several extents is very comparable to fourth -- the fourth quarter compared to the third quarter. So I think it's a good basis to start off.

Okay. Thank you.

You're welcome.

Your next question is from the line of [Daniel Wyndorf] with Commerce Bank.

Good afternoon, and thank you for taking my question. And maybe, I'd also like to follow on with a question regarding HPV testing. And you mentioned a good uptick in Europe. I was wondering, is this due to some reinvestment decisions, or just a broader knowledge of the tests, so that if people are willing to pay that private out of their pockets? And also, relating to HPV, and you once set out a target for HPV DNA test revenues for the whole year of around USD $240 million, if I remember that correctly. Is this still within reach, or are you even a bit better?

Yes, thanks, Daniel. To the first question, yes, Europe is progressing. It is still at an early stage. Just on my way down to the EUROGEN conference in Nice, which is the big European conference on this topic, and we have some interesting news there as well. It's a market -- again, at its very early stages. I was saying, we were just taking one step at a time, and using marketing 101, and the capabilities that we have to move forward in these markets.

It's still primarily an ASCUS testing market. Code screening has just started now to come up, due to a few things -- vaccines. Interestingly enough, the Nobel Prize has also helped quite a bit in some countries, such as Germany. And we have seen some -- or continue to see some progression on the government front to move more aggressively to either reimburse or actually standardize code testing in the various countries.

So it's just taking -- we're taking it one step at a time, and in terms of the targets that we've set for this business, we're -- we feel very comfortable with that range that we set. And so, as I said, on terms of all guidance targets, we're very well on track for this year.

Okay, and on the QIAsymphony, you mentioned you saw good uptick then in the market. I was wondering firstly whether it could potentially put a number behind that, in terms of numbers placed, and I'm also wondering to what sort of laboratories the QIAsymphony is currently being mainly used? Is it mainly for the areas of molecular diagnostics, or clinical laboratories, big laboratories, big laboratory chains?

Yes, I'd love to give the numbers to you, Daniel. It's still -- let me put this one way, here. If we sold more than 50 instruments right off the bat, within a few months, then this would be a hugely successful launch already in this industry. And I can tell you we're above that.

So this platform is getting great receptions, and we're not having a problem convincing people. It has already started to generate word of mouth demand, and the primary customers are in molecular diagnostics. They like the random access continuous load feature, the viral protocol was just released. That was a very, very important protocol for us to have on the platform. And so it's -- we're moving this forward.

The customer breakdown is far more than 50% molecular diagnostics. There's some applied testings, and there are forensics and veterinary, and some pharma, and even one or two academic accounts. So but -- by far, the majority is molecular diagnostics, and we've placed in almost any -- every large lab and high profile laboratory.

So it's an interesting approach, and for those of you who were on the -- at the ANP conference, there were a number of posters with QIAsymphony data, and even workshops and presentations. So some interesting data has come out there. I'm very excited about this.

Thank you. So I'll go back in the queue.

Thanks, Daniel.

Your next question is from the line of Peter Lawson with Thomas Weisel Partners.

Roland, what was the currency impact you're looking at for Q4, and you're maintaining the organic growth expectations in Q4?

Yes. Just volume-wise, and of course, driven by the new products, I would expect that organic growth rate for the fourth quarter should be quite similar as in the third quarter, based on the same currencies. Right now, what we see, of course, on the currency side, is that the dollar clearly got a significant push upwards, and out to -- not only against the euro, but also against the British pound and other important currencies like (inaudible) and the Australian dollar. So we do, actually, as I said, expect an impact on the top line from approximately somewhere around USD $20 million, using today's 1.27 compared to an average -- just on the euro, for example, 1.151 for the third quarter.

But even more important, and very important to note is, it doesn't impact our operating income margins, nor our EPS adjustment, because of our natural hedge. So we see a -- probably an impact on the top line, but we do not expect any impact on our profitability.

And then, Peer, on the molecular diagnostics side, what were the other growth drivers there in the quarter beyond HPV?

Yes, it's really across the board. Infectious disease, genetic platforms, and reagents. And it's been a great pleasure to see how we're starting to merge, also, the platforms and the assay capabilities that we have that we've accumulated over time. We're selling complete integrated platforms now from bleed to read. And also, a vision into completely integrated solutions with enormous menus on them, and this is something our customers get really excited about.

I think this is a unique position. We are clearly ahead of the market here, and this is also the response our customers are giving us when they look at QIAGEN as a potential partner.

It -- again, it's an integral part, and we see the -- or, it's an integral product offering, and across multiple different types of customers. We have the typical molecular diagnostics laboratory running many different things, including laboratory developed tests. We have a high [tube booking] laboratories, the reference labs, we have the smaller hospitals as well using smaller modular systems. So it's quite a broad customer base, in the meantime.

And then, just briefly on the next steps for HPV. Which are going to require PMAs or 510(k)s, and do you need -- when is the QIAsymphony going through for an FDA approval?

Yes, well, there are various steps to that, and the first step is to release it with certain quality standards, and then follow -- or, do a PMA supplement, which is a rather -- is not a too onerous procedure. It is -- by the way, we're using the same sample processing chemistry we're also using for the next generation HPV assay. So, there's a great degree of validation that we already did around this chemistry, and that will continue to validate going forward.

So there's a lot of synchronicity with what we're doing around the next generation platform development. But a PMA supplement can be done anywhere between six and nine months, if it's only the sample preparation. You know, some people say a platform can be put out on an assay in a few months as well -- I don't believe that. The sample preparation is one module, however, is a minor element of the overall process, and something that we feel very comfortable that we can manage to do within a foreseeable timeframe -- six, nine months or so.

Okay. Thanks for taking my questions.

Thanks.

Your next question is from the line of Bill Quirk from Piper Jaffray.

Thank you. Good afternoon.

Hi.

Peer, quick question. Thank you very much, by the way, for the commentary on the accuracy of pyrosequencing, specifically for K-ras. Just to be clear, though, is the accuracy comment -- is that consistent relative to the reference sequence, or does that accuracy comment include the unknown mutations?

It's basically the reading accuracy. So, the problem with a lot of other sequencing technologies is that you get certain inaccuracies in the reads, and you basically use overlay sequencing to statistically then take away the accuracy. Or to increase the accuracy.

So with the pyrosequencing technology, what makes it so unique is, Roche 454 markets that they can basically get a 99.8% accuracy in 500 base pairs or so, we're just running the 100 base pairs here. We could also go higher -- that's not a problem. But we just need 100 base pairs, and that we're doing it at a very accuracy, so you don't have to do reruns of the same sequence. And it just -- it reduces the complexity, and speeds up the assay quite a bit. And you just -- what you read, it's most likely what was actually in there.

Okay, very good. And then, I guess I'll add my two cents on the HPV side as well. Great rebound this quarter. How should we be thinking about the sustainable growth for this specific product line going forward?

Well, you know, again, for us, HPV is not a product line as a standalone. It's fully integrated with the other products going forward. And I think it's a great question, because what we did was not only throw money at marketing, but we actually took the time over the course of the year to fundamentally change the way the marketing and sales process worked.

And this has been extremely successful. I can tell you, however, if you start going into the market, only a few weeks ago -- or maybe even in some cases, only a few days ago, that certain regions started opting some of these new materials, the new messaging, the new trainings were put in place, and so on and so on.

So I think we have a fundamentally much stronger sales and marketing engine than we had a year ago. We took our time to put this together, and I think it is something that allows us to have quite a strong growth, and also a sustainable growth.

And then, just lastly, you made a comment with respect to an interesting data -- or, an interesting presentation coming up at EUROGEN. Any chance for those of us who aren't going to make it over to Nice, can you give us a little preview of that, there?

Well, I hope all our presentations are interesting, you know?

Fair enough.

We'll do our best. But there's just so much going on. And we do have a number of -- it is a European conference, so typically you see some products come out a little bit earlier than in other parts of the world. And we'll talk about them there selectively, and there's a lot going on. You saw some of the pipeline here, we talked about pipeline in the area of genotyping. We talked also about certain advocacy activities, and how we're helping governments and regions structure screening programs. These are all very, very important things, and we're playing a key role in that.

We significantly stepped up the marketing and other efforts in this space, and that's -- if you look at the agenda, those are the things that QIAGEN is represented as either a panelist or a primary speaker.

Very good. Thank you.

Thanks.

Ladies and gentlemen, we have reached the end of our allotted time for questions and answers. We will now turn the call back to Miss Maehler for any closing comments.

Thank you very much, Julianne. I would like to close this conference call by thanking you all for participating. We hope to welcome you again to our fourth quarter and full year 2008 earnings conference call on Tuesday, February 10, 2009.

If you have any additional questions, please do not hesitate to contact us. Again, thank you very much and have a nice day.

Thank you for participating in today's conference call. You may now disconnect.