Qiagen NV (QGEN) 2010 Q3 法說會逐字稿

Good morning. My name is Kenesha, and I will be your conference operator today. At this time, I'd like to welcome everyone to the QIAGEN third 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.

Yes, thank you very much, Kenesha, and hello, everybody. Welcome to QIAGEN's third quarter 2010 earnings conference call. I'm Dr. 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 the press release last night announcing QIAGEN's financial results for the third quarter ending September 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, November 9, 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. Thank you. Peer? Hello?

Thank you, Solveigh. I would like to welcome you all to our conference call. As you saw from our numbers yesterday, we delivered a solid performance in the third quarter of 2010, in which we met our sales targets and exceeded our EPS targets.

We also provided an update on our 2010 expectations, reaffirming our adjusted EPS target, and trimming our full year sales target for 2010, as well as providing some initial perspectives on 2011.

I want to begin by first reviewing our performance in the third quarter of 2010. We had a complex base effect for comparison, due to the exceptional contributions in 2009 from swine flu related products. We delivered the results we posted against the backdrop of challenging economic conditions, which have also been noted by our peers and customers.

At the same time, we once again demonstrated that we are able to grow faster than our respective markets, and are delivering sustainable, profitable growth.

I would like to point out a few of the numbers from the quarter. Our net sales of $274 million rose 7% at constant exchange rates, of which 3 percentage points came from organic growth, and 4 percentage points came in from acquisitions. If we adjust for these sales of swine flu related products in Q3 2009, an additional 5 percentage points of organic growth can be added to reach 8%.

In sum, sales growth was in line with our expectations when looking at results, at the guidance rates for 2010 that we provided in January.

We exceeded our target for adjusted earnings per share, which was $0.25 in this period, and $0.27 per share at constant exchange rates. This shows that we are driving growth and profitability as well.

The underlying momentum remains positive. This is important, given that we are in the strategic phase to significantly expand our molecular diagnostics position in the areas of prevention, profiling, personalized healthcare, and point of need testing.

Again, when excluding swine flu related products in both 2009 and 2010 third quarters, organic sales growth was 8%. We also generated an additional 6 percentage points of growth from acquisitions completed within the last 12 months. These 6 percentage points exceeded our guidance for those acquisitions, most notably, DxS and SAB.

All in all, therefore, adjusting for currency and swine flu effects, and adding acquisitions, our growth was 14%.

In terms of innovation, we have, so far in 2010, launched more than 35 new products. Our pipeline is exceptionally strong, and provides a competitive difference. We are increasingly focusing on fewer, albeit larger launches over the next few quarters. One such key innovation milestone was the European launch of QIAsymphony RGQ.

As I noted briefly in the Q2 conference call, the system offers an unprecedented breadth of CE-marked assays and flexibility for our customers looking for a medium to high throughput molecular diagnostic platform.

QIAsymphony RGQ is setting new standards for molecular testing, offering a broad portfolio of validated QIAGEN tests, and even allowing customers to run their own laboratory developed tests. It will be important for a global expansion in profiling and personalized healthcare to the many new assays that can be formed on that platform.

The many that we launch with the QIAsymphony RGQ includes performance leading assays for HIV, HPV, HCV, CMV, EBV, HSV, VZV, and BK virus, naming just a few, and the platform has a deep pipeline of assays for 2011 and 2012.

We are soon launching the system in the United States as well, and are targeting a leading menu in the US there as well. As such, we are planning for nine FDA submissions over the next two years, starting in early 2011. In that regard, the potential of the agreement recently reached with Abbott is substantial. In this deal, we created access for QIAGEN to important assays for HIV-1 and HCV in North America, and these assays are patent protected for many years. In the case of HIV, well beyond 2020.

We sell these assays successfully in Europe and Asia already today, and are soon going to offer these must-have cornerstones in the United States therefore as well. This allows us to form a testing menu that can substantially increase the utility of this system, and expand its placements. Combined with our own assays, we will be able to cover more than 80% of commercial assays performed in the United States and Canada.

Separately, this agreement creates an additional awareness for HPV tests, since we will provide Abbott with components for a PCR-based HPV kit, which we will continue -- while we will continue selling our hybrid capture based tests. I'll provide more insights later in our presentation.

In terms of customer classes, here are the headlines. In molecular diagnostics, which provides about half of our sales, we are seeing solid growth in profiling, and very high growth in personalized healthcare. In personalized healthcare, we also added another companion diagnostic project with an undisclosed major pharmaceutical company. Personalized healthcare is an area with currently small sales contributions, but very dynamic growth potential.

Our prevention business grew for the third consecutive quarter of 2010, and was driven by growth of our HPV testing franchise. But our growth rate has been impacted by the continuation of reduced patient visits to doctors in the United States.

In applied testing, we are seeing robust growth from initiatives to expand our product range in veterinary, forensics and food applications. In pharma, where we're selling products for use in pharma R&D labs, we also delivered solid growth, benefiting from organic growth in contributions from the recent acquisitions. The R side remains challenging, but demand on the D side, the development side, is solid, and a key growth driver. Academia encountered softer conditions in the third quarter, but we are seeing signs for more positive results in the near future.

In summary, we made progress in the third quarter on delivering growth and delivering our strategic initiatives.

I would like now to hand over to Roland for a review of the financials. Roland?

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

The third quarter reflected another solid financial performance. We continue to have the robust product portfolio that is performing well in all our core markets, our results, and of course, our focus on execution.

Recapping the key numbers. Based on January 31, 2010, currency exchange rates, we had sales of $278 million, thus in line with our expectation of $270 million to $285 million. We achieved an EBIT margin of 29%, 30% using constant currency rates, which puts us on track for what we expected for the second half of the year.

Adjusted diluted earnings per share for the quarter ended September 30, 2010, came in at $0.25 per share, thereby exceeding our expectation of $0.23 to $0.24. EPS at constant exchange rates was $0.27 per share.

A contributing factor to the level of our net income is our commitment to balancing growth with prudent cost control. For the third quarter, adjusted net income grew by 10% in comparison to the third quarter 2009, from approximately $54 million to $59 million. This is an adjusted net income growth of 23% at constant exchange rates.

As we noted last quarter already, we continued to have a strong base effect from H1N1 through related testing. In order to more clearly demonstrate our overall growth and the underlying core organic growth rate between the third quarter of 2009 and 2010, we removed all revenues from product lines which could contain H1N1 related revenues, assays as well as revenues associated with (inaudible), which can be used for flu testing and implementation. With these adjustments, our organic growth rate was 8%.

Significant drivers of this provision were increases in volume and an increase in revenues from new product introductions over the past 12 months. Growth from acquisitions was 6%, thereby leading to an overall 14% growth in net sales at constant exchange rates for the third quarter.

On a reported basis, these numbers correspond to the following growth rates -- 3% organic, 4% from acquisitions, so overall, 7% at constant exchange rates.

Moving on to our revenue distribution for the third quarter, we continue to show solid growth across most of our product portfolio, serve our main customer classes. When looking at total sales at constant exchange rates, products which served customers in molecular diagnostics, which represents approximately 50% of our total net sales, growth was 9%, pharma was 9%, and academia was flat, whereas applied testing had 20% growth.

Looking at this growth now, [just totally] excluding H1N1 related revenues, for molecular diagnostics, growth was 18%, 11% in pharma, 5% in academia, and 30% in applied testing.

On a geographic basis, our revenue distribution and growth breakdown as follows. We had solid performance in the Americas with 11% growth. As some of our peers have also highlighted, there are some lingering concerns in certain economies, notably in the US. Physician visits remained down, and the US economic recovery may be at a slower pace than anticipated. We continue to grow steadily in Europe, where at 6%, Asia, although still a smaller percentage of the overall revenue contribution, had 4% growth.

Again, here, without H1N1 related revenues, and at a constant exchange rate, the growth was 15% in the Americas, in Europe, and Asia respectively.

Moving on to slide 7, here I would like to review some of the operational initiatives which we have steadily been progressing and implementing enterprise wide over the past few months. We have been centralizing our global procurement across business functions, and globally aligning our purchasing processes. This allows us to realize economies of scale and a reduced transaction cost, effectively bundling purchasing power.

This holds true for our key R&D, as well as for manufacturing. We have implemented better controls in our inventory management, particularly with respect to the relationship with our vendors and suppliers, by minimizing excess inventory on hand. Also, the implementation of centralized inventory management across all geographies and improvements from this initiative are ongoing.

While executing on this initiative, it remains critical for us to maintain a high level of customer service, as only this ultimately is testament to our commitment to operational excellence. Our efforts in these areas have already contributed savings in the second half of 2010, and we envision that over the next few years, these initiatives will lead to more than $20 million in savings.

Moving on to slide number 8, I will spend a minute highlighting the progress from our cash flow. Our cash flow allows us to pursue growth and investment plans without depending on unstable credit markets, and with limited exposure to [intertrade] developments. Both operating and free cash flow have increased steadily since 2007. Operating cash flow has been growing faster than net sales and income growth -- in fact, tripling. This underscores our increasing profitability, as well as success in our working capital management.

Thank you, Roland, and we are now on slide 9. I would like to provide you with an update across our portfolio and provide insights into achievements and growth drivers in our customer classes.

Turning to the next slide, slide 10, I want to take a moment to put the growth potential of molecular information into perspective. Now, everything we do at QIAGEN is about transforming raw biology containing genetic information into digital information. We are constantly finding new ways to apply our world class capabilities to develop products that meet a broad range of customer needs. In fact, more than 90% of our products are hybrids, and sold within more than one of our four customer classes. That is more than 90%.

The fundamental growth drivers are indisputable. The revolution sparked by molecular biology, in many ways, has only just begun, and areas are emerging such as personalized healthcare that were not even conceivable 20 years ago.

Penetration rates are very low still. For example, the number of hospitals in the United States that conduct molecular testing is only about 10% of the total number of hospitals, and only very few tests are available. This will change dramatically, as we see more and more biological content emerge that can be translated into clinically relevant tests.

When looking at our current revenue drivers, and at the same time, at their future growth potential, this chart underscores our strategic initiatives to expand in molecular diagnostics. We are leveraging our global leadership in sample and assay technologies that are used in all of these spheres that you see here, and which is at the core of everything we do to fuel multiple growth engines in the future.

You can see that profiling and prevention have become large revenue contributors, while personalized healthcare has the potential to become a significant future growth driver. This is why we are determined to building a leading position in companion diagnostics and personalized healthcare, and to thereby achieve exponential growth rate in and through this area.

At the same time, academic and pharma are core elements of QIAGEN, and are providing about 40% of current sales, and form a basis of new innovations and partnerships. We will continue seeking to capitalize on growth opportunities, anticipating and addressing the needs of our customers.

Also important to note is how scientific advances in these areas, particularly academia, are the source for clinically relevant breakthroughs. And applied testing, even though it only represents about 10% of our sales, it has dynamic growth potential, given the broad range of technology applications in non-human areas such as food safety, veterinary science, and forensics. Our recent acquisition in 2010 of many food testing assays from ifp is just one example.

On the next slide, slide 11, you see our four customer classes -- molecular diagnostics, pharma, academia, and applied testing. Molecular diagnostics provides about half of our sales, and is obviously a key growth driver. Our end markets, large hospitals, reference labs, specialized testing centers, continue to have a robust outlook.

In profiling, which is about 20% of our sales, we have seen a significant expansion of our assay portfolio, and we're going forward to capitalize on the QIAsymphony RGQ as an important growth driver in the next few years, both in the United States and abroad.

In prevention, which is about 25% of our sales, our main products are HPV screening and genotyping solutions. We are making progress on converting the US market in challenging conditions while also targeting global opportunities. And the future growth driver will be the introduction of QIAensemble as a next generation technology platform for our prevention assays, and expansion into other areas such as CT/NG.

In personalized healthcare, in addition to forming new collaborations with major pharmaceutical companies, we recently completed the integration of DxS into QIAGEN following the acquisition in the second half of 2009. I will come back to the areas of applied testing, pharma and academia later in my presentation, but you can see here that we had overall solid results in this quarter, driven from multiple growth engine sources.

Turning to the next slide, I would like to update you now on the progress we are making in personalized healthcare. When we talk about this topic, we mean matching the right patients with the right drug using companion diagnostics. That is the key to success we have seen so far in this area -- for instance, with our assays such as KRAS and EGFR. In this area, we have built both a (inaudible) leading position, and also have about 20 assays beyond KRAS and EGFR on our menu today, and many more in our pipeline.

QIAGEN has assembled what it will take for success in this area. We have the sample and assay technologies, we have the diagnostic platforms, including the QIAsymphony RGQ. We also have a full infrastructure to develop tests and global presence to co-commercialize. And lastly, we are independent.

All of these factors have made us the number one in terms of nucleic acid based projects for companion diagnostics. As you saw in our press release, we, in the third quarter 2010, added another major project with an undisclosed pharmaceutical company.

We made further progress in the third quarter of 2010. The integration of DxS has been successfully completed following the September 2009 acquisition, which more than doubled our broad range of personalized healthcare assays. The TheraScreen KRAS assay, which determines the gene mutation status in patients with colorectal cancer, is in the process of being submitted to the FDA for premarketing, regulatory approval. We expect the first modules to be submitted in 2010.

We have launched about ten new TheraScreen and other personalized healthcare assays since our acquisition, including KRAS and EGFR now running on the QIAsymphony RGQ systems.

In addition, we launched a suite of automated solutions to process formal and fixed paraffin-embedded tissues, one of the key sample types in personalized medicine, yet previously notoriously difficult to process. We now have more than 15 research and marketing collaborations underway with pharmaceutical companies, and we have a packed development pipeline.

Our personalized healthcare assays run on our new platform, QIAsymphony RGQ, and so do our profiling assays. Therefore, turning to slide 13, as this slide shows, we had an exciting quarter also in our profiling area, as it is highlighted in the European launch of the QIAsymphony RGQ in September.

I mentioned this launch briefly in our second quarter conference call, noting that the integration of the Rotor-Gene Q, the real time PCR thermocycler, into the QIAsymphony SP, sample prep, and AS, or assay setup modules, would unlock key utility for our customers. This sample two result system offers many features that will create an exceptional flexibility, and include continuous loading, random access, and open channels for user developed assays.

This platform has the ability to process an almost unlimited range of sample types, and very importantly, customers will be able to run our broad commercial menu and their own laboratory developed tests as well. These features are all key in previously unmet demands of our customers.

Critical to the success of this platform will be the development of a very broad range of assays. In some ways, you could think of this platform as an iPad, and an ability to add as many apps as possible. For the US and Canada, the recent agreement with Abbott is, therefore, a key step forward. We are thereby gaining access to HIV, HCV assays which catalyze our internal work on our HPV assay.

Then in combination with our existing broad portfolio of assays, we will provide a menu covering more than 80% of the viral load tests conducted in these markets. Many more tests are in development, and we are planning more technological advances such as the ability to integrate detection options such as pyrosequencing and multiplexing solutions.

Turning to the next slide, slide 14, I would like to provide some insights on the US markets for HPV testing. As you know, the number of patients visiting doctors in the United States for HPV tests has been declining during the course of 2010. This trend was not expected to continue in the third quarter. Our assumptions now are that this adverse trend will continue into the fourth quarter, and this was the reason for our conservative near term outlook.

This decline has been blamed on the uncertain US economy, the rising unemployment rate, and related reduction or loss of insurance benefits. In fact, we have seen some estimates of up to a 15% decline in year on year visits for these types of preventive tests. Mathematically, it is hard to believe that levels could fall much more below current levels.

At the same time, our market conversion initiatives are very successful. This is getting lost in the noise. While prevention assays, assays on asymptomatic patients, in other words, are mostly impacted by declining doctors' visits, HPV testing is still substantially underpenetrated as a market, and we are successfully increasing penetration.

For instance, we doubled conversion in the last three years from 20% to 40% through awareness programs aimed at both patients and physicians about treatment standards. At only 40% conversion, still, the market has substantial potential.

The benefits of this test are undisputable. US guidelines call for a Pap plus HPV test for all women over 30 regardless of whether a woman has been vaccinated. In other words, while the doctor visits are falling, we have been increasing penetration with the two effects -- the reduced number of doctor visits and the increased penetration offsetting each other, but the net result is that we are growing.

One has to acknowledge, as has been written in recent research reports, that there's a strong correlation between economic cycles and doctor visits for preventative care treatment. On this chart, we are explaining the various market dynamics for HPV in the United States. Our view remains that based on the assumption of market conversion continuing at a good rate, an economic stabilization would enable the HPV franchise to return to substantially faster growth rates, as all fundamentals, except for doctor visit intervals, are fully intact.

In this example, think of an escalator as the economy driving patient visits, with the number of visits rising or falling based on economic conditions. The speed at which demand on the escalator, shown here, is running is the rate of conversion.

Even in these challenging economic times, we have still been growing HPV sales despite the decline in doctor visits. In this example, this would be similar to someone running up a downward moving escalator and still making progress, albeit with a lot of effort.

The net outcome has been positive performance so far in 2010 over the previous year periods, and also sequentially. But the unanticipated slowdown in doctors' visits has reached a level that will not allow us to get the net growth we are targeting for the fourth quarter. And this is the reason for the modest reduction in the 2010 sales targets, notably in the fourth quarter.

However, once the economy starts to stabilize -- and I'm not saying increases or recovers, I'm saying stabilizes -- regardless of the level, one could at least anticipate that patients would continue to visit the doctors at the current intervals. Again, regardless of the level, our view is that this situation would lead to an improved sales situation in HPV, building on top of the successful conversion initiatives.

In this example, this would be as if someone were walking up a stationary escalator, or conversion rates being the determining factor for growth.

And once the economic view should become more positive, and the unemployment rate falls, this is when we would see an even faster growth. In this example, this would be as if someone were running up an upward moving escalator or growing much faster as growth in conversion and growth from increased number of doctor visits are additive.

We are often asked about our views on the entry of competition. Will there be an impact? Yes, but there would be an impact in any type of market situation, and is fully part of our plan, as it would be too simplistic to believe that such a vast market opportunity would be served by one company alone. We have often said that our forecasts take into account maintaining at least 70% of the US market for HPV testing, following the introduction of several competitors. But here are some factors to consider.

Our view is that none of the competitor assays are anywhere close to being as validated to the extent of our assay. So QIAGEN continues to prove it has a superior product offering. New competitors will drive also HPV test awareness. This should help the overall market.

In addition, we will further capitalize on our leading position in HPV by introducing the QIAensemble as the next generation prevention platform, and thereby expand our offering of assays to CT/NG as well as to several others, which have a market potential far beyond HPV.

So in summary, we are focusing on what we can do in the HPV market, and that is to continue to drive conversion. This will position us to benefit from the eventual economic recovery, or even the economic stabilization, which will be a key factor for patient visits. At the same time, we have a strategic view to build on our leadership and HPV to expand our offering to these important customers with a complete set of prevention assays.

Turning to the next slide, slide 15, I would like to update you on progress on our three other customer classes. In applied testing, the strong trend continues. Although this business is relatively small, we are rapidly building our assay offerings. The integration of ifp, the German food testing lab, is going very well. Our teams are preparing the first of some 70 food testing assays for QIAGEN systems for launch in the fourth quarter of 2010.

Another area for expansion has been the adoption of new European standards in forensics by the new European Network of Forensic Science Institutes, or ENFSI. We have an advantage, as one of the first competitors to market new assays complying with these new standards.

In pharma, we experienced solid growth thanks to strong demand from the industry's development side of the business. We have seen favorable customer reactions to new products, particularly to the assay biosciences acquired products. The research side of the business remains challenging. We are looking at ways to overall drive growth at a faster pace in this customer class.

In academia, we saw soft trends in the third quarter. This appears to be an aberration, since trends are pointing to a more positive market outlook. This includes demand from Asia as well as in the United States and other markets.

In summary, I hope you can see that we're making good progress on our strategic initiatives. We are reacting quickly and flexibly to current market conditions, while taking a longer term perspective on growth opportunities and the use of molecular information.

I would now like to hand over to Roland for a review of our latest expectations for 2010. Roland?

Yes, thank you, Peer. Moving on to our fiscal year 2010 expectation on slide 16. While the industry still faces some global challenges due to variant economic uncertainties, QIAGEN remains to be uniquely positioned, and as such, we have much more room for future growth. However, in the short term, we don't see a dramatic increase of physician visits, and therefore, are cautiously revising our fiscal year revenue guidance, as Peer has noted.

For the fiscal year 2010, we anticipate revenue to be approximately $1.090 billion to $1.105 billion, using our guidance rate established on January 31 of this year. We expect that adjusted earnings per share to be between $0.91 and $0.92 per share, based on January 31, 2010 exchange rate. Without the ifp portfolio acquisition, adjusted EPS would be $0.01 more. Additionally, given currency fluctuations this year, we anticipate some top line headwind of 1% using actual weights, which may result in unfavorable [warning] for adjusted EPS.

In terms of adjustments or operating income, we expect equity-based compensation expense between $13 million and $14 million, amortization of acquired IP of approximately $86 million, business integration, acquisition and restructuring expenses of $17 million to $18 million, partly due to our 2009 acquisitions and integration of Corbett.

As we have stated in our second quarter call in August, the expected tax benefit 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 first six months in 2010. So for the full year, we now expect to come in within the range of 24% to 25%, 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 quite quickly these days. But it shows -- it should be close to the aforementioned range for the full year 2010.

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

For the fourth quarter, our expectations and assumptions are as follows. Based on the guidance rate established on January 31 of this year, we anticipate revenues of $275 million to $290 million, and adjusted earnings of $0.24 to $0.25 per share.

For the fourth quarter outlook, we are guiding for moderate growth. This is driven by two factors, which clearly makes the fourth quarter the toughest one in terms of comparability within the year.

Strong swine flu sales, as well as a very strong prevention business in the fourth quarter 2009, will lead to a very moderate organic growth rate for the fourth quarter 2010. The good news is, the swine flu impact is [at the end] as of December 31, and our US HPV franchise had not only delivered now three sequential quarters of positive growth contribution, and therefore, a trend in the right direction, but also, our US HPV franchise starts the new year from a very different basis.

As you have seen previously, the last few months of the year are usually more heavily weighted in product mix towards instruments. This, in combination with a slightly higher tax rate than the third quarter and expenses from the (inaudible), delivers some pressure on EPS. In terms of adjustment to operating income for the fourth quarter, the equity-based compensation of $3 million to $4 million, amortization of acquired IP of approximately $22 million, business integration, acquisition and restructuring expenses of $3 million to $4 million, the tax rate as we have outlined to you last quarter would be somewhat lower for the fiscal year in the second half, in the realm of 22% to 25%.

With that, I hand back to Peer.

Thank you, Roland. I'm now on slide 18 to provide a quick summary before we move into Q&A.

As I mentioned at the start, we delivered a solid performance in the third quarter, meeting our sales target and exceeding our EPS target. We have been continuously making progress during the year, and our adjusted operating income margin reached 29% of net sales, and then 30% at a constant exchange rate in the third quarter.

QIAsymphony RGQ was among the key product highlights in the third quarter. This instrument offers an unprecedented breadth of assays and flexibility for our customers, and will be an important factor for our global expansion in profiling personalized healthcare.

The Abbott agreement is a substantial step forward for expansion in the US market, in that we have gained access to important cornerstone assays for HIV and HPV.

Turning to the outlook, we have reaffirmed our guidance for adjusted EPS within the range we had set at the beginning of 2010. Based on the economic conditions in the United States, and the impact on doctor visits, the adverse trend that we have now seen in the second quarter did not improve. While we all know that stabilization is not far away, we are taking a conservative view in the fourth quarter, and as a result, we trimmed our full year sales target.

At the same time, our conversion efforts in the United States HPV market continued to be successful, and we have been growing despite the economic trend. What will make the difference in growth will be an economic stabilization in the US, or even better, a recovery. That will help generate faster growth for this product.

Keep, however, in mind that HPV testing in the United States accounts for about 20% of our sales, and we're building our pipeline of new products across our entire portfolio -- in academia, pharma, applied testing, and in all areas of molecular diagnostics. In particular, we have made progress in building a range of companion diagnostic projects with pharmaceutical companies that is unprecedented. This area of our business has dynamic growth potential, and the upcoming submission of the landmark KRAS assay in the United States will be an important achievement in this area.

For 2011, some initial views. We are well positioned to continue to grow significantly faster than our markets, even if we see a continuation of the current economic conditions into the new year.

Before we go into Q&A, I would like to introduce a new member of our team. John Gilardi has joined QIAGEN as VP Corporate Communications, and will be leading our global communications team and interacting with the financial community and the media. Many of you will have an opportunity to meet him in the near future.

With that, I would like to hand back to Solveigh to open up the Q&A session. Thank you.

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. Kenesha?

(Operator instructions) Your first question comes from Quintin Lai from Baird.

Hi, good afternoon -- good morning.

Good morning, Quintin.

Thanks for the color on HPV. It certainly does kind of match up with what some of the competitors, especially on Pap smears, are saying about volumes in the macro. But you know, as I look at your molecular diagnostics franchise, you reported 9% growth, 18% excluding H1N1. So that means that the profiling business must really be growing strongly.

So Peer, could you give a little color -- is it a volume thing, is it new products? Now where is that demand coming from?

Yes, thanks, Quintin. The growth in profiling is actually very exciting. We have a few things coming together. First of all, there is an increasing trend towards the use of molecular testing technologies in many different areas of testing.

Number two is, we are seeing more and more laboratories start adopting molecular testing, coming new to the market. So for instance, in the United States, as an example, out of the -- about 5,000 or 6,000 hospitals, only 10% are currently doing molecular testing, and it's pretty much consensus that that will go to a few thousand over the next five, seven years. So there's going to be a substantial expansion of number of people doing molecular testing. And on top of that, more and more tests will convert to that menu.

So, you know, two effects coming together. That's why the overall market is growing very nicely.

At the same time, within that area, we are actually getting a premium growth because of the launch of our new systems. I think that has kind of gotten lost a little bit in the noise, that with the QIAsymphony RGQ, we have, by far, the most flexible, most powerful platform for molecular testing, that it can process basically anything that a laboratory wants to process in random access and continuous mode.

Personally, I think that the area of profiling and personalized healthcare is substantially larger than the prevention market, and much higher value. I'll give you an example. The price of an HIV test can easily be as high as $40, so up to three times higher than compared to a screening test, up to ten times for some more established screening tests like chlamydia.

So you have a substantial value generation per test. These are high value tests, and run at lower volumes, and where the platform and the ability to create utility from a platform is an important factor.

So I think going forward, this will continue to be an important element for us, and I'm very excited that the personalized healthcare assays have actually now been ported onto the Rotor-Gene. And as we all know, these were -- this will obviously be the platform that we'll be submitting to the FDA as well for the first assays, starting in a few weeks.

Thanks. I'll jump back into the queue.

Thanks, Quintin.

Your next question comes from Bill Quirk from Piper Jaffray.

Good -- thanks, good afternoon, everybody.

Hi, Bill.

First question, Peer. Can you elaborate a little bit on the comments that you made earlier, early in your script, about academic research being the turnaround? I was hoping to flesh that out a little bit more.

You know, adjusted for swine flu, we saw a 5% growth, which was slightly lower than what we traditionally saw in academia, which was traditionally high single digits. We attribute that a little bit to seasonal effects, and probably, I called it an aberration, which is clearly an estimate on our side.

We see for 2011, actually, a very solid outlook for academia. We also see a very good traction on our projects and customers, fourth quarter, into also 2011.

So as we all look at the budget situation, the US budgets actually look quite promising, even excluding similar impacts for 2011, which we all can expect. The growth in the NIH budget is one of the highest ones we've seen in the last few years, and in Europe, we're also seeing some quite promising developments. The UK is not quite as bad as everybody hoped. Spain is also not quite as bad as everybody feared. And Germany is probably better than everybody had hoped. And so these big economies are actually doing quite well.

So we attribute that simply to some of the marketing programs and the focus that we have created on some of the launches of the new products that we slotted for the summer launches, that led to 1% to 2% difference in the organic growth rate.

Very good. Thank you for the color there. And then a quick question for Roland. Forgive me, Roland, apparently my math skills aren't quite that sharp this morning. But why would the M&A contribution vacillate between 4% to 6% due to the impact of swine flu? Could you maybe just clarify that, and just give us the absolute dollar number of the M&A contribution in the quarter? Thank you.

The reason is -- hi, Bill. It's of course, the way we calculate the swine flu impact. As you know, we exclude all the product lines which could be impacted by swine flu revenues, and of course, therefore, it has a lower basis. By excluding it, absolute number is of course lower, than the total reported number, where under other kind of course, revenues coming from the M&A side is still the same number. So therefore, of course, it is higher under [accrued] sales there for 6% and 4% of the total impact.

So the M&A contribution (inaudible) on sales and services was, call it, $12 million or thereabouts? I guess I'm kind of taking an average of the two.

For 6%, out of [74].

Okay, thank you.

(multiple speakers), 74.

Your next question comes from Peter Lawson from Mizuho.

Good morning, Peter.

Good morning. Double digit growth you're seeing in pharma -- what's been driving that, and what's the outlook for that business in 2011?

Yes, pharma is clearly a market that has seen its challenges in the past. But we have been pretty deliberately starting to focus on the D side of pharma. What has been helping us is that our ability to actually provide products that are manufactured for and developed for diagnostic use, and have hybrid uses in the pharmaceutical development areas, are not pure clinical diagnostics, but still, meeting the quality requirements and also the standardization requirements that the pharmaceutical has in that area, has actually been quite successful.

What is also doing very well is our content driven approach, selling assays with the biological content. It's quite interesting to see. I'd say in all humbleness here today that we probably, in terms of the bioinformatics content, driven by informatics, we probably have the best offering in the world today in terms of how we can actually decide what type of assays should be used for what kind of pathways, and in what kind of format that can be best tested for.

And that combination is just helping us quite a bit on the pharma D side, which is a rapidly growing area.

And the outlook for 2011 for that business?

Yes, that's difficult to say. We're definitely seeing some good successes in the near term. I would expect that the R side continues to be difficult in 2011. The D side is being more and more hotwired, actually, with our personalized healthcare franchise, so we're starting to sell bundles and going much deeper into the development pipeline into earlier stages.

If this is successful, I think there's a tremendous opportunity for us to continue growth like we're seeing here in the double digits. And that's clearly our goal. I think we have a great offering that we now have streamlined and put together. That's why the integrations of SAB and the launch of the product through our channel, the ability to launch now the QIAsymphony RGQ -- that, by the way, also can run the SAB product offering. And all on reagents that are manufactured under [GMP] have a diagnostic-like feel and touch to them, and level of quality. That is a very important differentiator to almost everybody who is applying into this market.

So, an interesting opportunity. We'll see how the pharmaceutical industry accepts the value proposition. The initial signs are very promising.

And just a quick question for Roland. How should we think about the impact of one-time events in 4Q such as swine and flu?

The fourth quarter this year? As I said, it's clearly -- it's the toughest one in terms of comparability, and therefore clearly, in terms also of organic growth, the fourth quarter is the most challenging one for us. And nevertheless, the good news here is clearly, again, as of December 31, these things are over, and we go really to a good basis in 2011, which again, is the good news here for us.

Do you think it's a negative 3%, 4% impact?

It depends, of course, on which part of the range of our guidance you look like, so I think it could be around that, it could be slightly lower than that.

Thanks so much.

Peter, and thank you for those questions. If I may just add to this, we all understand here that it's very confusing to have these different effects -- with swine flu, without swine flu, the constant currency effect. Our goal was simply to provide all of these numbers, and to provide the utmost transparency.

There clearly has been a lot of demand from people to be comparable to peers in excluding certain effects, but we also, I think in this call, wanted to make it very clear what all the effects were, and you can use the numbers that you think are appropriate for your net year analysis. But they're all on the table.

Perfect. Thanks so much.

Thanks.

Your next question comes from Marshall Urist from Morgan Stanley.

Yes, hey, thanks for taking the questions. The first one, I just wanted to know, Roland, if you could comment on the kind of price volume new product contribution to the 8% organic growth, that slide. I didn't see it in the presentation for the conference call, so if you could give some detail there, that would be helpful.

Yes, I can take this (inaudible). So it's -- price is very similar to last quarter, so somewhere between 1% and 2%, and between volume and new products, it's actually fairly steady.

Okay, great, thanks. And then, just a couple of pipeline questions. The first one, if you could talk a little bit more in detail about the kind of initial pipeline and backlog for the symphony RGQ in Europe, kind of where are you seeing it going, and you know, how much of a benefit is that going to be in the fourth quarter. And then, if we could get an update on the filing timelines and strategy for the ensemble SP module in the US, that would be helpful. Thanks.

Sure. Well, the QIAsymphony RGQ system has a potential for that which is in the four digits. We are starting rolling this out now, and this will be a long-term initiative. We are seeing clearly that this platform will be the basis for many years to come for our assay development, so we have a platform. It's a sample to result system, and we're simply developing our assay by assay for use on this platform and adding certain technological features to it as well.

The first initial feedback that we got was very positive. We have had a number -- there were a few dozen placements that were done, actually, prior to the launch. The publications have and are coming out. The AMP meeting, for instance, next week, and at California, we'll have a number of publications on the performance of this system, spanning from viral loads, to esoteric disease testing, to transplantation testing, to also personalized healthcare genetic assays. So you'll see just the power of breadth.

And it's difficult to say. These -- we clearly have estimates where this will go, but I think it will be a more a 2011 driver, where this platform can provide a meaningful impact on our revenue growth next year. It's definitely one of the big revenue contributions that we planned for next year. And it's a new product, so it's starting basically from zero.

The QIAensemble, it's -- as we noted in the conference call for the second quarter results, we're executing on plan to implement the reprioritized project, the product portfolio. And as part of that, we're accelerating some of the features into the launch, and make it less of a step-wise approach, and also integrating some of the menu options that we want to have from the start. And so we gave the initial expectations, and we'll continue to update that going forward. There are several different components to that trial going forward, and it is clearly our target to initiate that trial very quickly.

Your next question comes from Tycho Peterson from JPMorgan.

Hi, good morning. It's Evan in for Tycho. I was wondering, given revenues have come in a little bit lighter than expected, R&D and SG&A growth has remained pretty robust. And how should we think about this going forward?

Roland, you want to take that one?

In terms of margin expansions, I think first of all, also in the year 2010, I think we promised you in the second quarter conference call that we should see a 29% EBIT margin for the second part of 2010, and yes, we delivered that in the third quarter, and I'm also expecting that at least for the fourth quarter -- and by the way, on constant currency, it is actually 30%, which is one of the highest margins we ever had at QIAGEN. As a [short] quarter, 2009 is of course a tough comparison, because it was an all time record quarter for QIAGEN.

Going forward, also, we clearly do have a long-term goal of having an EBIT margin improvement of somewhere between 75 and 100 basis points year over year, and I don't see any reason why this should have changed. So I'm also here quite positive for the year 2011, in the given environment.

All right, great, thanks. And then my follow-up would be, looking at the very, very strong growth, clearly the applied market segment, could you talk about the sustainability of that growth, and if any one area is driving that? Thank you.

Sure. We're getting a lot of growth from three areas, basically. The first is, the veterinary area, which is actually the largest of the sub-segments we're in. And there, I think it is very fair to say that we're globally the leader in molecular veterinary testing, and have created a menu of tests that are being used worldwide, typically by centralized testing organizations, state-run.

And we are expanding the menu of assays on the existing platform. By the way, the QIAsymphony RGQ also plays into that.

That, I think, is a more steady grower within that portfolio. The more digital events are coming from the increases in products in the area of forensic testing. What we were able to do was to enter the forensic assay market in Europe through partnerships and acquisitions, gained access to the critical IP and the products related to that, and are doing that exactly at the time where new standards have been created. This was also delivered, and we are seeing a very good traction. Customers are looking for a change in this area, which is a substantial three digit million market size, where we have something new to offer in a very exciting combination.

So we're getting very good uptake based on new products in the forensic area. And in the food testing area, there I would say it's an area that we still have a very small footprint in, but now suddenly have a big product range that is coming into our offering now, starting in the fourth quarter, through the ifp acquisition.

So in other words, I think that going forward for several years to come, we can show this, and higher, maybe even, growth rates from the applied testing sector, for quite some years to come.

The next question comes from Cornelia Thomas from WestLB.

Hello. Good afternoon, and good morning. Thanks for taking my questions. You are talking about the decline in physician office visits, and saying that some estimates are that there have been a negative decline of up to 15%. I was just wondering, is that in relationship to the quarter, if that's year-over-year for the third quarter, is that year-over-year for nine months, or is that sequentially?

The various estimates that you will see on doctors' visits can be taken from different sources, but the number that I gave was a year-over-year number. The --

For the third quarter?

The proxies that you can use are, for instance, IMF data on certain preventive ob-gyn related products. You can also use certain proxies that are similar testing products that are done also on asymptomatic patients, and preventive visits.

The numbers that we've seen, actually, they even go -- some of them go beyond 15%, some as high as the low 20s in terms of reduction of doctors' visits as an overall number.

If you add this now over the past periods, we're at a level where the intervals are actually very expanded, and I think that was where your question was moving to, making it pretty difficult to assume that we will see a continuation of this for a long time.

Now, this is not what I'm putting here on the table, but that's what you'll typically see from most people providing their opinions on next year doctor visits number, is that it should start reemerging sometime very soon because of the rather low level that we're already at today.

Okay, thank you. And then, just wondering, on the instrument side. Q3 was fairly weak there, despite the RGQ launch. Could you just explain the reasons behind that, and your expectations for the fourth quarter?

Yes. The RGQ launch happened in February -- on September 7. And so the whole sales force, at least the diagnostics and the applied testing sales force and parts of the pharma sales forces, were gearing up for that launch. So there were some, maybe, distractions from some of the other instrumentation products, but led to a slightly softer quarter in this area. Bu we still see a very strong demand for instrumentation products going forward. So I expect also 2011 to be a strong instrumentation year for us as well.

The fourth quarter is always a little bit of a wild card here. It depends on how the budgets fall in this area. Traditionally, it is a higher growth quarter for instrumentation.

Okay, great. And then one last question, if I may. You still have quite a lot of cash on your balance sheet. Just wondering what your plans are with regards to M&A.

Roland, do you want to take that one?

Yes, hi. Of course, we clearly are looking for M&A transactions. We also have a good setup with the [target] in the pipeline here, focusing on molecular diagnostics and applied testing areas, also to each of the (inaudible) still in the area, we are looking at. So we see quite a good number of targets which can deliver us in short -- for short midterm valuation. So you shouldn't be surprised that they're executing here on some of the (inaudible) in a short time timeframe.

Okay. Thank you very much.

Your next question comes from Daniel Wendorff from [Gomez Bank].

Yes, good afternoon, and --

Hi, Daniel. How are you?

Not bad, thank you. Three questions, if I may, and starting off with your geographical revenue contribution. And if I look at that quarter on quarter, it seems like you have only increased (inaudible) actually in the Americas, but also the share of revenues generated in the Americas, whereas Europe tends to be a bit sluggish. Am I right in assuming that you are -- your software development in the academic markets is mainly related to some European countries? If so, I would be interested in which countries.

Secondly, on your personalized healthcare franchise, which you mentioned, in the 5% of total sales, is that including also all development deals, or full time equivalents [recharged], and you are being reimbursed for by the pharma companies?

That would actually be -- actually, only two questions, so these two, I would like to ask.

Okay, yes, sure. I'll start out with the question on personalized healthcare. It depends on the structure of the transactions, how these things are accounted for. Sometimes these development collaborations are structured as co-research and development, where we get compensation for research funding in certain ways, and sometimes, they're also structured as an access to certain technology that we have.

So it depends -- there's no standardized accounting for these things, but yes, the growth that we're seeing in the personalized healthcare space, which is very substantial, is driven to a certain degree by these development contributions that are profitable for us.

But what is much more interesting is actually the growth of the assays, the products that we sell into this area, which is much higher, actually, than the growth in the development related contributions. So even though we're increasing the number of partnerships that we have -- we signed several this year, as you know, and coming off a base last year, and some of them have run out, and we're adding others to them. But the growth in the kit sales becomes cumulative, and is growing at a very high growth rate.

The question on the geographic breakdown, I'll hand over to Roland.

Okay, I can take that. Yes, hi. Molecular diagnostics, it's clear that you have a (inaudible), strong performance also in Americas, even despite our HPV franchise. So it's really driven by the (inaudible) on the call, we had an 18% excluding H1N1 molecular growth rate, and particular in the US, we had a very strong growth rate with our assays.

So I think it's probably more the reason -- the positive reason that we have seen a different growth rate in academia in Europe, whereas if you asked.

Yes, I was just wondering, because of the difficult situation in increased prevention assays --

Yes. From what we see, (inaudible) of course, countries like -- especially in south, southern part of Europe have a different growth rate. But QIAGEN is more or less in 2% of revenues coming out of these areas, where of course, countries like France, Germany, actually doing exceptionally well. So I only wouldn't (inaudible) that.

Okay, thank you.

Your next question comes from Romain Zana.

Yes, good afternoon. Thank you for taking my question. Most of my questions have already been answered, actually, but maybe a question on HPV in Europe. Can you -- do you have more visibility on the time for the reimbursement in the different potential countries, and if you could give us an update on your market share in Europe, because (inaudible), there is already several players. And maybe more question for Roland, on the tax rate, would it be a fair assumption to consider a sustainable 24%, 25% tax rate looking forward? Thanks.

Okay, I'll take the first part. Europe is a very dynamic environment, and as we all know, Europe is unfortunately relatively heterogeneous, and this means we're taking these discussions country by country, and we've laid out some of the details in the past.

This is simply a conversion effort. It took several years in the United States to get to the reimbursement and the level of standardization that we're seeing in the US, and we're doing this simply now country by country, and are working with the key opinion leaders.

We're involved in about -- I would say, about 30 pilot trials throughout Europe, and at least that many, then, throughout the world in other countries, where people are actually doing large pilots where they're looking at the implementability of these types of preventive tests.

We have a market share in Europe of about 70%. That said, we are winning almost every major screening deal, because the interesting thing is that the -- well, you know, laboratories can implement a test and do their own validation. If you're looking at population based screening, there's a scenario where you need a substantial degree of validation, and there, we're simply years ahead of any competitor.

And there, as we have longitudinal studies, and over a million data points and dozens of large clinical trials that were performed using our product in different types of settings from central Africa through to industrialized wealthy nations, we can implement the product works, and it is highly cost effective. And most of the competitors have shown that they fail on one of these three pillars, and this is something that we are successfully able to bring across for these national programs.

So we were able to announce a big one last year with Mexico, where we have a further majority of the market there, and I think there will be others coming forward. But that, we'll be able to talk about.

Yes, hello, Romain. The question on tax rate, yes, as you laid out, we were able to come in at an expected tax rate for the year 2010 of 24% to 25%, the effective tax rate. I think in a given environment, and assuming for a second that no government going forward is dramatically changing its tax rates and taxing, taxation, I think 24% to 25% is also a good basis for planning in 2011.

Thank you. And maybe a [fourth] question on Europe, HPV, if I may. Is the aim to pass the HPV screening tests as a primary test, or would it be more like US, like confirmation tests?

Well, most countries have, with one or two exceptions, most countries have already adopted a so-called reflex regime, where an HPV test confirms an inconclusive Pap test or an ASCUS type Pap test. Every country is very different. We are working in programs that are co-testing, we are working in programs that are doing HPV as a primary reflexing into cytology, we are working on programs that are not doing cytology at all anymore.

So all of these options are currently being looked at, and every country has a certain preference driven by the scientific, or clinical community that is advising them, and all of these scenarios, we are able to provide substantial benefits.

Your next question comes from Peter Welford from Jefferies.

Hi, thanks. I've just got two quick follow-up questions. And firstly, could you possibly give, at the current moment in time, given the acquisitions you've already executed, what sort of impact from acquisitions we should expect as a percentage in the fourth quarter?

And then secondly, just in regards to the flu, it looks to me as though so far year to date, you've booked around $25 million or so of flu related effects, shall we say, that happened in the first nine months of 2009. Am I right in saying that you think the fourth quarter will be bigger than that $25 million, or are we just saying the fourth quarter, that will be bigger than what the impact we saw in the third quarter? That would be great. Thank you.

(inaudible), answer both questions. M&A would probably, in terms of contribution in the fourth quarter, quite similar than we have seen in the third quarter. And in terms of swine flu, again, it's very -- the way we calculate this, the swine flu impact, is looking on two kind of different product groups. One is, which concludes product lines which for sure don't have anything to do with swine flu in 2009, and but of course, including everything. And so we're comparing this both [sets]. So it's very hard for us -- and then, comparing growth rates, which doesn't lead to a conclusion how much saw swine flu was in one group and in the other group. It just shows one group which is a clear group, and doesn't contain any kind of revenues coming from swine flu, what's growing 6% or 14% in this quarter, and the other group, which is (inaudible) the (inaudible) company, is growing 7%.

We -- our difficulty, as we said in the last quarter conference call, is that we don't have a kind of a (inaudible) business, one product which will occur ten [extract]. We sold assays for (inaudible) through, but we also sold sample prep (inaudible), a lot of semi-finished product which can be used for multi purposes, which especially if it goes through Asia, it's very hard to track and distinguish one.

We have reached our allotted time for questions. I would now like to turn the conference over to Dr. Mahler.

Yes, thank you very much, Kenesha. But first, I would like to close the conference call by thanking you all for participating. We hope to welcome you again to our fourth quarter and full year 2010 earnings conference call on Tuesday, February 1, 2011.

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 does conclude today's conference call. You may now disconnect.