Qiagen NV (QGEN) 2010 Q2 法說會逐字稿

Good morning. My name is Samarian, and I will be your conference operator today. At this time, I would like to welcome everyone to the QIAGEN second quarter 2010 financial results conference call. (Operator instructions)

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

Yes, thank you very much, Samarian, and hello, everybody. Welcome to QIAGEN's second 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 second quarter ending June 30, 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, August 10, 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. For the description of such risks and uncertainties, please refer to the discussions and reports 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. Peer? Thank you.

Yes, thanks, Solveigh. Welcome to our call. We are very pleased to report the results of our second quarter 2010. We continued our strong performance of the first quarter into the second, and today, reiterate our guidance, which calls for a record year for QIAGEN again in 2010.

As you saw from the numbers announced yesterday, we reported $263 million in net sales, or $271 million at guidance rates, with an adjusted 10% organic growth. We met our expectations, which we had communicated in May during our last call, and came in in line on revenues, and at the high end of those targets for EPS.

Our organic growth continues to come in very well, particularly considering the high base in the second quarter of 2009, which included the extraordinary revenues from the swine flu pandemic related products. Thus, our underlying core organic growth trajectory remains on track. Net income reached the high end of our expectations, with $0.22 for the quarter.

We are particularly pleased with the underlying momentum of QIAGEN. Our innovation engine, once again, had a strong quarter, and we expect that the pipeline for 2010 will contribute to our great basis for strong growth and competitive differentiation.

We launched 19 new products -- 5% of sales came from products launched in the trailing 12 months. As shown previously, this number goes to about 20% for products launched in the prior three years.

In terms of customer classes, here are the headlines. Solid growth in academia and pharma, with 7% and 11% respectively. Good growth in applied testing, which represents about 7% of our sales, which had 15% growth, and a very solid development as well in diagnostics, with 12% growth.

We were very active in the second quarter with a number of exciting initiatives, including several new companion diagnostic agreements, expansion of our portfolio in food testing and forensics, introduction of molecular monitoring tools for drug development, as well as the launch of the SABiosciences portfolio.

I will address them later in more detail, but first, I would like to hand over to Roland for a review of the financials.

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

The second quarter reflected very solid financial performance. We continued to have a robust product portfolio that is performing very well in all our core markets. Our results underscore our focus and execution. Geographically, these results reflected strong performance in the European markets with a 26% growth, continued growth in the Americas with 10% growth, and double digit growth in the emerging markets, with Asia overall remaining on a steady path with 19% growth. This growth was on a constant exchange basis, and without H1N1 related products. In fact, the increased employee numbers in Asia by 140 people, primarily in sales, was within the last three months, indicative of how we are investing in this region.

Recapping the key numbers. Based on January 31, 2010 currency exchange rates, we had sales of $271 million, thus in line with our expectations of $265 million to $280 million.

Adjusted diluted earnings per share for the quarter ended June 30, 2010 came in at $0.22 per share, thereby at the high end of our expectations of $0.21 to $0.22 per share.

As some of our peers have also highlighted, there is also some lingering concerns in certain economies, notably in the US. Physicians' visits are down as the US economy recovery may be at a slower pace than anticipated.

Europe austerity measures have also been highlighted, but this market is so diversified that we really have not seen any material slowdown. In fact, overall, Europe showed quite strong growth for us.

In brief, therefore, the second quarter was a solid one in terms of financial performance and specific goals, and remain confident in our leading position, and we believe we are well on track to meet our full year guidance in terms of revenues and earnings.

On slide six, I will delve a little more into our growth drivers that contributed to our top line growth for the second quarter.

When you include the swine flu effect, total revenues grew 9%. Included in this composition is a 1.2% and 1.4% headwind respectively from currency and the Olerup divestment. We had 6.7% growth from acquisitions, due to DxS and SABiosciences. Both of these exciting acquisitions, we expect to contribute to maintaining our industry-leading position.

This leaves approximately 5.3% organic growth, including flu products. I will go into a bit more detail on this shortly.

Just a word to the currency impact during the second quarter. Exchange rate fluctuations brought a headwind of approximately $3.2 million to our top line revenues against the prior year, and $8.1 million against our guidance rate. The main currency influence to revenue came from the US dollar/euro fluctuation.

Importantly, in reference to the US dollar/euro fluctuations, our natural hedge of nearly equivalent revenues and constant each currency prevents this movement from having a large impact on operating income and net income.

As we communicated last year, the second quarter of 2009 was a particularly strong quarter for H1N1 flu related testing. In order to more clearly demonstrate our underlying core organic growth, we removed all H1N1 flu assays related revenue from the comparison in both quarters, as well as revenues associated with several prep kits which can be used for flu testing.

With these adjustments, our organic growth was 10%. Significant drivers of this position were a 4% increase in volume, and importantly, a 5% increase in revenue from new product introductions over the past 12 months, which highlights QIAGEN's track record of innovation.

Our product mix in the second quarter was more heavily weighted towards instrument sales, including Rotor-Gene Q, [Pyro] instruments, QIAxcel and QIAcube. This strong instrument growth mainly put some pressure on the gross margin, but we were able to offset this through efficiency gains which I will address later on the call.

Moving on to our revenue distribution for the second quarter, we continue to show solid growth across all product portfolios. Our consumers' portfolio, which represents approximately 85% of total net sales, contributed 8% growth, including the impact of currencies, and 10% at constant exchange rates.

Our instrumentation products contributed approximately 14% of total net sales, and showed growth of 9%, which translated to 10% at constant exchange rates.

Around this time of the year, we typically see some seasonal impacts in our global instrumentation growth, and this period was no different. In terms of the US market, we believe our instrument portfolio remains optimally positioned, and we continue to see benefits and expect further opportunities to emerge from the US stimulus bill.

A contributing factor to the level of our net income is our commitment to balancing growth with prudent cost control. For the second quarter, adjusted net income grew by 9% in comparison to the second quarter 2009, from approximately $48 million to $53 million. Our reported net income, which grew by 25%, benefited from a one-time tax effect, which I will come back in a minute.

Moving on to slide eight, I will spend a minute highlighting the key figures from our cash flow and balance sheet. Our cash flow and balance sheet structure allows us to pursue growth when investment plans result depending on unstable credit markets and with limited exposures to interest rate developments.

Free cash flow on a year to date basis is slightly below that of the high level of the previous year, which is reflective of our investment activities. Also, I would like to highlight the development of our inventory, which despite regional expansion and growth of the business, is constant in absolute dollars, and has not burdened our cash flow.

Sectors that have reduced our operating cash flow stem mainly from our activities where we leverage our own strong cash position for (inaudible) higher margins by accelerating payments to suppliers.

Moving on to slide nine, where I would like to review some key initiatives which are a testament to our commitment to operational excellence.

First, QIAGEN is committed to invest into the future. Building expansion to accommodate our growth is one such area of investment. For example, we are increasing both the US headquarters in Maryland, as well as our European headquarters in Germany.

Year to date, we have invested approximately $15 million in CapEx related to building expansion, and expect to invest an additional $25 million in the second half of 2010.

Tax optimization has been another focus point for us. As you can see in the graph in the upper left corner, we are continuously being able to reduce our tax expense, and thus, minimize our effective tax rate, reflecting ongoing improvements.

In the second quarter, on top of the permanent improvement, we had a one-time tax benefit from internal restructuring, which contributed to our reported 25% net income growth. For a fair comparison, we of course considered this benefit in our adjusted figures.

Moving on from this tax benefit, we were able to realize some of our long-term tax optimization efforts. The expected tax benefits from our tax planning, particularly in the area of financing and integration of acquisitions, will lead to a tax rate of 23% to 25% for the second part of 2010, which compares to a 27% rate for the six months in 2010.

So, for the full year, we expect a range of 24% to 26%, which means within our expectations for the year 2010.

It is too early for guidance on the 2011 effective tax rate, as governments are revising tax rates quickly these days. But it should be close to the aforementioned range for 2010.

Next, we have implemented better controls in our inventory management, specifically with respect to the relationship with our vendors and suppliers by minimizing excess inventory on hand. Also, we implemented centralized inventory management across all geographies and improvements from these initiatives are ongoing.

At QIAGEN, we are always looking at how to become more agile and responsive to our customer needs. Therefore, in order to reach our high performance standards we asked of our teams, operational efficiency becomes tantamount to our organization. With the right combination of people, process and technology, we have been able to enhance the productivity in various of our business operations, by driving down the costs of (inaudible) operations to a desired level.

The end result is that we are better placed now to drive resources previously needed to manage operational tasks, and redirect them to new high value initiatives that bring additional capabilities to the organization.

For example, in terms of procurement, we are centralizing our global procurement across business functions, and globally aligning our purchasing processes. This allows us to realize economy of scales, and reduce transaction costs, effectively bundling purchasing power. This holds true for IT, R&D and manufacturing, just to name a few. Our efforts in these areas will contribute in the realm of a seven-digit saving in the second half of 2010.

Another example is third party logistics. We are outsourcing warehousing as well as pick, pack and ship distribution logistics to a global partner. The scale effect provides a port for future growth, and with a single point of contact, we have better information for inventory management and track and trace that ultimately benefits the customer and leads to a higher customer satisfaction.

The effect of these activities will be most apparent in 2011, resulting in a seven-digit saving here as well.

Mid-term, this cumulative effect will more than compensate for the dilution from the acquisitions of DxS and ifp, which are currently seeing operating margins of 28%.

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

Yes, thanks, Roland. As always, we picked several -- this time, four topics to give an update. The agenda of these is on slide 10.

So turning to slide 11, we wanted to take the opportunity to walk you through some of the details on our performance in the various customer classes in more detail.

Sales of QIAGEN products to customers in molecular diagnostics continued to perform very well. We recorded growth of 12% in this area, which represents about 47% of our sales.

Our end markets, large hospitals, reference labs, specialized testing centers, continued to perform solidly, and the segments that we sell into also have a robust outlook.

Profiling assays, primarily molecular assays for virology, genetics, microbiology and mycology, as well as platform technologies, continued very well, in particular, in Europe.

And the market for prevention assays, we are continuing to see increased adoption of our tests, primarily HPV screening and genotyping solutions. The market for HPV screening is underpenetrated, with less than 40% penetration, and we are moving very aggressively here. We are very active in the US, with initiatives to further penetrate the market. This is despite the extension in doctor visit intervals, due to the current economic uncertainty, which recently has received a lot of attention in the press.

In addition to our conversion efforts in the United States, which has brought our conversion rate from 20% to nearly 40% in the last few years, we have many ongoing programs in Europe and Asia as well. We are also, as expected, actively preparing the planned launch of our QIAensemble screening platform with our new suite of HPV assays. I will address the US market and QIAensemble launch activities in more detail in a minute.

In terms of personalized healthcare, our focus is now on the launch over the next few weeks of the TheraScreen line of products acquired in our acquisition of DxS. This line has been merged into the broad range of QIAGEN assays for personalized healthcare for existing targets such as EGFR, K-RAS, PI-3K, as well as several new targets under the QIAGEN brand.

These assays are designed for use with our platforms, primarily QIAsymphony, RGQ, and Pyrosequencing, and for our distribution through our sales channels.

We had significant efforts in the last few months during the integration of DxS to upgrade the assays to incorporate the full potential which QIAGEN's technology portfolio can offer, and are pleased to report that we were successful in upgrading the products and transferring them to our highest quality manufacturing infrastructure.

In addition, we continued to expand the number and depth of our partnerships, having added several new partnership programs and new pharmaceutical partnerships in the past quarter.

What is turning out to be a stronger than expected asset is the great bioinformatics and content engine that came to us through the acquisition of SABiosciences last year. The unrivaled ability to mine databases, identify quality and strength of biomarker discoveries and validations, and ultimately, have the capability to put content into sample and assay technology solutions that run on our platforms is truly unique, and attracting significant interest.

We are rolling out the PCR array panels through the QIAGEN sales channels currently, and expect some significant synergies here.

In applied testing, which represents about 7% of sales, we saw strong growth as well, with 15%. We are rapidly building menu. In particular, we recently announced that we partnered with the food testing lab ifp, and gained 70 food testing assays.

In addition, in light of the new European Network of Forensic Science Institutes, so-called ENFSI standards in forensics, we are using this opportunity to enter this market as one of the first players with new assays that comply with these ENFSI standards.

Standards are key, especially changes in standards, as police databases throughout regions adopt them quickly to allow comparisons of crime scene DNA evidence across databases. Our new platforms and new menu are creating a lot of demand as well.

Applied testing, overall, is a smaller market, as I said. While we expect growth to remain high, growth is also typically a little bit more volatile.

Pharma came in slightly better than expected, with 11% growth, driven by strong development related sales through product additions. Particularly SABiosciences products had a significant uptake. Geographically, our Asian markets provided very solid contributions to this growth rate. Sales remained soft, however, into customers performing discovery.

In academia, we saw solid good growth in the second quarter with 7%. The US stimulus money is only a smaller part of this, as we believe that only a small fraction of funding has actually been spent so far.

In addition, we are seeing very solid results with new technologies in this area. Again here, growth is very evident in Asia.

Now, turning to slide 12, here's some words on the prevention or screening market in the United States.

A lot has been said about the issue of reduced doctor visits. Looking at the IMS data on the top left chart, you can see that overall visits are indeed down year-over-year. In particular, visits in which elective procedures such as routine screening are performed are significantly more down -- by some accounts, 10%. Ob-gyn visits typically fall into this group.

The delays are evidence of a change in behavior in light of the recession and economic uncertainty. As most of you know, there is a $10 to $20 co-pay for doctor visits, which contributes the delays and visits as well. However, since this effect is already incorporated in the baseline, it should be of a less significant impact going forward, and should also diminish as the economy is improving.

A second impact that is being referenced a lot in the press, as seen on the bottom of this slide, is loss of insurance as the unemployed reach the end of their COBRA coverage. While this is an issue for some routine tests, it is less so for our markets, as even a 5% increase in unemployment would only lead to a 2% impact on the market, assuming a 40% penetration and the aforementioned 5% increase in the unemployment.

The more important information is shown on the top right hand side. The curves are not shown to scale, but are done here to highlight the effect. As the recession set in and unemployment increased, we saw delays in doctor visits, but at the same time, continued to convert the market to adopt co-screening. We are approaching 40% conversion today, so about four out of ten women routinely receive the recommended screening, which in the US is Pap plus HPV for women over 30.

As the market is substantial, and as we are successfully continuing to convert the market, we see significant growth going forward in our prevention assay portfolio.

Turning to the next slide, and staying on the HPV theme, while there has been talk about competition, it is clear that we continue to have the performance leading assay on the market today, and have the lead in performance for the assays that are due to come to the market even over the next few years. While none of the competitive assays are anywhere close to being validated to the extent of our assay, our performance metrics stand out as being clearly superior.

While there is a lot of information on this slide, we wanted to take the opportunity to clear the air in terms of areas where the QIAGEN HPV offering really establishes itself as the undisputed market leader. Rather than speak to each area, I would just like to take a few moments to summarize the competitive landscape.

Starting on the left side, on the bottom, a recently published peer review paper in the current issue of the American Journal of Clinical Pathology highlighted the excessive positivity of the Cervista assay among women who are Pap-normal. As per Cervista's own package insert, the number of women with negative Paps who are HPV positive with a Cervista assay can be as high as 16%, and therefore, up to four times higher than with the QIAGEN assay.

The negative economic implications of these are significant, including a substantially higher number of genotyping and colposcopy procedures, let alone the emotional distress for the patients.

The Roche test is yet to be approved, but highlights the Achilles heel of PCR amplified tests in HPV testing. The test misses cancers where the viral HPV genome integrates. This was evidenced by early data shown at conferences, where sensitivity was simply lacking.

Again, here, the negative implications are quite significant, as it implies that cancers will be missed by this test.

Gen-Probe's test has shown inferior sensitivity in the screening population as well. This is a significant issue, as in the primary screening market, sensitivity is paramount.

QIAGEN's current offering has the best of breed sensitivity and clinical performance. Our next generation offering, the QIAensemble, builds on this leading position by offering unprecedented automation, throughput, and ease of use. Clearly, QIAGEN is positioned to continue to be the global leader in HPV testing, and will drive further adoption, and therefore, increase the market size.

On slide 14, I would like to highlight the two key developments of our product pipeline. In a few weeks, we expect to launch the QIAsymphony RGQ system. This system will be launched in Europe with an unprecedented breadth of CE-marked assays. This novel, integrated system sets new standards for molecular testing, and incorporates all workflow steps from sample through to detection.

QIAsymphony RGQ offers many features which create exceptional flexibility, such as continuous loading, random access, open channels for user developed tests, the broadest menu of commercial assays, as well as the ability to process an almost unlimited range of sample types. QIAsymphony thus provides laboratories with the system that transformed their work in the emerging field of molecular diagnostics. This new and complete workflow solution is comprised of modules that can be used as standalone systems, or combined and integrated into a fully integrated system.

The QIAsymphony RGQ system comprises the physical and data integration of the modules QIAsymphony SP, which we launched about two years ago for sample preparation, QIAsymphony AS for assay setup, and the Rotor-Gene Q real time PCR thermocycler.

QIAsymphony also provides the broadest available PCR based assay menu, including the ARTUS real time PCR kits for the detection of HIV, HCV, HPV, a [transplantation] panel with CMV, EBV, HSV, VZV, and BKV-1.

A large pipeline of further tests will be launched in the coming months, including the TheraScreen EGFR, K-RAS, as well as ARTUS Influenza, CT, CTNG, and then the extended transplantation panel.

Many more tests are in development, as well as the ability to integrate detection options such as pyrosequencing and multiplexing solutions.

In Europe, the value of our QIAensemble SP+ 2000 and/or 400 system is being seen as more and more significant as the centralized testing model for primary screening with HPV DNA is emerging. This is a nascent but rapidly emerging trend. The trend was a key theme at the recent IPV conference in Montreal as well.

We are now making sure we get the perfect system for the centralized primary screening lab scenario in place as quickly as possible. By doing this, we will be ahead of any competitor by several years.

In light of these accelerating primary screening opportunities, we have reprioritized the development of the primary screening solution, the QIAensemble SP primary, and the QIAensemble 2000 for the European market ahead of the QIAensemble 400 launch, which included a manual sample technology for [ASCA] screening, or the QIAsymphony SP for the decentralized screening setting.

Furthermore, in the United States, we are now accelerating the development of the expanded menu platform to ensure a launch at the CTGC and several other THDA based or amplification based assays in conjunction with a new EHC HPV test.

As we are working through these changes to the finalized platform, we are currently on a holding pattern on the US trial. The US version will benefit from this hold through acceleration of the broader menu of amplified and non-amplified assays on the QIAensemble 400+. Depending on how quickly the development of the primary screening solution for Europe is finalized, we do not expect a delay of more than a few, up to six or seven months.

We also see additional value brought forward for both our customers in Europe and the United States, and therefore, for QIAGEN, and in particular, in the US, we feel that coming to market with a broad menu maximizes the impact of our QIAensemble system. In light of the competitive environment in the United States, launching with a complete menu is a higher impact strategy and eliminates smaller projects that may slow us down in achieving our long-term goal of the menu-driven next generation prevention system.

Our QIAensemble Evolution strategy will also be prioritized. We believe QIAensemble SP is a crown jewel in the QIAensemble family of products, and by placing it in front of the rapid-capture system, we can deliver near term cost to value not matched by any competitor.

Our customers have been actively asking us to accelerate this, which previously was a bridging strategy or a second priority option.

Although implementing the strategy would entail pushing the continuation of the US trials and the launch of the system in the EU into the first quarter, we believe it creates greater customer value near and long-term.

Now, turning to slide 15, a further topic that is being discussed quite a bit is the FDA's position on laboratory developed tests, so-called LDTs.

QIAGEN is in a unique position, as we have a portfolio of FDA-approved products on the one side, but we also have -- are a key supplier of sample and assay technologies to clinical labs who use those to perform LDTs. QIAGEN is actively contributing to this discussion, and we believe it can be a positive development for us. As the FDA is calling for more regulation, the quality of the components will be key.

As a leading IVD manufacturer, diagnostics manufacturer, our sample and assay technology consumables and instruments are often designed to be parts of diagnostic IVDs, and are manufactured under GMP, have all the IP rights for IVD use, and also have the supply certainties that can significantly benefit the clinical labs in any effort to comply with increased regulation.

We believe that we are second to none in these qualities, and therefore, see QIAGEN as the premier choice in this new world of focus on LDTs, and that this should allow us to expand our market share.

Now, turning to slide 16, here's always some highlights in terms of new products. We are adding assay technologies to our by far market leading position in sample technologies and forensics. This is possible, as there is a strategic opening in the marketplace due to a unique and rare change in this market, in which new standards in Europe and several other regions of the world have been created.

This new portfolio features the most comprehensive and versatile coverage of current forensic STR standards, including the new extended European standard set, ESS, combined DNA index system, [CODUS, diode, RA, detector, DID, and internal standards set of loci] requirements.

Additionally, innovative software suites for analysis and interpretation of STR genotyping will become available by QIAGEN. The rollout, the next topic, of the SABiosciences products through the QIAGEN sales channels has just started. We're also launching several new assay panels, which uniquely add to our focus on personalized healthcare initiatives in pharma. These include gene expression, epigenetics, biology [underray], as well as cell signaling and protein assay portfolios.

Again, these are just two highlights of 19 products launched over the last few months.

With that, I'll turn over to Roland for an update on guidance.

Thank you, Peer. Moving on to the Q3 2010 expectation on slide 17. While the industry still faces some global challenges due to variant 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, which Peer just highlighted.

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

For the third quarter, we anticipate revenues to be approximately $270 million to $285 million, using our guidance rate established on January 31 of this year. Using July average rates, you would expect to have a revenue [advent] of approximately 2%, but there's no significant impact on operating margins or EPS.

Similarly to the second quarter, the range for our revenue outlook for the third quarter is larger than we have historically given on a quarterly basis. This is driven by external factors such as pharma partnerships. By the timing of pharma partner payments were not negative (inaudible) annual basis between quarters, the revenue recognition could vary.

We see these (inaudible) acquisitions, this type of revenue stream, will be more lumpy, and therefore necessary that we [explain] our outlook accordingly.

Moving on, we expect for the third quarter an adjusted earnings per share to be between $0.23 and $0.24, based on January 31, 2010 exchange rates.

In terms of adjustment to operating income, we expect equity-based compensation between $3 million and $4 million, amortization of acquired IP of approximately $21 million, business integration acquisition under the foreign exchange [expenditures] of $4 million to $5 million, primarily due to SABioscience and to ESE acquisitions. For Q3, we believe our adjusted tax rate will be in the range of 24% and 27%.

The weighted average number of fully diluted shares outstanding will be around 240 million for Q3 2010.

We are reiterating our guidance for the fiscal year 2010, save some foreign currency exchange rates as of January 31, 2010. We expect that revenues between $1.12 billion and $1.17 billion, and adjusted diluted earnings per share between $0.90 and $0.96 per share.

The guidance on adjusted EPS does not include a negative contribution for 2010 of approximately $0.01 from the acquisition of (inaudible) to our portfolio of molecular food safety tests developed by the Institute of Product Quality in May of this year.

Additionally, however, given currency fluctuations this year, we do anticipate some top line headwind of 2% to 3%, which may result in unfavorable rounding for our adjusted EPS.

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

Thanks. So in summary, we are pleased with the developments at QIAGEN, our results for the second quarter 2010. Revenues, growth and EPS came in strong. We were delivering industry-leading innovation and growth, and we remain on track to meet our guidance for the full year.

With that, I'll hand back to Solveigh to open up for Q&A. Solveigh?

Yes, 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. Samarian?

Thank you. (Operator instructions) And your first question will go through the line of Quintin Lai from Robert W. Baird.

Hi. Good morning. Thank you for taking the question. With respect to -- kind of the doctor visits, what -- was it a gradual decline through the quarter, or is this something that you're seeing through the year? And then kind of along those lines, what -- were there per account just lower volumes? I think you said 10%. And are you seeing any kind of -- any accounts moving to competitors at this time?

Yes. Thanks, Quintin. Good morning. Yes, there are -- we tried to put some data onto the one slide that we had here in the handout, slide 12. And what you see is that the -- while there is a decline in the doctor visit, it's not necessarily impacting us directly. And that was the main message that we wanted to give today.

While the overall market changes in terms of size, our conversion continues, and we are continuing to convert the market and achieve additional market penetration every quarter. And in addition to that, we have sequential growth in our prevention assays, so the number -- the revenue number in the second quarter was actually above that in the first quarter, and we're continuing to see growth.

What we wanted to give a little bit -- our flavor on, is what we see in the overall market for prevention assays, where you have asymptomatic patients. So, people who feel well are potentially not going as often to the physician as they previously were, due to unemployment and uncertainty.

That has been detailed so much in the recent weeks by a number of other companies who have seen these effects, and who have talked about them. Our message is, yes, these effects are out there. Do they impact the overall market size? Yes, certainly. But at the same time, we're coming from a low conversion rate of somewhere between 35% and 40%, continuing to convert, and seeing sequential growth. That is our message.

All right, thank you for that. And then --

And in terms of competition, we're not necessarily seeing strong impacts from competition currently. Especially in the last few weeks, it has become clear that the -- also the economic value of a superior assay is extremely important, and this has put us into a very strong position, also, to compete in the marketplace. We are not seeing that as a major issue for us, currently.

And then, Peer, with respect to your life sciences offerings, you sound like a more positive end market discussion that you had versus some of your competitors. I mean, do you feel like -- that it's because your products are more high end consumables, tilted towards genetic analysis, which are providing more stable end markets for you?

Yes, Quintin, I think that's probably the best way to look at it. I think the various companies who supply the life science markets are very diverse and have very different profiles.

We might just be seeing a stronger funding pool arm for the applications that require our products, so we actually saw quite good growth, and quite solid end markets.

Clearly, there are always customers who having funding issues here and there, and there is always a big issue on how to get funding in academia. And it depends on, I guess, the type of work that is more exposed to this type of discussion. We have, in this second quarter, as you see from the growth rate, not necessarily seeing that significantly.

Great -- thanks. I'll jump back in the queue.

Thanks, Quintin.

The next question will go through the line of Peter Welford from Jefferies.

Yes, hi. Thanks for taking the questions. There's two.

Hi, Peter.

Firstly, can you -- hi. Can you give us the impact you expect to see, or the headwinds, should I say, going into third quarter from the H1N1 swine flu? Because obviously, there was quite significant sales in Q2 '09. Could you give us some idea of what we should be factoring in for third quarter of 2010 for the H1N1?

And then secondly, on Europe, you mentioned you would see a lot of impact in the US from physicians that you said has been well flagged by peers. Something else as well that a lot of peers have talked about is austerity measures and delayed spending on instruments, particularly in Europe. I just wondered if you've seen, particularly during the quarter and going into the summer, any signs of weakness at all from Europe in purchasing some of your big ticket items, or whether your products seems to be relatively immune to that trend. Thank you.

Yes, Peter, I'll take the Europe question, and then leave the H1N1 question to Roland.

Europe, you're highlighting a very important topic. I think there is a big difference from country to country. We clearly saw different purchasing behavior in southern European countries that have been going through significant budget uncertainties, but those countries are not large markets. We'd like to be larger in them, but they represent a much smaller portion of our sales compared to other companies in this space.

And the impact therefore is smaller. Our position in northern Europe continues to be very strong, and we have not necessarily seen that -- certainly also not in the diagnostics arena, which is, to a significant degree, also governed by private laboratories.

So there has been quite a solid uptake also. While instrumentation sales were down, in terms of growth, they still grew quite rapidly, and we expect continued strong growth for instrumentation over the second half of the year.

Our products are, I'd say, based on the type of the application and the type of customer they go to, I would assume that they are less exposed too, than other companies that have highlighted some of the European austerity issues that were mostly in southern Europe. Roland?

Yes. Hi, Peter. In terms of your H1N1 question, we expect, for the second part of the year, more or less kind of the same impact we have seen for the second quarter 2010. Clearly, the fourth quarter probably also looking on the numbers we guided for this year, you will see that in general, of course, we expect already a quite better environment, so in terms of also year-end comparabilities, the third quarter is clearly not a quarter which will be in a much different way than the second quarter 2010.

Okay, thank you.

And your next question will go through the line of Dan Leonard -- okay, one moment. That will be Dan Leonard from First Analysis.

Thank you. Good morning.

Good morning, Dan.

Peer, you talked about a number of variables in the QIAensemble launch plan. Could you remind me -- so is that product now expected to launch in the US? Is that a 2013 expectation now?

Yes. We had originally planned a Q3 2012 launch, because we're accelerating some of the features into the launch, and want to make it less of a stepwise approach, but also integrating some of the menu options that we had from the start. This will be about a two quarter later launch.

What we will, however, do is, we will launch the QIAensemble SP system, and they could be actually quite near term, in terms of a front end to the RCS system.

And the reason why we saw this is because we have a lot of customers who say, look, we have a fantastic system with RCS. There have been three tries by other companies out there to provide a superior clinical performance, and they just haven't been able to meet that. Plus, the level of automation is very significant now with the QIAensemble. It's basically a hands-off solution, much more automated than any current or future competitor has been outlining.

And therefore, they see a value of saying, well, why -- instead of having a stepwise migration into the HPV only system, let's directly go to the broader menu. And in the intermediary, use the existing, well established and validated system, and simply upgrade the automation that we have upfront to it. And the first step with the decapper, and then the second step with the decapper plus the extraction system, the QIAensemble SP, as it is called, and use that as an integrated high throughput solution.

Again, it beats anything out there that is on the market and on the horizon, and would provide laboratories a lower hurdle in terms of validation. And when we come out with the system that includes the broader menu, this would allow us to integrate a lot more -- or, to address a lot more laboratories in a much more effective way.

Okay, thank you. And then my second question. It looks like you're looking for another mid single digit organic growth quarter in the third quarter. What needs to happen for you guys to return to a double digit organic growth rate?

Yes, Dan, the organic growth rate, as we defined it, we excluded -- like most of our peers did, also in the second quarter, the swine flu one-time effects that we had last year. If you take that and look at the underlying effect, it was a double digit organic growth. But clearly, you know, you can look at it different ways.

And so, for us, going forward, what we see as headline themes now over the next 12 months is the rollout of the QIAsymphony SP system in Europe. I think this is a phenomenal system. It -- in terms of menu breadth, in terms of performance, just beats anything that the market has ever seen.

And we have a second engine, or cylinder, that kicks in with the launch of the QIAensemble system, which would then be sometime in the first or second quarter next year. That would give us a significant growth opportunity -- that would be the theme, I'd say, for the next 12 months.

And then the theme after that will be the FDA approvals of the first personalized healthcare assays that we have in the second half of 2011, hopefully, and these are quite significant additional organic revenue drivers.

Our goal is clearly to have double digit organic revenue growth also on a clean basis. If you have these very dramatic effects, where you have these one-time issues, we give you numbers showing the effect included, and showing the effect excluded, and just try to highlight the underlying growth trend.

Okay, thank you.

And the next question will go through the line of Doug Schenkel from Cowen & Company.

Hi. Good morning, and thanks for taking the questions.

Hi.

So my first question is a follow-up to, I think, one of Quintin's questions. This is the first time I think you guys have spelled out the fact that unemployment and the COBRA roll off materially impacted US HPV sales growth. Yet, as you demonstrated in your presentation, and as has been widely discussed, unemployment has ranged from 9% to 10% for most of this year, and COBRA roll offs have been building since January.

So I guess that raises the question, why now? And I guess what I'm wondering is, is there anything you've seen that would suggest that the timing of routine physician's visits were actually accelerating in prior quarters, and that this is now rendering comps tougher, and that this dynamic could represent a headwind over the balance of this year?

Doug, it's definitely a complicated question, and you know, it's tough to give a very straight answer, because there are different variables that flow into this.

I think the most important thing I'd like to point to is that the peak of the unemployment, and also, with that, the acceleration of uncertainty, happened through the first half of 2009. We peaked in 2009, not in 2010, in terms of unemployment.

So there is -- also with a lot of other companies that you see in this area, there is a great deal of justification behind and expectation for the baseline, i.e., the year over year comparisons, to already have the impacts that we saw in the first quarter baked in, in the second half -- parts of the second half of the year. So from that perspective, this would be less of an issue that you'd have to talk about.

I'd like to just say that in terms of materially impacting our sales, as you just described it, we grew 12%. We grew sequentially in the prevention area. This is not a slow growth business. This is, in terms of dollar sales, we added more in sales than most other molecular diagnostics do in annual sales. And the -- so, there has definitely been a continued expansion in the market.

What I also wanted to say is that while there, on the top line, might be an impact in the number of doctors' visits, we are converting. So we are continuing to convert, and we also continue to expand our market conversion throughout this period, which I think is a great achievement. And once you see that the year-over-year impact does not show two different base effects but has the same base effect in terms of uncertainty built in, you will see the conversion rate, which is well into the double digits. We've detailed it to be above 20% in some quarters, will show through on the underlying growth rate. And that's maybe also referenced back to the question that Dan had.

Let me add to that, Doug. We also expressed -- set out before, we had sequential growth from Q2 to Q1, and we do expect also sequential growth from the third to the second, and from the fourth to the third quarter.

Okay, that is really helpful. And then maybe, Roland, if I could just throw two cleanup questions to you. First, you got a question on H1N1 impact, including associated sample prep for Q3 and Q4. If you precisely answered that, I missed it. Would you be willing to precisely quantify that, just given that is an important data point for us in assessing your outlook for the second half?

And then, let me -- if I can just sneak in another one, it looks like pricing was 1% in the quarter. You've been getting about 2% for the last several, I believe. Is the pricing environment getting tougher? Thank you.

Yes, let me start with the pricing. It's more or less a rounding thing, so it's no significant change here on pricing. Again, I wouldn't interpret it too much, it might be already different in third and fourth quarter

Yes, I wish I could -- I'd give you a much more precise number on the H1N1 impact, because as you know, unfortunately, we don't have just one drug and then selling it in the billions, and can clearly just extract just this one product. As you'll recall, what we are selling into the H1N1 environment, it's of course certain assays, but of course, we also sold a lot of semi-finished products, for example, enzymes, to reference labs which build their own assays.

So we -- I think we have a certain indication, like also with instruments, for example. So we have certain indications, which kind of product groups got affected. So the way we came up with the 10% organic growth rate is, we looked actually on product groups which for sure were not affected by any kind of swine flu, looked at their organic growth rate, because that was the best way for us to get here, to a fair apple to apple comparison.

So we [do] the same kind of measurement for the third and fourth quarter, as I said before, we probably will see quite similar impacts. Unfortunately, we had great sales in the second, third and fourth quarter of these kind of products, so our comparability, unfortunately, will not necessarily improve, but of course, absolute numbers will increase for us in terms of revenues, from 2010.

And of course, starting in 2011, we in general, I think, in much better shape. As you mentioned now, it's sort of, well, we don't have this comparability topic any more we're on, swine flu, and second, all this HPV related things rolling off over the course of 2010. So 2011 is a different year.

Great. Thanks again for taking the questions.

You're welcome.

Thanks, Doug.

Your next question will go through the line of Cornelia Thomas from WestLB.

Hi, yes. It's Cornelia Thomas here from WestLB.

Good day.

Just a question on your cost base in the second quarter. I noticed that your -- say, the marketing, and your also general and administrative costs went up quite significantly. I was just wondering if you could give us the reasons for that, and if you could also give us some guidance as to how that is going to develop over the rest of the year.

Sure. Hello, Cornelia. Two reasons was these currency rates, of course, as you know, for example, especially R&D, most of R&D is in non-US dollar currency or countries. And second is, we actually had quite a significant push in the second quarter to finalize the integration of (inaudible) and (inaudible) DxS, which we've done, and so we really were able to closer to [handoff] time, get things done, and you also can see in the performance of our acquisitions, that has also generated quite a significant number of revenues for us.

So it's a main reason, so in the third and fourth quarter, the cost base will be clearly adjusted on a lower basis for that.

Okay, thank you very much. And then, just to double check again, did I understand this correctly about also the QIAensemble launch for Europe is postponed by about half a year? Or did I hear that wrongly?

This is correct. What we decided to do is to put in the features that are required for the centralized screening, so the more high throughput -- even higher throughput system. And we wanted to integrate that into the launch effort. And that will include the SP system and also the 2000, which would also have the same impact, in terms of the -- about a two quarter delay.

Okay. Thank you very much.

Okay, the next question will go through the line of Bill Bonello from RBC.

Hey, there'd be a million and one questions you could ask about this quarter, but I guess I'll focus in on something people have been driving on. Just again, the H1N1. On the conference call last quarter, you pegged H1N1 at several million dollars. But I look at -- I mean, that's the exact wording. But if I look at the differential in organic growth, it would imply about an $11 million difference year-over-year, and so I guess I'm just wondering, did you completely reassess the way you gauged the H1N1 impact this year, versus how you had gauged it last year?

No. As Roland said, the components that we sell into H1N1 are diverse, so they include about four different enzymes, they include different automation systems, different extraction systems. And what we saw, looking at the full year, we had originally thought, you know, for the second quarter, it was maybe $7 million, $8 million. This would be about the several million.

But we then saw that there was actually a peak of these products, and we -- in terms of sales, almost exactly around the purchasing events that were directly swine flu related, also interactions with our customers, retroactively showed us that we actually were showing much higher numbers in terms of these product sales over the year.

As Roland pointed out, this is an estimate. It is based on a lot of statistics that we put into this, and we provide both numbers. So there's a way we look at it, there's a way that we use to manage our business, but we also include the non-H1N1 extracted numbers as well.

Okay, but safe to say that as you sort of gathered more data, and thought about it more, you concluded that you were really getting -- you did get more of a benefit from H1N1 last year than you maybe initially thought you did?

But it is something like, you can always compare to kind of a tax audit. If you look backwards, you always see more things than you're looking forward-wise.

Okay. Can I ask one more question?

Absolutely.

All right. Just -- I want to make sure I understand you. It looks to me like relative to what you said on the Q4 call when you were originally talking about guidance, that this is a lower tax rate than what you initially assumed for the full year? I just want to make sure I'm understanding that right. So ex-tax rate, you'd kind of be lowering the EPS guidance?

No, I don't think that's actually correct, because -- let me walk through it, because it's an important point, and I just want to make it very straight.

We have two kinds of tax impacts here in the second quarter, and also in the year 2010. First of all, we have a one-time acquisition related tax impact in the second quarter, which has to do with restructuring -- the tax benefits from the restructuring of recent acquisitions, where we gained a significant dollar amount. And this, of course, is in our reported number, and led to this 25% net income growth, but we adjusted for that. So that's not in our adjusted -- it's not considered in our adjusted numbers.

At the same time, we actually also were able to work out with certain tax jurisdictions in this (inaudible) so-called tax rulings, which also, for the next couple of years, I would probably think for the next four years, gives us a significant tax benefit. And this clearly is something which we probably face in the end of the third quarter, if we are able to get that done.

So you will see for the first quarter, the first six months of this year, we had 27% of our tax accrued, we have probably more like 25% for the second part. So for the year, we actually now (inaudible) our guidance. But for next year, it's probably more than -- there's a way from the second part of the year.

Okay, but didn't you say maybe -- because I do want to just make sure I get this right. I thought you said, on this call, and maybe this wasn't the adjusted number -- I thought you said, the full year expectation was now 24% to 26%. Was that the non-adjusted number?

This is, of course, the range, and again, if you look on our old numbers, where we are, it's quite close to what we had. So essentially, it might (inaudible) within our guidance, but nothing more.

Okay, great. Thanks.

Okay, and the final question will go to the line of [Daniel Budoff] -- okay, and Daniel has withdrew his question. We have reached our allotted time for questions. I will now turn the conference back over to Dr. Mahler.

Yes, thank you very much, Samarian. So with this, I would like to close the conference call by thanking you all for participating. We hope to welcome you again to our third quarter earnings conference call on Tuesday, November 10, 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, bye.

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