Qiagen NV (QGEN) 2010 Q1 法說會逐字稿

Good morning. My name is Kimiko, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the QIAGEN First Quarter 2010 Financial Results Conference Call. (Operator Instructions).

I would now like to turn the conference over to Dr. Solveigh Mahler. Thank you, Dr. Mahler. You may begin your conference.

Thank you very much, Kimiko, and hello, everybody. Welcome to QIAGEN's first quarter 2010 earnings conference call. I'm Solveigh Mahler, 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 first quarter ending March 31, 2010, describing the Company's recent 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 30-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 discussion and the responses to your questions reflect management's view as of today, May 4, 2010.

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 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 provisions.

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. In addition, certain statements contained in this presentation are based on Company assumptions, including but not limited to, revenue allocations based on business segments or customer classes. For the description of such risks and uncertainties, please, refer to the discussions and report that QIAGEN has filed with the US Securities and Exchange Commission.

Additionally, we will be discussing GAAP and non-GAAP measures. A full reconciliation of the non-GAAP measures to GAAP can be found in the press release on our website.

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

Thanks, Solveigh, and welcome to our call. We are very pleased to report the results of our first quarter 2010.

We delivered a strong start into this new year. We also feel confident to continue on this path of strong performance over the next three quarters. As such, we are today reiterating our forecast for the year.

As you saw from the numbers published yesterday, we reported 20% net sales growth, with revenues of $265 million for the first quarter of 2010, thereby attaining the high end of the guidance which we set forth in February. Our organic growth continues to develop very well. Overall, for the first quarter, we recorded approximately 11% organic growth, thus matching the strong organic growth we saw in the first quarter of 2009, which had set the stage for a record year for QIAGEN.

Net income grew an adjusted 22%, and adjusted EPS exceeded our guidance range, at $0.20 for the quarter.

We are particularly pleased with the underlying momentum at QIAGEN. Our innovation initiatives continue to bear fruit, reinforcing that our innovation engine is working well. We expect the pipeline of products we developed in 2009 will contribute to this basis for strong growth and competitive differentiation in 2010 and beyond. We launched 14 new products in the first quarter of this year, with 4% of sales coming from products launched in the trailing 12 months. As we have previously presented, when looking over the last three years, approximately 20% of revenues are coming from newly launched products.

Overall, our organization performed very well in the first quarter across all functions and geographies. Our industry-leading, organic growth and consistent delivery of financial results is a great testament to our teams worldwide. We are incredibly proud of the dedication and passion of our employees, and I would also like to take this opportunity to thank them.

As this intrinsic dedication, passion, and competency of our teams continues to increase in importance, we are also investing more than most companies in attracting and developing the best talent in the industry. We are routinely recognized for these efforts.

I am therefore particularly pleased that, for the second time in a row, we received one of the most renowned recognitions in this area, where we're not only ranked as a top employer but also ranked first in terms of employee development programs. This particular survey was conducted out of Germany but surveyed global companies.

Our worldwide internal development programs, which span the gamut from standard training in the sciences and languages to other skills up to fully accredited MBA programs, are truly unique. As talent is one of the key drivers of our success, it is an important pillar for QIAGEN's future.

In terms of customer classes, we will go into greater detail on this later. But here are the headlines. Solid growth in academia and pharma, with 12% and 13% growth, respectively; very strong growth in applied testing, which is 7% of our sales, with 28% growth; and, finally, strong performance also in molecular diagnostics, with 15% growth. As I mentioned, we will go into more details later.

Now I'd like to hand over the call to Roland for a review of the financials.

Thank you, Peer, and good afternoon, everyone, in Europe and good morning to those joining from the US.

As Peer shared with you, we had a strong start into 2010, similar to 2009. The first quarter reflected very solid financial performance, demonstrating the robustness of our product portfolio, all the while facing also lingering challenges still present in some of the global economies.

Our financial result exceeded our guidance for adjusted EPS and came in at the high end of our guided range for revenues. These results underscore our focus on execution, internally with new product introductions and volume increase in our existing portfolio and also externally for key acquisitions which typically catalyze our internal initiatives.

Based on January 31, 2010, foreign currency exchange rates, we recorded sales of $265 million; thus, at the high end of the guidance range of $255 million to $265 million.

Adjusted, diluted earnings per share for the quarter ended March 31, 2010, increased to $0.20 per share, thereby exceeding our guidance range of $0.18 to $0.19.

Our growth, particularly organic, continues to be industry leading. In addition, we continuously seek out new and exciting technologies through acquisitions.

As we progress now through the second quarter, despite seeing some renewed concerns in certain economies, we remain confident in our leading position and are well on track to meet our full-year guidance in terms of revenues and earnings.

In summary, the first quarter was a strong start to 2010 in terms of financial performance and strategic goals at QIAGEN.

Please bring your attention now to slide 6, as I will delve a little more into the various growth drivers that contributed to the significant 20% top-line growth we reported for the first quarter.

With 11% organic growth, we once again recorded an organic growth rate at the forefront of our peers. Significant drivers of this leading position were a 5% increase in volume and, importantly, a 4% increase in revenues coming from product introductions over the last 12 months, which highlights QIAGEN's track record of innovation.

The 5% growth from acquisition was mainly due to the acquisitions of DxS and SABiosciences. Both of these exciting acquisitions we expect to contribute to maintaining our industry-leading position.

Our product mix in the first quarter was more heavily weighted towards instrument sales, which principally put some pressure on the gross margin but which we were able to offset through efficiencies gained by a number of production site initiatives. I will shortly come back to discussing greater details of particular instrument offerings that came in strong in the first quarter.

As noted in our earnings release, our EBIT margin for the first quarter was 28%, a 100-basis-point increase over the comparable quarter in 2009. This was primarily due to improvements we made in managing operating expenses through various sales and marketing measures, as well as achieving greater leverage on the administration side.

Conversely, we increased R&D expense by 23%, reflecting the priority that our R&D pipeline has within QIAGEN.

In terms of adjusted net income, we showed strong growth of 22% in comparison to the first quarter 2009, from approximately $40 million to $49 million. The contributing factor to the level of our net income is our commitment to balancing growth with prudent cost control. While we have invested in innovation, we have also maintained a strong discipline to improve our efficiencies.

As you can see, during the first quarter, exchange rate fluctuations brought a tailwind of approximately 6% to our top-line revenues. Excluding the favorable impact from foreign currency exchange rates, net sales for the first quarter 2010 would have increased by 14% from the first quarter 2009. The main currency influences to revenue came from the US dollar/euro, US dollar/Australian dollar, and the US dollar/pound sterling fluctuations.

Moving on to our revenue distribution for the first quarter, we continued to show solid growth across our product portfolios.

The growth in consumables grew on a constant-currencies 10% over the prior year. Our consumable portfolio, which represents approximately 86% of our total net sales, contributed 15% growth, including the impact of currencies.

Our instrumentation products contributed approximately 14% of total net sales and continued to show high growth rates of 46%, which translated to 37% at constant exchange rates. Highlights within our instrumentation portfolio were automation platforms such as our EZ1 Advanced XL, the QIAsymphony, the QIAgility, the PyroMark, and the Rotor-Gene Q. Also, while the QIAsymphony system is now not new anymore, per se, the platform continues to evolve, with such introduction as the QIAsymphony AS and RGQ. We believe our instrument portfolio remains optimally positioned to address opportunities emerging from the US stimulus bill.

On a geographic basis, net sales in Europe showed strong growth. Notable are the contributions from products through the ESE and DxS acquisitions.

Particularly, Asia remains a strong driver as well. Even during the global economic slowdown, we significantly expanded our business in the region in both the life science research and molecular diagnostic sectors. In 2009, we cemented our presence with our new Asia headquarters in Shanghai's Biotech Valley.

We are pleased with the growth in the Americas, although Q1 was impacted to some degree, particularly on the east coast, by travel and transportation restrictions brought on by the severe winter storms.

Throughout the quarter, we saw significant demand from the molecular diagnostics and applied testing customer classes across all geographic regions. Growth in academia came in strong, at 12%.

Finally, as we noted in our earnings call in February, we expected some softness to remain in the pharma class, mainly in the discovery arm, although this area is beginning to show signs of picking up in terms of growth.

Moving on to slide 7, I'll spend a minute highlighting the key figures from our cash flow and balance sheet.

For the first quarter in 2010, we have more than doubled our operating cash flow to $30 million in comparison to the first quarter 2009, and also our free cash flow increased significantly, all this whilst still taking into consideration the significant investments we made during the quarter.

Capital expenditures grew to $17 million, mainly due to the site expansion efforts in Europe, in the US, and in Asia.

Looking forward, we expect to grow cash flow in the second quarter as the investments we have made in efficiencies begin to bear fruit.

In comparison to the first quarter 2009 with regard to depreciation and amortization, the figures include components from the DxS and SABiosciences acquisition and smaller components from the acquisition of ESE.

I would also like to address a few metrics relating to our liquidity and capital structure. With a Group liquidity figure of $889 million, we remain in a strong position. We have approximately $50 million in near-term debt obligations. In consideration of this and our strong, continued cash-generation ability, we are very well prepared to fund future growth. Further highlighting our liquidity position is our equity ratio of 61% and the net debt to adjusted EBITDA ratio of 0.2.

Our reported tax rate dropped to 20% in the first quarter 2010, after 24% in the first quarter 2009, reflecting ongoing improvements. One of the drivers behind this is the shift of income from high-tax jurisdictions to low-tax jurisdictions, in line with our regional growth developments.

Our adjusted tax rate increased to 30%, inter alia, due to the effects from the integration of SABiosciences in the US. This impact will be diminished over the year, and we are well on track to reduce our tax burden.

Thanks, Roland. As always, we picked several topics on which we will give an update today. The agenda of these next few minutes can be found on slide 8.

So, turning to slide 9, we wanted to take the opportunity to walk you through some details on our performance in the various customer classes.

Sales of QIAGEN products to customers in molecular diagnostics continued to perform very well. We recorded growth of 15% in this area, which represents about 45% of our sales. Our end markets -- large hospitals, reference labs, and specialized testing centers, among others -- continued to perform solidly. And the segments we sell into also continue to have a robust outlook.

In terms of profiling assays -- primarily, molecular assays for virology, genetics, microbiology, and mycology, as well as platform technologies -- growth continued very well; in particular, in Europe.

In the US, the market for prevention assays saw several developments, including impacts from the severe weather, but prevention assays still continued to grow at rates comparable to Q4 of 2009.

The market for HPV screening in the US is under 40% penetrated, and we are moving very aggressively to drive penetration of HPV testing through standardization on our HPV testing solutions and continue to progress in converting new accounts here.

We are very active in the US, with initiatives to further penetrate the market and, as we announced also in the last few months, have many ongoing programs in Europe and Asia as well.

Importantly, we are on track and are actively preparing the launch of our QIAensemble screening platform with our new suite of HPV assays in Europe for later this year.

In terms of personalized healthcare, our focus was on the integration of the TheraScreen line of product acquired in our acquisition of DxS, as well as the development of new QIAGEN assays for existing targets, such as EGFR, K-RAS, and others. We had significant efforts in the last few months during the integration of DxS to upgrade the DxS assays to leverage all QIAGEN technology portfolio can offer and are pleased to report that we have made significant progress on this front.

In addition, we are seeing great momentum with our personalized healthcare partnering strategy, as it is increasingly clear that we are building the leading, independent, companion diagnostic platform on QIAsymphony. We are seeing a significant inflow of deals and interest as such.

In the first quarter, we announced a very interesting partnership with Pfizer and have signed others, as well, which we have not announced. The portfolio is rapidly expanding, and we are actively driving the expansion of our partnership and menu portfolio.

I would like to take a moment to make clear on this slide where our personalized healthcare franchise contributes revenue. Deals with pharma companies for products such as companion diagnostics contribute revenues in two ways. Firstly, we receive revenues from pharma companies to fund development of the assays, and then, secondly, we receive revenues from end customers, typically laboratories, using the diagnostics.

Moving on, in applied testing, about 7% of our sales, we have seen strong growth as well, reporting 28% growth for the quarter. Here, we are rapidly building menu, and our new platforms and new menu are creating a lot of demand. This is a smaller market, and, while we expect growth will remain high, growth can typically be more volatile.

Pharma came in as expected, with strong development-related sales. However, we are continuing to experience some softness in sales to customers performing discovery. Growth was strong in the pharma class and, particularly, due to new product additions and growth in Asia. Further, SABiosciences products are seeing a strong uptake in this area as well.

In academia, we saw good growth in Q1. Stimulus-related revenue is only a small part of this performance, as we believe only a small fraction of funding has actually been spent so far. In addition, we are seeing a very solid uptake of new technologies in this area. Our growth, also here, is very strong in Asia.

What is noteworthy is that, for all sales channels, we had significant training initiatives in January and February as part of our E2 initiative. E2 stands for efficiency and effectiveness in our sales channel. This year, we are focusing heavily on both broad-based as well as sales rep-specific training. On average, our sales representatives received more than one week of specialized training in this first quarter.

Turning to slide 10, here's an overview of some of the new product additions we launched in Q1 2010 in sample and assay technologies. What I would like to highlight on this slide is the allocation of these products to specific customer classes, seen here on the right side of the slide. This shows nicely that we position products for multiple customer classes and, thereby, obtain a lot of traction for fast value creation after launch.

Some, like new assays for varicella-zoster virus, or VZV, and BK virus, are clearly more clinical products. Others, like new sample technologies, which expand the menu of QIAcube, are targeted to all markets. Of significant note, the menu of automated sample technologies on QIAcube, just here as an example, exceeds 200 protocols today.

Now, turning to slide 11, here I would like to highlight three selective products.

The first product on this list is a very interesting new platform called QIAxtractor. Like the name suggests, this system automates sample processing and nucleic acid extraction. What makes it special is its high flexibility, very low cost point, and its ability to automate a broad portfolio of QIAGEN's plate-based consumables. Basically, it can process any sample for any type of nucleic acid. It is an attractive price point, as I said, and a full range of features have been made for this very popular choice in academia and also molecular diagnostics in emerging countries, including in China.

The second product is quite different. I chose to highlight this as we are often asked how we play in next-gen sequencing. Most of you know that we are the owners of some key patents in next-gen sequencing and are receiving important royalties in this aspect. At the same time, we commercialized one such technology in the diagnostic sequencing platform family, the Pyrosequencing product portfolio. That product portfolio is growing very nicely and has surpassed even our own highest expectations.

Concurrently, this and other technologies are used for whole genome sequencing, where not only targeted genes are sequenced, such as with our pyrosequencers, but significant portions of or, even, whole genomes. And, for such products, we launched the SeqTarget product line, which provides unique advantages in preparing and enriching samples prior to next-gen sequencing.

The uniqueness of this product line comes from three elements that are integrated into this product -- number one, a very novel and powerful, long-range PCR solution; number two, a novel and proprietary, very interesting normalization technology that ensures that DNA quantities are standardized, which is a very critical feature; and, three, a specifically designed purification step for the resulting product. This system has shown that it can provide the highest-quality templates for most of the major next-generation sequencing platforms and can also be automated.

The third product on this list is the QIAsymphony AS system. The QIAsymphony AS integrates into the very successful QIAsymphony SP system, which provides the steps from a primary tube to purified nucleic acid. Now, with the QIAsymphony AS, the user can extend the workflow from the purified nucleic acid to include the assay setup. In other words, he or she simply loads the assays, and the QIAsymphony AS will completely automate all steps to a finished assay now, including the step from a purified nucleic acid to a fully prepared assay; therefore, for both commercial assays and also home brew, depending on the regulatory demand.

This is a truly unique and first to the world in terms of bandwidth -- all in, continuous load and random access. The combination of the QIAsymphony SP and AS modules serve as the basis of a very exciting QIAsymphony RGQ system, which is launching with an unprecedented menu of molecular diagnostic assays in Europe and many countries around the world and which we will talk about in more detail in our next conference call.

Again, these were just 3 highlights of 14 products launched in the first quarter of 2010.

Turning to slide 12, as demonstrated with once again strong growth rates in this first quarter and further expectations of strong growth as well, our Company is preparing its infrastructure to meet these demands. We have world-class operations today; in many cases, fully automated and designed to meet the highest standards of today and also tomorrow. I won't go into the details here, but we wanted to highlight them once, as many of you have seen them recently and saw a lot of the activities that are ongoing during your visits at our sites.

Now, turning to slide 13, we wanted to give some further feedback on the impacts of the healthcare reform in the United States on our operating and financial performance. The major impact comes from the net result of two elements of the reform; number one, a positive element, if I might call it that, from our perspective, is the increase of the insured population; number two, a negative effect from an excise tax on all of our sales of certain products for clinical diagnostic use. Now, the tax will kick in in 2013, and the benefits from the increased insured patient population will materialize in 2014. Therefore, there is a transition year in 2013 with a net negative impact. However, thereafter, we expect a very positive net contribution.

With that, I will turn it over to Roland for an update on guidance.

Thank you, Peer. Moving on to the second quarter 2010 expectations, on slide 14, while, globally, we continued to experience economic uncertainties, QIAGEN is uniquely positioned, and, as such, we have much room for future growth. We are seeing a number of exciting opportunities, ranging from increased market penetration of our existing portfolio to new product introductions.

Let me now turn to our financial expectations for the second quarter and then provide you with some of the assumptions behind that.

For the second quarter, we anticipate revenues to be approximately $265 million to $280 million using our guidance rate established on January 31 of this year. Using actual rates, you would expect to have revenue impact of approximately $5 million less but with no impact on operating margin or EPS because of our natural hedge.

As I'm sure you have noticed our revenue guidance range for the second quarter is larger than we typically give on a quarterly basis. The rationale for the wider range is that we have a number of opportunities driven by external factors, such as pharma partnerships. While the timing of pharma milestone payments does not make a difference on an annual basis, between quarters, the revenue recognition could vary.

Moving on, we expect for the second quarter an adjusted earnings per share to be between $0.21 and $0.22, based on January 31, 2010, exchange rates.

In terms of adjustments to operating income, we expect equity-based compensation expenses between $3 million and $4 million, amortization of acquired IP of approximately $21 million, business integration and restructuring expenses of $5 million to $6 million.

For the second quarter, we believe our adjusted tax rate to be in the range of 27% and 30%.

The weighted average number of fully diluted shares outstanding will be around 242 million for the second quarter 2010.

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

Thanks, Roland.

So, turning to slide 15, we are very pleased with our start into 2010. Growth in revenues and EPS came in strong. We are delivering industry-leading innovation, despite the less-than-ideal economic environment, thanks to the structure of our end markets and our strong position. We expect to continue our track record of strong growth, and we are on track to meet our guidance for the full year.

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

Thank you very much, Peer. We are now looking forward to discussing your questions. I would like to open the Q&A session by handing over to the operator.

(Operator Instructions). Quintin Lai, Robert W. Baird.

Congratulations on a nice start to the year, guys. Looking at your pharma performance, it's one of the more -- probably the most impressive performance of the tools companies in the quarter. So, Peer, could you go into a little bit more detail about -- why do you think that you're growing faster than what pharma demand is for other tools companies? And is it just converting more of their home brew over to your instruments, or are you opening up new market opportunities?

It's a very interesting area, as you highlight. It seems like we simply are addressing a sweet spot in their pharma development activities. As the development budgets typically are 75% of the overall pharma R&D spend, this was an area that was previously less open to molecular testing technologies. But, over the last, I'd say, two to three years, it started to open up quite aggressively. And we are uniquely positioned with molecular testing tools that are not only capable of addressing the needs in discovery, but they also allow a seamless migration of these solutions into the development and maybe even clinical use downstream. That seamless continuum is of a significant value to our pharma customers, and, therefore, we're not only getting traction in the development arm but also in discovery.

And then, just as a quick follow-up and I'll jump back into the queue, Roland, could you remind us again kind of what the impact of FX is on your Company, given your balanced natural hedge of US/European operations?

Yes. Thanks. Clearly, an important question. And, first and foremost, it's important to know that, on the profitability side, because of our natural hedge, especially between US dollar and euro, we really don't expect material impacts in terms of margins and in terms of EPS for the year, despite the effect on the dollar and euro that we're seeing right now.

Of course, we have a certain impact on the revenue line, as I also laid out here for the second quarter in terms of actual rate compared to guidance rate. Nevertheless, it shouldn't have any meaningful impact to profitability. And I would expect this to be the case for the rest of the year as well.

Thank you.

Doug Schenkel, Cowen and Company.

So, your debt to EBITDA ratio is now down close to 0 -- 0.2. Would you comment on the possibility that you might more aggressively deploy your balance sheet? Is there -- I guess what I'm getting at -- is there still a strong preference for acquisitions, or would there be any thought to maybe trying to clean up the debt or share buyback or other uses of cash?

Sure. I'll maybe add a few comments. And, Roland, if you have something to add after that --

I think that the reason why we are in a fortunate position with such a strong balance sheet is that we expect a very dynamic time of strategic opportunity in front of us. This does not mean that -- we always said that we're not looking for mega-deals or so or massive deployments now of these funds that we have available, but we just think it's extremely important in this time to have a very significant degree of financial flexibility.

At the same time, we have -- a second reason was that, in times of financial market uncertainty, we didn't want to have too much risk from certain repayments coming up, starting 2011 on our debt positions.

And, today, we are in an extremely comfortable position to choose now the optimal usage of capital going forward. I think we have always been clear that we expect an underlying trend of small- or medium-sized acquisitions similar to what we saw in 2009. These types of opportunities might actually increase going forward, depending on the development of the financial markets.

Not too much to add. I think probably the one thing, I think, which, of course, is key, as Peer mentioned, is clearly flexibility. And we do have, as you all know, in 2011, a first convert coming up. So we have a lot of flexibility in financing for us, where we clearly secured attractive financing terms for QIAGEN. And, right now, we also see still a very attractive market for, especially, smaller and mid-sized companies where we can do accretive deals for short-term acquisitions. So, again, we are quite busy right now.

Great, and if I could just ask a follow-up, you indicated that the discovery part of the pharma end market remains soft. You also said you hadn't seen a whole lot in the way of stimulus spending in the US. But it sounds like you are fairly enthusiastic about the outlook, at least, relative to where we've been the last few quarters on both sides. Would you be able to just provide a little bit more detail on what you're seeing that makes you feel a little bit better about discovery and the pace of US stimulus spending in the academic market?

Thank you for taking the questions.

I'm not sure if I'd use the word enthusiastic. I would say cautiously optimistic is -- or, in some regions, actually, optimistic is probably the better word. What we're definitely seeing is that the focus on research on the short term but, also, over the longer term is increasing. And we're also seeing that certain restrictions on the state-funding side have partially been compensated. And we're now looking at easier comparables to prior quarters; i.e., some of the cutbacks that happened in the university systems have been dealt with now. The base is a little bit easier now to take forward and to see growth from. So that is on the academic side.

Underlying -- the expectations for continued growth of research funding is in most geographies quite good. In the US, we've heard statements that only 10% of stimulus funding has been spent in the first quarter. It might be a little bit more; it might be a little bit less. But that -- you'll see pretty similar numbers come from most sources.

In terms of the pharma discovery side, the reason why we're still a little bit cautious there is that there have been changes announced or rumored changes in this area, and I would say that the overall long-term structures in some of the pharma discovery areas have not yet settled in. And, therefore, we are more betting on the development side, which is really an ongoing set of trains versus discovery, which is something that is a little bit more flexible or more used for short-term expansion or, in this case, potentially restriction.

So our expectations for pharma discovery remain soft. Our expectations for academia are a little bit better than pharma discovery. And our expectations for pharma development are strong.

Daniel Wendorff, Commerzbank.

Good afternoon, everybody, and thanks for taking my questions. Two I actually have. One is regarding your instrumentation performance in Q1. I would be interested in getting a figure there for organic revenue growth. Was it purely organic? And, also, which instruments contributed most to that quite impressive performance?

Secondly, I was wondering whether you can give me an update on the overall prevention market in this area. In particular, how do you see the competitive landscape in the US? And what is happening in Europe currently with regards to a broader reimbursement? Thank you very much.

Roland, do you want to take the first question?

Yes, let me start with the first one. We clearly had a great start with instrumentation and a 37% growth rate in the first quarter. It's clearly a perfect start into the year. Main drivers -- by the way, all organically -- main drivers is clearly the EZ1 Advanced XL and the QIAsymphony. But, also, instruments like the PyroMark and the Rotor-Gene Q did very well. So we are very pleased with the performance of our instrumentation business because, as you know, each instrument placed leads into future consumable growth. And, now, we have -- really, here, we are now in the third year of an outstanding instrumentation performance. So all the emphasis we put into instrument development over the last years is now really reflected out in our revenue growth. We are quite proud here on our performance.

That's quite a high number in the current environment. I was just wondering how that can be actually.

As Peer mentioned before, we really haven't seen too much stimulus in the US so far. We have seen a little bit in the first quarter on the instrumentation side, but I wouldn't call it significant. In some other European countries, we have seen a little bit more. But, again, I think it has to do with the strength of our portfolio with innovation level of our instrumentation -- they're really on a different level. And that's the same what we do expect going forward with the QIAensemble and QIAsymphony RGQ. So I think it's really about being an integrated instrumentation and consumable company is a significant advantage in these days.

I don't know if I may add to that. There were definitely highlights. So we're seeing a very good uptake of the QIAsymphony systems. We're seeing a very good uptake of the newly added detection technologies -- Pyrosequencing and the Rotor-Gene Q system.

And the QIAsymphony SP system and now also the AS that was added, they are so interesting because, with each of these placements, we have the ability to modularly add to that a piece of real estate that we have -- that a customer has allowed us to have within the laboratories, either diagnostics or applied testing with pharma research. And we can then add the subsequent modules and a broader test menu onto that platform as well. And so that strategy is working very nicely, and that's why these placements are so important for us. You'll see going forward there's going to be a big emphasis on menu for many of these platforms over 2010 and into '11.

If I may address the second part of the question -- the second question you asked on prevention technologies, prevention is the high-throughput screening area -- screening of asymptomatic patients on routine intervals. HPV, CT/GC, and other assays are the prime ones there. Very different for each region. The menu is also very different.

In the States, it's primarily HPV, and, in Europe, it's a broader portfolio and also in Asia. And each region is at a different level. In the States, we have an existing infrastructure reimbursement and guidelines. In Europe, we only have that regionally and, in some cases, soon, nationally. And, in Asia, it's also regionally. So the market development efforts are very different.

In Europe, a lot of competition. We have a majority market position since many years that we're holding and actually building. And, in Asia, the same thing. We actually think we're significantly adding market share in Asia. In the States, there are only a few competitors, of which there's only one FDA-approved competitor in the market in addition to us.

And you know, over the last 12 months, ever since we had competition, we signed hundreds of agreements with laboratories, literally. And each of these laboratories goes through very intense evaluation of options. And many of the assays that are FDA approved are also -- have been on the market previously in different forms, as in the case of one product that has subsequently received FDA approval. And the hundreds of reviews that our laboratory customers have gone through that led to them choosing the QIAGEN product, I think, are an extremely strong testament to the clinical superiority of our product; also in terms of the availability of a very interesting solution package; also in terms of automation.

You'll see on our list, for instance, one of the systems that we launched in the first quarter was the QIAsymphony AXpH, which completely automates the up-front processing of liquid cytology samples for the HPV test. We're launching that in certain regulated versions in the United States and also have now the completely automated decapping and also the completely automated high-throughput, sample-processing versions coming out all over the next 12 to 18 months.

So it's a phenomenal package that our customers see. And they just see clinical performance superiority, automation platform superiority. And we're actually delivering. And I think that has been extremely important for our customers -- that they've seen -- we've taken a product that clearly had its issue in product performance, and QIAGEN delivered on solving the needs of our customers and is coming out with this product as we speak and going forward with a lot more to come.

Okay. Thank you.

Peter Lawson, Thomas Weisel.

I was just wondering if you could talk about patient volumes in North America. Did you see any weakness? And can you make similar comments about Europe and Asia, as well, please?

Sure. You heard a lot of statements from laboratories that the first quarter was a weaker quarter for them in terms of impact, primarily, from weather, which was, obviously, very severe and caused a lot of people to postpone their patient visits. And this is clearly something that also impacted all suppliers into these large laboratories. I think one of the large laboratories said it was about 1.5% impact; the other laboratory about 1%. So, clearly, these are all issues that all suppliers faced, including also ourselves.

We did not see these impacts, obviously, in Europe. We all know we had this volcano outbreak. But only very few patients take a plane to go to their doctor, so, luckily, patient visits were less impacted by that event.

So, going forward, I think seasonal -- weather impacts will always be an issue. But, as we see here from the laboratory customers that reported on detail on this, it's of smaller importance if you consider that you have a market that you're actually expanding into and converting.

Thank you. And then, just on Asia, I was wondering if you could comment upon the growth you're seeing there -- the kind of current exposure you've got, product mix, and market share and the drivers you see in that market.

Yes, Asia is a really different market. It depends on the country. It's obviously a big region. So, for us, Asia is Asia-Pacific, which excludes Japan. Japan is a known region at QIAGEN. So I'll just look at ex-Japan here.

It is a market in which the customer is typically a small hospital or a regional hospital. And we supply the full array of products into that market, everything from blood screening through to typical profiling assays and HPV. We significantly strengthened our prevention assay portfolio, which includes Chlamydia and HPV and a few others. We strengthened through the addition of a sales -- expansion of a sales channel in 2009. And this is showing an effect. We also added clinical sales activities in some of the Asian regions and are building the market and are converting it very actively.

So it's a very different market to the very, let's say -- it's probably more similar to the European markets than it is in the United States, which is typically dominated by large reference laboratories and large hospitals.

[Did that] grow during the quarter?

In Asia?

Yes.

Roland, could you give the exact number? (Inaudible) stable here.

It was close to -- somewhere between 35% and 40%.

And that's organic?

In Asia, yes. Sure.

Okay. Thank you so much. Thanks for taking my questions.

Dan Leonard, First Analysis.

My first question is probably for Roland. Roland, would you expect gross margin to decline year over year in 2010?

Right now, I think we feel quite comfortable with our 72% gross margin. And, as I said during the call, it's clearly driven by our strong instrumentation performance. And, as you also know, I'm not too concerned on that number because of our instrumentation business is conducted out of Switzerland, so it comes with a significantly lower tax burden. So it really doesn't make too much of a difference for me on the EPS side. So, having in mind that instrument placement at the end, of course, are great news for QIAGEN, and, of course, it's instrumentation revenues. I see some potential to improve over the year, but, right now, I'm not too unhappy with the 72% gross margin as a starter for the year.

Okay. Thank you. And then my follow-up. Could you remind me? Have the US clinical trials for your next-gen HPV product and your AXpH QIAsymphony product -- have those trials begun yet?

We have lined everything up for this to happen. Yes. And the sampling is starting any day now.

Thank you.

Cornelia Thomas, WestLB.

I've actually only got one question left. All the other ones have been asked. And you may have already discussed this, but my line went dead for five minutes during the call. So, apologies if you've already discussed this.

But could you just outline for me again why sales of applied sciences were so strong in Q1 please?

Sure. The applied testing sector was quite strong, primarily because we had significant initiatives in 2009 to increase our test menu portfolio. And the addition of the test menus has generated sales from these testing products themselves but, at the same time, also catalyzed growth in the platform technology and instrumentation areas.

In general, this is a rather small market. So deals of a certain size can impact the quarterly growth rate. And, therefore, we expect this growth number to be one time a little bit higher and one time a little bit lower. We had a little bit of lower growth in the fourth quarter in this area and now a little bit -- quite a bit higher growth in this other area. We've said, over the long term, this is easily a 15% to 20% grower, and it will fluctuate quite wildly. But it will fluctuate around that growth rate and, on an annual basis, I think, show a very robust performance in the 15% to 20% growth rate.

Okay. Can you just outline for me what exactly you mean by test menu portfolio?

Well, we added test menus in the veterinary space; so, veterinary tests that are similar to human diagnostic tests, but the patient is different, if I may say so. And then, also, we added significant initiatives in the food and also forensics space. And, going forward, this is something that we will be happy to elucidate. There are a lot of activities in this area to increase the platforms to include everything from samples through to assays and final results.

Okay. Thank you very much.

Peter Welford, Jefferies.

Thanks for taking the question. I have two; first, on the molecular diagnostics. We saw sort of below 20% growth in the fourth quarter and again, I guess, in the first quarter now. I guess, can you just talk about -- I mean, clearly, you've been the HPV market leader for a long time now. I mean, clearly, that business is gradually beginning to mature. I guess, could you just sort of talk about what you're seeing in terms of the growth in the various segments of that and how they're maturing over time and, also, the need, I guess, to develop new diagnostics to put through that pipeline, given the sort of maturing pipeline of tests that you have?

And then, secondly, a bit of a boring question, I guess, for Roland on the amortization. It looks as though the tax on the amortization charge you took -- the effective tax rate was almost 50% in the first quarter. Should we expect that sort of tax adjustment of the amortization charge to continue in the remaining quarters of this year, or was that a bit of an anomaly in the first quarter? Thank you.

Why don't I start with the boring question? Why I'm always getting the boring questions? But they excite me, actually, a lot because it's my job.

Now, Peter, as I said, it's clearly kind of an abnormal impact in the first quarter. It has to do with integration of SABiosciences in the US, as we do have a US holding corporation. So, during the year, it will quite significantly go down to the more normal level as we have seen last year, sort of one-time impact in the first quarter.

And, Peter, too, to the first question, if you look at the historic development of the Company, our strategy was always to build a beachhead with a critical test menu, build a platform, and then, as a third step, expand the menu on these platforms.

So, in the prevention areas, remember we acquired the HPV portfolio. We are now building the QIAensemble. It's just about to launch now in Europe and a fantastic platform. We'll be able to talk about this more probably in the third-quarter call. And then expand the menu on that system. And we gave some glimpses how we want to do that and what is actually in the pipeline already.

In the profiling area, which is a little bit smaller than the prevention area currently, we have a critical test menu. We built the new platform. And we already kind of like talked about now that we are going to launch an extremely powerful platform in Europe, with select tests also coming to the United States on that platform. And we're launching that in a few weeks, basically.

And, in the personalized healthcare area, we acquired the critical test portfolio. It's being submitted to the FDA later this year. We have the platform ready, and we have a huge portfolio of tests in the pipeline behind that.

So where we are today is we've acquired the critical test menu in all three of these strategic areas in molecular diagnostics. We are in the final stages of building the instrument; in some cases, even finished. And, in the next phase, we can then roll them out with an expanded menu and penetrate the market even further.

So, going forward, I continue to see that we will see significantly better-than-average molecular diagnostic overall market growth for many years to come. And that market growth is, depending on the study you look at, anywhere between 10% and 15%; hence, our estimates of a premium on that for our internal expectations.

That's great. Thank you.

Christian Peter.

Just one question regarding your sales contribution from instruments against a background that has been very strong recently and should maybe increase further due to the launch of other instruments. Could you give us an idea where you -- do you expect the sales contribution from instruments to grow further in the next year? Or should we expect some sort of plateau somewhere? Could you give us an idea of where that could be and, also, in terms of timing?

Well, we -- clearly this would depend on the uptake over the next few years. And, if you look at the platforms as we've outlined them, for instance, in our analyst day and talked about them briefly today, you'll see that the -- let's say that the profiling and personalized healthcare portfolio will see platforms already available starting in 2010 and 2011 with the FDA-approved menu in the States. And that will be the time where we'll aggressively drive placements. The system is an open source -- kind of like open system. So we will probably also see certain placements before that even in the States.

The screening platforms are launching in Europe this year and, in the States, in 2012. We're fully on track for that launch date. So you'll probably -- but that's a smaller market for prevention instruments because these are typically higher-throughput, more centralized testing laboratories.

But I think you'll probably see the peak in the instrument growth through the year 2013 or so and then going into a more long-term growth rate. That would be our hope.

Okay. And, just in terms of gross margins for these instruments, are they comparable to the instruments you currently sell, or do we have to expect a difference there?

Yes; they're comparable.

Okay. Thanks a lot.

And this concludes our question and answer session. I would like to turn the call over to Dr. Mahler.

Thank you very much, Kimiko. With this, I would like to close the conference call by thanking you all for participating. We hope to welcome you again to our second quarter earnings conference call on Tuesday, August 9, 2010. If you have any additional questions, please do not hesitate to contact us. Again, thank you very much, and have a nice day. Bye.

This concludes today's teleconference. You may now disconnect.