Qiagen NV (QGEN) 2010 Q4 法說會逐字稿

Good morning. My name is Lisa, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Qiagen Fourth Quarter 2010 and Full Year 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, Lisa, and hello, everybody. Welcome to Qiagen's fourth quarter and full year 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 the press release last night announcing Qiagen's financial results for the fourth quarter and full year 2010 ending December 31, 2010 describing the Company's recent business highlights. A copy of this announcement, as well as the presentation we will be using during this conference call, can be downloaded from the Investor Relations section of our homepage 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 for your questions reflect management's view as of today, February 1, 2011. As you listen to the call, I encourage you to have our press release and presentation in front of you, since our financial results and detailed commentaries are included and will correspond to the discussion that follows.

As we share information today to help you better understand our business, it is important to keep in mind that we will make statements and provide responses in the course of this conference call that state our intentions, beliefs, expectations, or predictions of the future. These constitute forward-looking statements for the purpose of the safe harbor provision. These forward-looking statements involve certain risks and uncertainties that could cause Qiagen's actual results to differ materially from those projected. Qiagen disclaims any intention or obligation to revise any forward-looking statement. 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.

Thank you, Solveigh. Good morning, good afternoon, and welcome, all of you, to our fourth quarter and full year 2010 conference call.

As you can see on slide 4, for both the full year and the fourth quarter of 2010, we achieved the sales targets revised at the time of our Q3 call in November. We also achieved our original full year adjusted EPS target for 2010 and exceeded the target set for the fourth quarter. We demonstrated that Qiagen continues to expand in its core markets and deliver growth against the backdrop of a challenging year in 2009 comparables.

I would like to point out a few of the numbers. The results, as you know, have a complex base effect for comparison due to the exceptional contributions in 2009 from swine-flu-related products. Net sales for the full year amounted to $1.09 billion. Organic growth, which excludes acquisitions, was 4% at constant exchange rates, or CER. When you exclude the impact of swine-flu-related products, however, organic sales growth for the full year was 8% CER. Adjusted EPS was $0.93 per share.

As we discussed in November, we took a conservative view on sales for the fourth quarter. We reaffirmed our adjusted EPS targets while trimming sales targets. This decision was based on economic conditions in the United States and also the softness in doctor visits for preventive screening in the United States, which includes our HPV test for the risk of cervical cancer in women. These products contribute about 20% of our sales overall.

Adjusted EPS for the fourth quarter was $0.26 per share, exceeding the target. Net sales amounted to $286 million, and they were in line with the guidance. Organic growth was 4% when excluding the impact of swine-flu-related products. And, as mentioned, we believe that the fourth quarter held the most challenging year-over-year comparison. The effects related to doctors visits and swine flu were most pronounced in the fourth quarter of 2009.

The underlying momentum remains positive as we begin the new year and build on the accomplishments of 2010. Here are just a few points.

We strengthened our competitive position across our customer classes. A key milestone was the launch of QIAsymphony RGQ in late 2010, with a primary focus on Europe. And the feedback has been very positive about the instrument's unprecedented capabilities. Since the launch of the first module, QIAsymphony SP, we now have an installed base of more than 450 systems worldwide and plan significant increases in 2011, making QIAsymphony the most widely sold molecular sample and assay technology processing instrument. We see a very substantial opportunity with QIAsymphony and have a chance to drive the dissemination of molecular diagnostics. In fact, this could be similar to what we saw with immunoassays about 15 years ago and about 25 years ago with clinical chemistry -- novel automation driving dissemination.

In addition to a deep pipeline in infectious disease profiling assays, we have more than 15 projects underway with major pharmaceutical companies to develop companion diagnostics. The landmark US submission of the KRAS biomarker, which is being done in a modular form, was started in late 2010 and is set to be completed during the first half of 2011.

We also made continued progress in converting the US market for HPV testing, despite the significant drop in patient visits. And we expect to resume delivering sales growth in 2011.

And, in applied testing, pharma, and academia, we launched many new assays and products to build on our strong product offering.

In terms of innovation, we launched 86 new products in 2010. Our pipeline is very strong and provides a competitive difference. We are increasingly focusing on fewer, albeit larger, launches over the next few quarters.

In our release issued last night, we've provided you with our expectations for 2011. Qiagen is focused on expanding our strategic position to drive innovation and growth. Adjusted earnings in 2011 are expected to improve at a faster pace than sales. A key focus in 2011 will be to further strengthen our leadership position in molecular diagnostics and in all of our customer classes. A number of important new product launches and regulatory submissions are planned, many of which will support the global adoption of QIAsymphony RGQ. These involve assays for infectious diseases and companion diagnostics, as well as assays for use in applied testing, pharma, and academia. Our QIAensemble program is progressing, and we will soon provide an update.

We are also expanding and strengthening our geographic presence, with a focus on the fastest-growing emerging markets; particularly, China and India. Expansion in other high-potential markets is being considered as part of this strategy.

Achieving these objectives will position us to further accelerate growth in 2012.

In summary, Qiagen has the capabilities critical for sustaining success and to deliver a better performance in 2011. We are playing a pivotal role in the molecular biology revolution and are positioned for success in the coming years.

Before we get into more depth on some of the highlights, I will hand over to Roland for a discussion on the financials.

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

Qiagen's financial performance in 2010 was in line with guidance. Although growth rates were at lower levels than typical for Qiagen, we continue to have a robust product portfolio pipeline that performed well in our core markets, with the exception of pressure on our HPV products in the US.

Recapping the key numbers, based on January 31, 2010 foreign exchange rates, we had sales of $1.09 billion, which were in line with our expectation. Adjusted diluted earnings per share for the year came in at $0.92 per share, at guidance rate. So we were in line with our expectations of $0.91 to $0.92. A contributing factor to higher net income is our commitment to balancing growth is prudent cost control. While we have continued to invest heavily in innovation, which is critical to extending our capabilities to enable future growth. We have also maintained a strong discipline to improve efficiencies. For the full year, adjusted net income grew 12% to $222.7 million from $199.6 million in 2009.

As we noted in the previous two quarters, we had a strong base effect from swine-flu-related testing. In order to more clearly demonstrate our overall growth and to underline core, organic growth between 2009 and 2010, we removed all sales from product lines that were involved in swine flu testing. With this adjustment, our organic growth was 8%. Significant drivers were higher volumes and revenues from new product launches during the past 12 months.

Growth contributions from acquisitions added 4 percentage points, leading to, overall, 12% total growth at constant exchange rates.

On a reported basis, these numbers correspond to the following growth figures -- 4% organic and also 4% from acquisitions; so, overall, 8% at constant exchange rates.

Moving on to our sales distribution for the year, we continued to show solid growth across most of our product portfolios serving our four main customer classes. In looking at total sales at constant exchange rates, molecular diagnostics represented approximately half of our total sales and grew 8%. Pharma had 6%, academia showed 7%, and applied testing grew 15%.

When looking at growth rates excluding swine-flu-related products, molecular diagnostics grew 14%, pharma was up 9%, academia advanced 10%, and we achieved a 22% improvement in applied testing.

On a geographic basis, we had 5% growth in the Americas, even with the economic conditions and reduced doctor visits in the US. We grew steadily in Europe at 13%. Asia, although still a smaller contributor to our revenues, had 12% growth. Again, here, without swine-flu-related revenues and at constant exchange rates, growth was 8% in the Americas, 20% in Europe, and 22% in Asia.

Moving on to slide 7, here, I would like to review some of our operational initiatives. We reinvested savings from operational excellence initiatives in 2010 into the business. For example, we invested significantly in R&D to expand our global presence, in part, to integrate and build on important acquisitions, such as DxS and SABioscience. The initiatives in R&D are not always completely appreciated. We have added more than 150 scientists since the end of 2008, mainly in personalized healthcare. In our pharma companion diagnostic projects, much of the R&D investments in this area are covered by these agreements, so it is not visible in the income statement. We are investing heavily in our center of excellence for companion diagnostics in Manchester, England and are co-developing products that could have annual sales potential in the hundreds of millions of dollars.

Overall, in 2010, we had an adjusted operating margin of 28% and 29% at constant exchange rates. So the decline from 2009 was due to currencies. Our target is to reach 31% by the end of 2013. We believe we are well on track to achieve this target, since we have many initiatives underway. These include optimizing our global procurement across business functions and globally aligning our purchasing processes. This is allowing us to realize economy of scales and to reduce transaction costs, effectively bundling our purchasing power.

Also, we are implementing centralized inventory management across all geographic regions. Centralizing, standardizing, and automating [OT] processes not only contribute to profitability, but they also enable us to accelerate our plans to react quickly to opportunities. This becomes even more important as we expand in key emerging markets. For example, (inaudible) India at the start of 2011 took us less than five months after making the decision.

With the right combination of people, processes, and technology, we have been able to enhance the productivity and value of our business operations while driving down the cost of routine operations to a desired level. Performance-oriented workforce management and reallocation of resources to growth initiatives are anticipated to provide additional benefits to our adjusted operating income in 2011.

Moving on to slide 8, I will spend a minute highlighting the progress we have made in improving cash flow. Our cash flow enables us to pursue growth and make investments without relying on unstable credit markets and reducing our exposures to interest rate development. Both operating cash flow and free cash flow have risen steadily since 2007. In 2010, our operating cash flow rose to approximately $251 million, up from $217 million in 2009. And, for 2010, we had free cash flow of $171 million, compared to about $165 million in 2009.

Capital expenditures over the past two years have been quite substantial, with $52 million in 2009 and $80 million in 2010. These included investments of approximately $30 million in construction activities at our sites in Germany and Maryland to expand both R&D and production facilities. These investments obviously had an impact on our free cash flow. I want to note here that we are close to completing the expansion project in Germany with around $36 million of expenditures anticipated in 2011 to reach completion.

At the end of 2010, we had $934 million in cash and short-term investments. We have a healthy balance sheet with a positive net cash proposition to support our growth initiatives. We remain committed to using our resources appropriately in support of our strategic goals to drive innovation and growth.

Before I hand back to Peer, on this slide, we review the performance for the fourth quarter. In terms of results against the guidance range, we had net sales of $283 million, which were in line with our guidance range of $275 million to $290 million. Adjusted diluted EPS rose to $0.26 per share, which exceeded our guidance range of $0.24 to $0.25 per share. This was a quarter in which we faced challenging environment and were measured against a particularly strong performance in the fourth quarter of 2009.

I would now like to hand back to Peer for a strategy update.

Thank you, Roland. And we are now on slide 11. I would like to first discuss our strategy and the growth potential in molecular technologies and then how we are implementing this through Qiagen. Everything we do is based on a fundamental principle -- enabling our customers to transform raw, biological samples into digital information that makes valuable molecular content visible. Up to the year 2000, we were focusing on our leadership in platform technologies. And, during the next five years until 2005, we integrated these platforms into complete workflows. And, then, from 2005 to 2010, we automated these workflows.

Last year, we moved into a new strategic phase to expand our molecular content, and this is now being put into workflows and on our automated instruments. Similar to our market strategy, until about 2005, we had been focusing on leadership in sample and assay technologies. Then we diversified into various customer segments and created sales channels focused on the high-growth areas; notably, molecular diagnostics. And, starting in late 2009, we segmented molecular diagnostics into four pillars -- prevention, profiling, personalized healthcare, and point of need devices. These are creating value for healthcare systems and represent about half of our sales.

Moving to the next slide, slide 12, when looking at our current revenue drivers and their future growth potential, this chart underscores our strategic initiatives to expand in molecular diagnostics. At that same time, academia and pharma are core elements. They form a critical basis for new innovations and partnerships. And scientific advances in these areas, particularly in academia, are the source for clinically relevant breakthroughs. And applied testing has dynamic potential, given the broad range of commercial applications, particularly in forensics, veterinary medicine, and food testing.

Turning to the next slide, a key element of our growth strategies in profiling and personalized healthcare is our QIAsymphony, a highly flexible, modular, automated instrumentation platform. Importantly, QIAsymphony has an attractive growth potential across all four of our customer classes. QIAsymphony was launched in the first module a few years ago with a sample preparation system. And then we added an assay setup module.

And, in late 2010, we launched QIAsymphony RGQ, which incorporated the RotoGene Q real-time detection platform. Initial feedback is exceeding our expectations. Customers are recognizing how this system will enable them to adopt or greatly expand the use of molecular diagnostics. The system covers sample preparation to assay setups to detection, offering features that include continuous loading, random access, and open channels for user-developed assays. In addition, the system can process up to 300 assays from sample to result and per shift. We are developing new breakthroughs for QIAsymphony.

[QIAsymphony +] will have a fully integrated RGQ device -- actually, two of them, while QIAsymphony Pyro will integrate pyrosequencing analysis into workflows with validated protocols. I will come back to the topic of pyrosequencing later in this presentation.

Turning to the next slide, QIAsymphony has an important competitive advantage. Customers can run our broad commercial menu, as well as their own laboratory-developed tests. And these features address previously unmet customer demands. Critical to future growth will be the development of a very broad range of assays, both Qiagen and user-developed. The user-developed assays would be developed using Qiagen reagents. In some ways, think of this platform as an iPad with an ability to add as many apps as desired.

In Europe in late 2010, we launched QIAsymphony RGQ. The menu included all of our virology assays, such as HIV, HCV, and HPV, as well as transplantation and other advanced tests, and more assays are planned to be launched in 2011.

For the US, we are building an infectious disease assay menu similar to Europe. The first submissions are planned for 2011for the infectious diseases CMV, or cytomegalovirus, and EBV, or Epstein Barr virus, and influenza. Some of these could also be launched during this year as well. Several assay development programs are set to begin, and these include the infectious diseases HIV-1, HPV, and HCV. We gained access to HIV-1 and HCV through the agreement reached with Abbott in October 2010. Many more tests and technological advances are in development for QIAsymphony RGQ.

On the next slide, you see an overview of our four customer classes. We have differentiated and highly competitive product offerings in each class, as well as the key capabilities for success.

I would like to now provide you with some insights into developments in 2010 and key initiatives for 2011.

Turning to the next slide, we are making dynamic progress in personalized healthcare, where we're helping to match the right patients with the right drug by using companion diagnostics. Our sales here are approximately $50 million, or about 5% of sales, but growing very dramatically. We have built up, by far, the industry-leading position with a portfolio of assays that include KRAS, EGFR, and others. We have a portfolio of more than 15 projects underway with major pharmaceutical companies and more in the pipeline.

In 2010, we also completed the accelerated integration of DxS, an acquisition that has exceeded our expectations and positioned us for much more success in this area. Our lead product is a therascreen KRAS assay, which determines the gene mutation status in patients with colorectal cancer. We are in the process of submitting KRAS to the FDA for premarketing regulatory approval, or PMA. The first module was submitted in late 2010, and the submission is set to be completed during the first half of 2011. Also in 2011, we intend to expand our leading position and advance the broad partnered biomarker development pipeline, which includes assays such as EGFR and BRAF and many others. Another important biomarker is PI3K, for which we acquired a global and co-exclusive license in 2009. We also have several other proprietary biomarkers in development as well.

Turning to the next slide, I will only briefly touch on profiling, which accounts for about 20% of our total sales, since we have already discussed many of these points in relation to QIAsymphony RGQ. But I want to reaffirm how we are working to quickly expand our assay portfolio in all key regions, building on the current list of more than 120 assays that are now available. The benefits are significant. Molecular technologies offer extremely high sensitivity and specificity, enabling even the smallest traces of virus or bacteria to be detected. So [we are intensify] our efforts to help in the diagnosis of diseases and driving the dissemination of these potentially lifesaving procedures.

Turning to the next slide, I would like to provide some insight on HPV testing and prevention, which provides about 23% of our total sales. As you know, the number of patients visiting doctors in the United States for HPV tests was down significantly in 2010. This adverse trend continued in the fourth quarter, and this was the reason for our conservative view for that period that we gave in October 2010. This decline has been blamed on the uncertain US economy, the rising unemployment rate, and related reduction or loss of insurance benefits.

Our market conversion initiatives continue to be successful, and we are converting the market at rates comparable to 2009. We have doubled conversion during the last few years to about 40%, and HPV testing is still a substantially untapped market. So conversion initiatives will remain a major focus also in 2011.

The question then becomes -- when will patients in the United States start returning to physicians for preventative testing, or, in other words, when will they go back to the normal intervals between their doctor visits? There is a strong correlation between economic cycles and doctor visits for preventive care treatment. Even though the jobless rate remains steady at around 10%, some are pointing to a recovery in these visit intervals. However, while many analysts and industry participants are calling an improvement imminent or already here, we are not willing to say yet that we have reached the bottom of the cycle. We do, however, anticipate a moderation in 2011 in the declining rate of doctor visits. That is the basis for our guidance.

Our view also remains that, based on the assumption of market conversion continuing at a good pace, the HPV franchise will, even under a very conservative assumption such as we just gave relating to doctor visits, achieve growth in 2011 as all fundamentals are very intact.

We're 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 this is fully part of our plan. We have often said that our forecast takes into account maintaining a significant majority of the US market for HPV testing following the introduction of several competitors.

There are some more 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. Our view is also that, based on the disclosed data, none of the competitor assays are anywhere close to being as clinically powerful as our assay, so Qiagen continues to prove also in this dimension that it has a superior product offering.

And we will capitalize on our leading positions in HPV testing, both in the United States and in other markets. Negotiations continue in converting markets in Europe to HPV screening, and our commitment to helping in the fight against cervical cancer is demonstrated by our donations of tests as part of Care HPV.

Also in 2011, our teams are working on the QIAensemble next-generation prevention platform, and we will be providing you with an update on our plans, at the latest, at one of the industry meetings in early May, which include EUROGIN and CVS.

So, in summary, we are focusing on what we can do for the HPV market, and that is to continue to drive conversion. This will position us to benefit from the eventual US economic stabilization or, even, recovery, which will be a key factor for patient visits.

Turning to the next slide, I would like to update you on progress in our three other customer classes.

In applied testing, strong trends continued in 2010. Although this business is relatively small, we are rapidly building our assay offerings, and this will be a top priority in 2011 in human identification, or forensics, food testing, and veterinary testing.

In pharma, we experienced solid growth, thanks to demand from the industry's development side. We have seen favorable customer reactions to new products, particularly to the SABioscience or content products that we introduced in 2010 and migrated into our sales channels mid of the year. The research side of the pharma business remains challenging.

As I mentioned earlier, academia is a core business, since commercial assays of the future are being developed in academic labs today. The launch of the SABiosciences portfolio was also here very important as well. In 2011, we will continue our focus on biomarkers and expanding the use of such in our instruments.

Turning to the next slide, here is an overview of selected projects in our development pipeline. I've discussed a number of these projects, particularly those that we are planning to launch in 2011. The combined addressable markets for these assays amount to more than $1 billion of annual sales potential, and this is not a complete list but simply a selection of several assays that we're moving forward currently.

From another perspective, this chart underscores our innovation power and the benefits of our sustained, double-digit R&D investments. We are expanding our product portfolio in key markets around the world, which is reflected here with the projects in development for China and Japan and also many products for other key markets.

Turning to the next slide, we noted in our release that Qiagen created a new organization in India at the start of the year, marking our direct entry into one of the largest and fastest-growing emerging markets. India already has the third-largest biotechnology market in the region, behind Japan and China, and is expected to deliver sustained, double-digit growth performance in the coming years.

Asia, and this includes Japan, now contributes 12% of our global sales, and this should continue to grow, given the rapid adoption of molecular technologies. The top market is, obviously, China, which has grown exponentially to become the number three country for Qiagen. We are making significant investments here to capture growth opportunities as the government invests in improving healthcare.

Turning to the next slide, and this is slide 22, I mentioned earlier how we are focusing increasingly on molecular content and developing advanced tools to analyze vast amounts of data. As the cost for next-generation sequencing continues to drop at a dramatic pace and far faster than many industry experts had ever expected, the challenge is really not the platform technologies or how to read DNA; it is finding ways to make sense of these broad and indiscriminate data sets. So, while we are actively reviewing offers to commercialize next-generation sequencing platforms into our clinical research and diagnostic channels, we are much more focused on our customers and have a more pronounced interest in providing clinical assay panels for clinically relevant assay subsets, which typically cover only a few genes. In other words, why read everything if the clinician is really only interested in one or two genes that are proven to have clinical relevance.

One example we are quite excited about was our announcement in early January. This was our strategic investment in Alacris, a company formed out of the Max Planck Institute and Harvard Medical School. The scientists -- Some of the cofounders were among the drivers of the early genome gold rush and have been focusing on identifying clinically relevant subsets of genetic markers over the past few years, which are critical for creating targeted diagnostic products. We have gained exclusive rights to biomarkers coming out of their work.

We are building several of these partnerships, but this one is unique in that it combines extensive clinical networks and access to samples from patients which are then read on mass sequencing and system biology platforms; so not only sequencing genetic data but also epigenetic, transcriptome, proteome, micro RNA, and metabolic data and then layering that and using algorithms to select the clinically relevant subset that then can be transferred into diagnostic products.

This is the core of the next generation of life sciences, not how to do things but what to do with the data being generated, finding out exactly what subsets of this mass database can be used to take forward to find clinically relevant subsets. You can compare it to trying to understand the patients by looking at a library or understanding exactly what chapter to open to find the relevant information on a patient. This is the content engine that is fueling our next generation of diagnostic tests. It is also a superb tool to work together with our pharmaceutical partners in companion diagnostics.

The contributions of Alacris then link into our real-time PCR and pyrosequencing detection technologies. Here is where our 2008 acquisition of pyrosequencing technologies will become even more important. This is also recognized by our customers. We have doubled sales in this area within the last two years. And we will continue investing in these technologies and developing our portfolio of advanced tools to analyze the data in pursuit of breakthroughs in genetic information.

Turning to the next slide, slide 23, as mentioned earlier, we have a very healthy financial position. And we have -- As we have done in the past, we are considering various acquisitions that would strengthen our competitive position while creating shareholder value at the same time. We have a clear and consistent M&A strategy, and that is to consider targets that improve our product pipelines, provide access to new technology platforms, and provide expansion opportunities into new geographic markets.

A key element here will be acquisitions that improve our offering of products for molecular content. As I also mentioned earlier, DxS is just one example of a successful transaction and one that transformed our position in personalized healthcare in such a short period of time. Another transformative transaction would be SABiosciences and how we gained access to a comprehensive portfolio of molecular content that can be used now in our platforms.

In summary, I hope you can see that we're making good progress in 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 expectations for 2011.

Before I comment on the guidance, I would like to address two points. As you will have noticed, we have adjusted our methodology for providing guidance, moving away from giving specific quarterly and yearly guidance ranges in US dollars for net sales and adjusted EPS at a fixed guidance rate for the year. We have made the switch to, instead, provide a yearly guidance in terms of percentage growth ranges based on constant exchange rates. With sales now of more than $1 billion, we believe it is more clear for the financial community and mirrors the approach used by many of our peer companies.

Also, you will notice that we have responded to investor requests to move our investor day out of the earnings season and to a date later in the year. We are considering various events linked to corporate development and key industry conferences, such as ASCO in June and the Association of Molecular Pathology meeting in November. This would maximize the value of these days for our analysts and investors attending these events, as well as for us.

As for our expectation in 2011, overall, we anticipate adjusted earnings growing at a faster pace than sales. Although the global economic outlook is not overly clear for 2011, we see fairly stable economic conditions in our core markets and growth opportunities in untapped areas. We anticipate our net sales growing at about 5% to 7% in 2011, with total growth essentially reflecting organic growth, given that we did not have any significant acquisition in 2010 that will provide meaningful sales contributions in 2011. Our expectations do not take into account any acquisitions that could be completed during the year.

Adjusted EPS is expected to grow at a faster pace of 7% to 13%. One of the drivers behind that will be an improvement in our adjusted operating income margin by 50 to 100 basis points.

We remain well balanced in terms of the volatility in the key currencies due to our natural hedge.

Also, in terms of cash flow development, we will keep the pace of recent years and will be able to convert our earnings into strong operating cash flow, allowing us to invest in growth. We anticipate a rate of about 25 to 50 basis points in terms of interest rates on our cash holding. But, given that we have to pay interest on our debt, we anticipate a full year net interest expense of approximately $20 million to $25 million. Please, remember that our functional currency is the US dollar, so our benchmark is the US dollar interest rate.

In terms of adjusted operating income, we expect the following pretax factors -- equity-based compensation between $18 million and $19 million, amortization of acquired intellectual property of about $94 million, business integration and acquisition-related charges of $6 million to $7 million, which mainly incorporates production transfer within our site expansion and executing further our operational efficiency initiatives.

For 2011, we expect our non-GAAP effective tax rate to be between 23% and 26%. We could come out at the higher end of the tax range, depending on the level of US HPV-generated sales.

In terms of results during the year, we expect stronger contributions in the second half than in the first half of 2011 and the smallest contribution in the first quarter. As we launch new products quarter over quarter, our growth rates will increase again, so that, by 2012, we're driving toward double-digit growth again. Among the reasons why we expect a stronger performance in the second half of the year are the momentum behind the rollout of QIAsymphony RGQ, the expansion of the assay menus in all of our customer classes, the attractive growth perspectives in key regions, and the potential for improving economic conditions in the US.

On the cost side, we are starting the year with more or less our Q4 2010 run rate in operation expenses, including relatively high R&D investments as a percentage of net sales. R&D investments are expected to remain relatively steady during the year in absolute dollar terms but decline as a percentage of sales as the year progresses.

You get information on a few assumptions to frame each quarter in the appendix of this presentation.

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

I'm now on slide 26 to provide a quick summary before we move into Q&A. As mentioned at the start, we made progress in 2010 and are moving into 2011 as a leader focused on innovation and growth. We are well positioned to expand in 2011 and in position to further accelerate growth in 2012 with these among our top priorities. We will increase our technology and market leadership and molecular sample and assay technologies. We will drive the rollout of QIAsymphony RGQ, an automated platform that has the potential to transform the adoption of molecular technologies. We will build assay menus in all customer classes, particularly profiling and companion diagnostics. We will expand our leadership position in companion diagnostics, completing the submission of KRAS and progressing on many other pharma projects. We will strengthen our focus on analyzing molecular content, capitalizing on our technologies, such as pyrosequencing, QPCR, and collaborations such as Alacris. We will continue our HPV market conversion initiatives while preparing for competition in the United States and advancing our next-generation prevention or screening technologies. And we are considering targeted acquisitions in line with our strategy to create value for our shareholders while strengthening our competitive position.

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

We are now looking forward to discussing your questions. I would like to open the Q&A session by handing over to the operator.

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

With the guidance that you gave for 2011 and the first quarter expected to continue the macro conditions that you see, that would seem to imply that you'll exit 2011 with maybe high-single-digit-plus type organic revenue growth. You talked about the rollout of the RGQ. What do you think, Peer, is going to be the menu that drives the uptake of RGQ? And what other drivers do you anticipate kind of, outside of the macro getting better, to drive that second half growth?

The QIAsymphony RGQ platform is pretty independent of macro conditions. When we look at macro conditions, they impact only about 18% or 19% of our sales, which are the United States preventive care products, or HPV screening, primarily. The QIAsymphony platform, which drives, primarily, the profiling and the personalized healthcare products, are -- that product is almost independent or not impacted by macroeconomic conditions. So the market is very strong there. You compare it. If somebody has a chemotherapy or transplantation, then testing is done automatically, and there's not an elective interval that the patient chooses. It is simply something of high urgency and importance. Therefore, if the macroeconomic environment is very robust and strong in this area and the assays are very -- are all reimbursed at standard rates and we can penetrate the market with these new platforms simply by disseminating.

The key assays will be about 14 assays on the platform in Europe and in many countries of the world that include all major assays and molecular diagnostics, almost the complete universe of assays that are being sold today. As you know, we have a broad menu of assays, over 120. And we put the most important ones onto the QIAsymphony in the first batch, and more will be coming out. And they include HIV, HCV, HPV. They include the transplantation viruses; so cytomegalovirus, Epstein Barr, varicocele, and BKV and a few others as well. And they also include the personalized healthcare assays. They also include respiratory assays in number, which include, primarily, influenza.

The assay panel in the United States is going to start out with open-channel reagents and also a number of ASRs that can be configured. And we will be submitting a number of assays that will include KRAS, influenza, CMV, and EBV this year and have a broad pipeline behind that that will be able to be ported onto these platforms. So I'd say, for QIAsymphony RGQ, we'll be building the market for submissions and approvals in the second half of the year in the United States, and we will be leveraging off a very broad, approved portfolio of assays, already starting -- we already started in the beginning of January.

And then, Peer, just quick, and I'll drop. The expectations for flu for next season or the back half of 2011?

Sure. We will actually have two products for influenza testing in the second half of the year in the United States approved. Right now, we're not seeing a very strong flu season. As you know, we're the primary supplier of a lot of influenza assays in many countries for pandemic surveillance. The volumes are quite moderate. We've seen that there is reemergence of some very bad cases of H1N1, but the testing has not been very widespread. This could very well be if we see a changing pathogen in 2012 that we again see a stronger flu season. And this fits very nicely because, at that point in time, we will also -- we also expect to have the US approvals.

Thanks.

Marshall Urist, Morgan Stanley.

So, first question, just on HPV. And I know you commented on expecting to see growth for the year. But maybe, if you can, talk a little bit more about what we should be thinking or what's in guidance for the US versus Europe for next year in terms of what you're seeing in the two different geographies.

The uptake in Europe for 2011 is driven primarily by increased pilot studies. There are dozens of pilot studies ongoing. I think we've won almost every one of them over the last 12 months, and we see more coming forward. We expect national screening programs to be implemented. There are several in the pipeline for 2011 -- decisions which will be announced and opportunities.

And we're seeing reimbursement decisions, important ones, coming up in 2012. So we are moving very actively on establishing a reimbursable environment for co-screening in Europe in several countries. Right now, reimbursement is only given for select private insurers and also very select -- and, obviously, ASCA screening or reflex testing. So, as we expand the market using our advocacy and reimbursement activities, we expect to see more digital, stepwise growth in Europe.

We see very strong growth in Asia. Asia is actually our second-largest region now in this area. And we are growing quite rapidly.

And, in the United States, we continue to see very good conversion with our clinical sales force. We are exceeding probably around 40% and moving at very reliable, double-digit conversion rates up into the market. So, if we see a stabilization of the doctor visit number, there is a very good upside. Our current estimate assumes a continued decline but a little bit softer than the double-digit decline that we saw in 2010. So we -- Our current forecasts include a continued deterioration or increase of the interval deterioration of the doctor visits numbers in 2011 but at a lower number; so, at a low- to mid-single-digit number. So this is much more conservative than a lot of the industry experts see right now. Payers and certain laboratories are starting to see improvements. But, if you can't time an improvement, I'd rather be on the conservative side, and this is what went into our guidance.

Okay. Great. Thanks. And then, on the symphony launch, it would be helpful if you could talk about maybe not specific units but ballpark in terms of how the kind of sales funnel looks there and how many units you think you guys will be able to have in place by the end of the year? Should we be thinking that you're going to start to see tests pull through by the second half of the year on the sort of first half placements? And is that the big driver of organic growth acceleration over the year?

We're actually surprised -- very positively surprised to see the speed of the uptake of the system. We thought it would be -- take a little bit more time because it is, certainly, in many ways, a novel system that we have to basically show to people. It seems to have gone viral a little bit. We have seen a very strong pipeline in this area. As we said, we had 450 systems out there as of the end of December. So you already see a good uptake of the systems in advance now with the RGQ solution. The QIAsymphony SP was very often purchased in anticipation of, now, the RGQ coming out. So they simply add on the last module. That's the beauty of this system. It's a modular system. You can just plug and play, basically, and expand it into an integrated workflow. And this number of 450 -- you know, doubling might be a little bit steep, but we shouldn't be far of that in 2011.

So there is actually a very deep pipeline. Our sales force is excited about this product. Customers have already started actively publishing on it. And I expect the reagent pull-through in Europe to start in the second half of the year and, in the United States, maybe late in 2011.

Great. Thanks. And then just one more. Any update on the next-gen HPV trial and ensemble and ensemble timelines that you gave us would be helpful as well. Thanks.

Sure. The high-throughput screening platforms are a core element of our molecular diagnostic strategy. The prevention pillar is going to benefit from new, high-throughput screening platforms, which we're advancing. We have a lot of resources on this, and we believe we have a lot of news on it. There will also be some very, very interesting additions that we hope we can talk about in about a couple of months. Again, we want to have everything out there on the table, so we can inform customers about it very quickly. The availability of these platforms remain, as we said six months ago, in the about two years from now timeframe.

Great. And has the trial started again for the next HPV yet?

We expect to reinitiate that this summer.

Okay. Great. Thanks for the questions.

Peter Lawson, Mizuho Securities.

Roland, just thinking about cash on the balance sheet, we saw some commentary about a dividend payment this morning across the wire. Could you elaborate on that dividend payment comment, please?

After this morning on the press conference, it was actually quite clear, I thought, that, right now, we actually do believe that we are able to do accretive M&A transactions. So it's clear, the primary focus of us investing into Qiagen's growth. In terms of dividend payments, that was more like a long-term view because we do believe, of course, that we can enhance our cash flow going forward even stronger and that, at a certain point of time, there might be additional components, either share buyback or dividend payment. But, again, a primary focus for us right now is clearly around M&A. Only if there's either an attractive market environment or any other opportunities, we might enhance it with the two, as I said before.

Peter, obviously, you know, with $5 cash per share compared to the average leverage ratio, this is a question that you get from time to time. But we're very focused on using our surplus cash position on not only getting accretion from the balance sheet measures but getting accretion also from strategic and income-contributing acquisitions.

Thank you for clarifying. And then, just on real-time PCR patents, they're rolling off. Have you started seeing a benefit? How long do they last for? And what's the scale you expect?

Well, this is an important feature. And we've received a couple of questions on this topic. And thank you for raising this.

I believe we're one of the largest companies, probably second-largest, in diagnostics and one of the largest also in the non-diagnostics world in terms of PCR products. And there's definitely a benefit. There are several products that are coming out of IP this year, and there are benefits that we will receive from that. However, a lot of the products have overlaying IP that continues further. The probe technologies or the design of the instruments are so that it will have a certain extension to it. So there will be a gradual reduction of the royalty burden, which is double-digit million -- dozens of millions of dollars, actually. To see that start sliding over the next few years towards 2016, that will start flowing into the balance sheet.

What I would suggest is that we maybe keep that information for the upcoming conference call. And thank you for raising it. We'll try to give more clarity on it in the next call.

Thank you so much.

Holger Blum, Deutsche Bank.

First question, on personalized healthcare. In previous press releases, you mentioned approximately 20 projects in companion diagnostics, and now you're saying more than 15. What kind of change has happened there?

These would be 15 pharma companies; [in part], several programs.

So to total number of programs is still around 20 with 15 different --

Yes. We saw an increasing number, and we actually expect quite a few more to come in even in this quarter. So, also, as we saw in the fourth quarter, we signed a couple that we just named as projects. But we are attracting a lot of interest in this area for co-development.

Okay. The next question is on applied testing. You had 30% growth at constant exchange rates after the nine months and just 5% in Q4, despite the 80 new tests that came on top. What has happened there in the fourth quarter?

The fourth quarter actually had a big year-over-year effect in there. We had a very large forensic order in the fourth quarter of 2009. So this is only 7% of sales. So, you know, such large, million-dollar-plus orders, they can skew the growth rate a little bit. So, on such a business, I would look more at the annualized figure or, at least, the trailing 12-month numbers or 6-month numbers, whatever you want to look at.

Okay. A final question on your pipeline chart on page 20, where you have shown your assay development portfolio like CMV, EBV, and so on. Could you give us your rough guidance about the current market size of these or maybe give kind of indication about the cumulated number that you enter as a business opportunity in '11 and '12 based on that pipeline chart, roughly, in terms of market size -- not revenue projection from your end.

It's a little bit tough to do because some of these products are kind of new to the world. So, if you, for instance, take the artus panel, starting with HIV through JCV, that market size, I would say, is somewhere in the range of $500 million to $600 million. Now, these are estimates. You know, I'd have to look at this in more detail. But, just to kind of like scope that, $500 million or $600 million. But they are absolutely key for dissemination. And this is why we have those. So, once you have this portfolio, especially the first three, you have a very good reason for dissemination, for a hospital to buy your platform.

CMV and HPV are probably, combined, almost $2 billion -- between $1.5 billion and $2 billion market opportunity.

And the therascreen assays that you see here are probably in some -- just these that we see here are somewhere in the range of, I'd say, $350 million. And, here, we have very unique positions in terms of validation and also co-approvals, far ahead of anybody else. And the PI3K marker actually could be bigger than any one of these assays. But that one I put at zero at this stage because we're still in development with a number of partners around drugs.

I'd like to highlight the more than ten other undisclosed biomarkers. So, we are working on profiling, prevention, and personalized healthcare markers far in excess of what we have up front here. And the potential of those is probably comparable to what we just discussed here.

So there's a very deep pipeline of assays. The huge effort that we had to create these platforms and to complete them is now there, and we can start scaling. And this is the moment we've all been waiting about. That's why -- The time of content has now come, and this is something that we're pushing very aggressively.

Okay. Great. Thanks.

This was very rough, by the way. It's just difficult to quantify.

William Quirk, Piper Jaffray.

First question. Just thinking, Peer, about beyond the initial menu that you've talked about in terms of QIAsymphony, can you give us an update specifically around Chlamydia/gonorrhea? When can we expect to see that in the US, as well as in Europe? You've had some, candidly, very strong data associated with that.

We actually expect there -- We actually have more than two Chlamydia programs ongoing, one for screening and one for the medium-throughput areas because, because Chlamydia is very often also a symptomatic test. So there's not only preventive but symptomatic testing. And so it could fall into the profiling area and, therefore, also in QIAsymphony. So we actually have a real-time PCR Chlamydia program ongoing as well. That is something that we just also put into this group here. So you see a date behind that -- Actually, there's no date, but this is something that we would be targeting for 2011. This is a very short process in the United States for that assay compared to the PMA.

Few people know, but we have a very strong position, actually, in Chlamydia testing in Europe with an assay that is considered one of the most sensitive in this space. And, following the changes in the mutations a few years ago, we actually were able to capture significant market share. Now, with the advent of the right platforms behind it, we have to complete workflow. We think we can actually expand that position.

The high-throughput screening assay is one that we are integrating into the + system, the high-throughput screening systems. And that's something that we can give you timelines on, then, when we discuss the QIAensemble, further details on the specs. We have provided a number of you first specs on the platform, and we'll go much deeper in a couple of months.

Understood. And then, as a follow-up question, Peer, you obviously talked about trends in the physician office space and your outlook there. As it relates specifically to the fourth quarter, can you just tell us HPV volume or HPV revenue, rather, in the quarter --? Was that off sequentially? If so, I assume just a little bit. But, if you can give us just a touch of color there, that would be great. Thanks.

Sure. The fourth quarter we saw in 2010 was very soft in terms of HPV, and we had a sequential decline compared to the third quarter. So there was a very poor performance in HPV testing, which also has a little bit to do with the very strong performance in 2009, as a lot of people still had deductibles that could be utilized the fourth quarter 2009. And that was not as pronounced in the fourth quarter 2010 due to some of the economic impact. Small changes in this group can have big swings for us.

So, as we see now that the market is starting to show first signs of recovery, we expect this to start stabilizing now, at which time, we can get the conversion to shine through. And, again, just to emphasize, on these 18% of our sales going from 20% growth to a low growth rate, that's almost the whole difference between our organic growth we had in 2010 compared to 2009. But it clearly shows that we're actually doing quite well in almost all of our cylinders. But, in that area, we are seeing issues.

At the same time, in those American-based HPV sales, 18% of our sales or so, we are seeing a very steady conversion rate of the market. So any stabilization, which we don't want to time at this point -- so, we're still assuming continued very poor market conditions for now. Any stabilization of that should allow us to go into growth. And we expect for the full year 2011, even in poor market conditions, an overall growth of this product area.

Understood. Thanks for the color, Peer. And then, I'm sorry, not to belabor it, but you did mention that it was down sequentially in the fourth quarter. But then you intoned here that we've seen a bit of a stabilization. Is that a reference to January? Is that the way to think about that? Thanks.

The stabilization, I would say, is more now front-running indicators. So IMS data, as policies-- as first payers are starting to see positive indications for this year. So we're getting some good vibes, but there's nothing that I would bet the house on. And that's why we're staying very conservative in our guidance.

Very good. Thank you.

Tycho Peterson, J.P. Morgan.

A follow-up on symphony. As we think about your, ultimately, entering the US market, can you just talk a little bit about kind of your go-to-market strategy when you do come to the US? And, as a follow-up to that, we saw one of your competitors delay their fully automated system last night due to some FDA scrutiny. So can you just talk about your relationship with FDA as we think about bringing some of those assays onto the US market?

I think the -- well, the system has already been introduced in the United States. We have a three-digit number of it already placed in the United States with very good uptake. And almost every major lab has a system already under evaluation or actually running.

The go-to-market is one of ultimate flexibility and expandability; so, random access, continuous load features, a huge bandwidth in terms of being able to do everything from LDTs to commercial assays and everything in the most modern type of instrumentation technology embedded into a software that is integratable and very flexible.

These features are exactly the features that regional and even smaller hospitals are looking at. 90% of the hospitals are not doing molecular testing today, and they are primary targets. And they don't want to buy very expensive solutions that might be available today for this type of use but are just so much more expensive than sending out the samples to the central lab.

We're seeing a lot of central labs looking at decentralization strategies by centralizing on our core technology and then decentralizing these platforms because, while the platforms with multiple cycle placements can be actually almost as fast as some of the highest-throughput systems today used in screening. It can, at the same time, run random access and low volumes; so, four CMVs and two EBVs and four Chlamydia, for instance, on small batches, which is important for smaller hospitals.

So we designed the system as an IVD system from the start. It has been built with all features and documentations and everything associated with an IVD platform. And this is something that we expect to be different to other approaches, where you have an existing assay and are simply shopping around a right instrumentation platform. So it was built from the start as an integrated system already in design for IVD PCR assays.

Okay. And then your level of dialogue with FDA around new assays. I'm just trying to get comfortable with the fact that we're not in an environment where you may have further delays, given what we've seen from others.

We are in intense discussions right now with FDA on a number of programs. As you see, we have quite a deep pipeline currently underway. The one area that is a very complex trial is CMV and EBV due to the scarcity of the samples. It's very difficult to find enough samples in this area. And we have received a lot of cooperation in this area and can only say the best about our cooperation currently with and our dialogue with the FDA on this. So we're discussing everything we have to discuss and see as beneficial to discuss, and that dialogue has been very positive, I think, for both parties.

Okay. To your comments a few minutes ago on HPV, can you just comment on pricing? Is it your view that you're able to maintain pricing going forward on HPV? Obviously, with new competitors entering the market, how are you looking at that?

I think pricing will be less of a button that will be pushed in this area because pricing remains an area that is -- where we simply have a competitive advantage. We are, by far, the most cost-effective and the slickest workflow in terms of reagents required and, also, automation.

So, that said, we've seen that most of the competitors active in Europe are actually pricing significantly above where we're pricing, with one exception. And it's always somehow a factor of quality. So, if the assay is poor, the workflow is poor, then there's a pricing discussion that a competitor has to take. But we have not seen any of the emerging competitors here, despite what we see as some of the weaknesses that they have in workflow or product, that they have used pricing in a very active way and also not gained a lot of market share.

Also, in the United States, we continue to have very strong market share gains. And, on the overall market, we're winning more of the overall market in terms of conversion than we're losing in competitive share losses. And that, I don't think, will change over the next 12 months.

Okay. And then just one last one. I may have missed it. But did you break out the prevention, profiling, personalized medicine organic growth rates? And, if not, would you mind doing that?

We do it for overall molecular diagnostics. We'll take that thought back and think about providing further clarity on it. We always said we're big friends of clarity. We'd love to do that, but we want to have a precise differentiation between the various pillars. So we'll take that thought and have a discussion around that and maybe come back with a solution.

Okay. Thank you.

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

Yes. Thank you very much, Lisa. With this, I would like to close this conference call by thanking you all for participating. We hope to welcome you again to our first quarter 2011 earnings conference call on Thursday, April 28, 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 for participating in today's conference. You may now disconnect.