Qiagen NV (QGEN) 2011 Q1 法說會逐字稿

Good morning. My name is Tracy and I will be your conference operator today. At this time, I would like to welcome everyone to the Qiagen first-quarter 2011 financial results conference call. (Operator Instructions). I would now like to turn the conference over to Dr. Mahler. Thank you, Dr. Mahler. You may begin your conference.

Yes, thank you very much, Tracy, and hello, everybody. Welcome to Qiagen's first-quarter 2011 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 first quarter ending March 31, 2011, 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, April 28, 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 provisions. These forward-looking statements involve certain risks and uncertainties that could cause the 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 U.S. Securities and Exchange Commission.

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

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

Thank you, Solveigh. I would like to welcome all of you to our conference call and the opportunity to review the start to 2011 and our perspectives on the year to come.

As you saw in the press release issued last night, we noted the following. 2011 is developing overall as we had anticipated. This is reflected in the soft results for the first quarter, and we maintained our outlook for improving results over the remainder of the year.

Net sales of $264 million were unchanged from the first quarter of 2010, but declined 2% at constant exchange rates. Adjusted EPS rose to $0.21 from $0.20 in the first quarter of 2010.

While these results were as expected, we, like others, have been facing unexpected disruptions in 2011 as well. These include the crisis in Japan, natural disasters in Australia and New Zealand, as well as political unrest in northern Africa. In Egypt alone, we had significant shortfalls as we are a prime molecular diagnostic supplier to this country, in particular for infectious disease testing and specifically hepatitis C. These factors together cost us about two percentage points of net sales growth.

Our free cash flow was particularly strong, more than doubling to $29 million in the first quarter of 2011, from $12 million in the comparable 2010 quarter. It increased at an even faster pace when we excluded our investments in buildings.

We are reaffirming our full-year guidance for 2011 and expectations for adjusted earnings to improve at a faster pace than net sales. We continue to expect an improving performance during the course of the year and for the strongest year-over-year growth to be achieved in the fourth quarter. This guidance does not take into account the contributions from acquisitions, such as Cellestis, nor the risk of ongoing disruptions in Japan and, to a lesser degree, in northern Africa.

Despite the soft start into 2011, I am pleased with the progress we're making to deliver on our strategic goals. That included the global rollout of QIAsymphony RGQ, which is going very well. Customer feedback has been very positive here, particularly at recent customer events in the United States. We have an installed base of more than 400 systems worldwide and have set ambitious growth targets for 2011 and the coming years.

We are also adding more molecular content to our platforms. Among the higher profile projects, the landmark U.S. submission of the KRAS biomarker for use in guiding cancer therapies is on track. Our co-development project with major pharmaceutical companies, which total more than 15, are moving ahead.

In the first quarter, we further expanded our portfolio of partnerships and projects in companion diagnostics. While the majority of these projects are still in the area of oncology, we are addressing other indications as well. In this first quarter, we further expanded the range of therapeutic areas in our companion diagnostic partnership portfolio with a new agreement with an undisclosed pharmaceutical company.

We will develop the companion diagnostics in a further new and very large therapeutic area. We are very pleased with our position in this exciting and rapidly developing area of personalized healthcare and companion diagnostics, and clearly have a leading position as a diagnostic partner of choice.

We are also expanding and strengthening our geographic presence. We've told you about our direct entry into India and we are reviewing other markets as well.

As you also know, we announced in early April a proposal to fully acquire the Australian diagnostics company Cellestis in an all-cash transaction valued at approximately $355 million. This is a very attractive acquisition and fully in line with our strategy, and reaffirms how we are adding content to our automated platforms.

Cellestis will provide us with exclusive access to QuantiFERON technology, which allows a new dimension of testing, pre-molecular testing, where disease detection can be undertaken far earlier than possible with any other diagnostic method. We will migrate this technology to our automated platforms, in particular to QIAensemble, and develop a range of tests that are highly complementary with our DNA- and RNA-based molecular diagnostics. This transaction is expected to close in mid-2011 and will provide new growth impulses.

In summary, QIAGEN is on track to deliver sequentially improving quarterly performances during 2011. We are executing on our strategic objectives, and achieving them will position us to further accelerate growth into 2012.

Before we get into more depth, I would like to hand over to Roland for a discussion on the financials. Roland?

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

QIAGEN's financial performance for the first quarter of 2011 came in largely as we had expected, with the exception of the unforeseen political unrest and natural disasters in some markets. Growth rates were lower than typical for QIAGEN, but we remain confident that we are on a trajectory to achieve higher growth rates later in the year.

Recapping the key numbers, we had sales of $264 million. As noted earlier, the disruption in northern Africa and Australia, New Zealand, and Japan reduced net sales growth by about two percentage points.

Adjusted gross profit increased 1% to approximately $191 million. Adjusted operating income fell slightly to approximately $71 million from about $74 million in the first quarter of 2010.

In the first quarter of this year, we had an adjusted operating margin of 27% against a backdrop of lower sales at constant exchange rates, along with strong investments in R&D and an aggressive push to further expand in new geographic regions.

In the short term, if we continue at this level of R&D investment, our ability to maintain a stable fixed-cost base should allow us to improve our adjusted operating margin during the course of the year. Longer term, our target remains to reach 31% by the end of 2013.

We continue to enhance productivity and increase the value of our business operations by reducing the cost of routine operations. Performance-oriented workforce management and reallocating the sources to growth initiatives are anticipated to provide additional benefits from our adjusted operating income margin as we move through 2011.

Adjusted EPS rose to $0.21 per share from $0.20 in 2010.

In terms of nonoperating factors, we have told you in the past about the sustainable benefits that would be coming from our tax optimization strategy, and this helped us in the first quarter. With an adjusted effective tax rate of 26%, we came in at the high end of the assumption we had given for the first quarter, in impact here from lower sales and income from Asia-Pacific. In any case, however, our adjusted tax rate is lower than the 30% rate in the first quarter of 2010.

Free cash flow for the first quarter more than doubled from approximately $29 million. When adjusted for building investments, it was approximately $37 million and sharply higher than the $17 million reported in the first quarter of 2010. We have been able to make significant investments without relying on unstable credit markets, while also reducing our exposure to potentially volatile interest-rate trends.

In addition, a positive driver for our free cash flow has been the impact of procurement optimization that has improved our working capital management.

As we continue to maintain a healthy balance sheet, including a positive net cash position, we believe QIAGEN is ideally positioned to capture growth opportunities in 2011 and beyond.

I'm now on slide six. In terms of geographic results, in the Americas we saw net sales grow, up 1% at constant exchange rates. We have now seen some positive trends in the U.S. HPV market.

In Europe, Middle East, and Africa, sales dipped by 1% at constant exchange rates. Our ability to deliver molecular diagnostic products in Egypt for hepatitis C testing was adversely impacted by political unrest. This had a marginal, but still noticeable, effect on our performance.

The Asia-Pacific/Japan region felt the most significant impact from disruptive events, with sales falling nearly 10% at constant exchange rates. It went beyond Japan to also include New Zealand and Australia, where some of our customers were affected by the natural disasters. Overall, the impact of these unforeseen events reduced net sales by about two percentage points compared to our expectations.

Moving on to slide seven, some notes on our healthy financial condition. Our cash flow allows us to pursue growth and investment plans without depending on unstable credit markets, and this limited exposure to interest-rate developments. Both operating and free cash flow have increased steadily since the first quarter of 2008.

In the first quarter, our operating cash flow rose to approximately $50 million, up from $29 million in 2010. Capital expenditure over the past two years has been quite substantial, totaling nearly $50 million for constructing activities at our sites in Germany and Maryland. Investments have been made mainly to expand R&D and production facilities.

Spread over the next two years, to each completion we are expecting to invest another $40 million. Both of this will be going towards our site in Germantown, as the non-remaining work in Hilden will be completed by middle of this year. So, it's worthwhile to highlight that our free cash flow, when excluding this building investment, has grown at an even faster pace.

This underscores our increasing profitability, as well as success in improving the management of working capital.

Moving to the next slide, before I head back to Peer, I just want to provide you some more details on the events in Japan and how they impacted performance, where we stand today, and some future perspectives. First of all, our employees are all safe, although some of our facilities, and in particular our main warehouse in Tokyo, have been damaged, which caused $1.3 million in inventory write-offs.

Furthermore, we experienced a pretty dramatic drop in deliveries. We are part of our Japanese colleagues and their commitment during this crisis.

We are supporting the recovery of Japan and are in contact with government agencies in terms of human identification and infection disease-testing products. Deliveries have started to improve, but it's still too early to predict the potential impact on sales for the second quarter and the rest of the year. A key variable will be power supplies and the risk of rolling blackouts, with some customers affected in their ability to conduct their business.

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

Thank you, Roland, and we are now on slide 10.

We are making progress on the strategic initiatives to leverage our global leadership in sample and assay technologies and strengthen our position in all our customer classes.

Molecular diagnostics, which represents 44% of net sales, declined 2% at constant exchange rates from the first quarter of 2010. We saw weak results in profiling and prevention, while personalized healthcare developed very nicely as we further strengthened our leadership in companion diagnostics. Profiling, which encompasses infectious disease testing primarily, was adversely affected by disruptions in Japan and North Africa, as I explained earlier. Prevention is still being affected by soft sales of HPV tests in the United States, but we are seeing improving trends.

Applied testing, which is currently 6% of net sales, faced a challenging year-over-year comparison, and results in this customer class can be volatile. Net sales fell 13% in constant exchange rates from the same period in 2010, which included strong sales of instruments. Longer-term trends in this customer class, however, are underpinned by our expansion initiatives in human identification, veterinary testing, and food safety.

Pharma was 21% of net sales and benefited from sustained demand for advanced molecular technologies that support initiatives for new medicines, particularly gene-based drug development activities. In terms of R&D, the R side remains challenging, but demand on the D side was solid. Net sales in the quarter rose 2% at constant exchange rates overall.

Academia, which was 29% of net sales, saw cautious purchasing behavior amid uncertainty about budgetary restrictions in some markets, in particular in the United States. Net sales declined 2% at constant exchange rates, but we feel comfortable about the longer-term trends.

Moving to slide 11, as I mentioned at the start, QIAGEN is in an important strategic phase to add molecular content or, more technically, molecular assays that deliver rapid and precise results to our range of automated platforms.

We're concentrating our initiatives on three primary platforms, each of which addresses an important application profile. QIAsymphony RGQ is our flagship platform, offering unprecedented flexibility and automation to customers requiring a broad menu and the processing of anywhere from one to 300 samples per shift.

QIAensemble is our next-generation platform that is currently in development. It will offer a range of assays, along with improved automation and higher throughput capacity. We will provide further updates on this system on May 9 at concurrent customer forums at the clinical virologist society meeting, CVS, and EUROGIN.

And last, our portable point-of-need devices are being developed that will enable molecular testing where no laboratory is immediately available, such as hospital emergency rooms or in low resource areas such as developing countries.

Complementing our own R&D initiatives, you can see how recent transactions will add molecular content to our platforms. These transactions include the acquisitions of DxS, SAB, the food testing assays from IFP, and the forensic assays from Biotype. The latest example being the proposal to acquire Cellestis.

Among other agreements, our strategic investment in the German company Alacris, which we announced in January, will provide us with the exclusive access to novel biomarkers for companion diagnostics and personalized healthcare, and we are working on a number of important biomarkers and co-development projects with leading pharmaceutical companies. This strategic phase goes beyond molecular diagnostics and involves all our customer classes.

Turning to slide 12, as we have been saying, QIAsymphony has attractive growth potential. This modular platform was first launched in 2008 as a sample preparation system only, and then we added an assay setup module in 2009, and in late 2010 we launched QIAsymphony RGQ, which incorporated the Rotor-Gene Q Real-time PCR detection platform. This was a critical step since now our customers have a complete system from sample preparation to result, and this has created a key breakthrough in terms of utility for our customers.

The system was launched in late 2010 in Europe with an unprecedented breadth of 14 approved assays, and in early 2011 in the U.S. as an open platform with several submissions of assays projected for 2011 and beyond.

Feedback continues to exceed our expectations. Customers are recognizing how this system will enable them to adopt or greatly expand the use of molecular diagnostics. In addition, the reliability metrics point to this system probably setting a completely new standard in terms of reliability.

Since the launch of the first module in 2008, we now have more than 400 systems placed around the world. We have set an ambitious target for 2011 and for the years to come. Given the selling process for these types of systems, we anticipate the majority of placements of the QIAsymphony RGQ to occur in the second half of the year. And related to that, as most of you know, a majority of the placements will involve reagent rental agreements, keeping in mind that the selling process takes some time, sometimes up to 12 months from the initial contact with an interested customer through to completion of the sale.

A key element is the customer having sufficient time to evaluate and validate the system. All in all, we are very pleased with the rollout of QIAsymphony RGQ and the market acceptance.

Turning to slide 13, we are making dynamic progress in personalized healthcare, where we are helping to match the right patients with the right drug by offering companion diagnostics. We have built up by far the leading industry position with a portfolio of assays that include many flagship assays such as KRAS and EGFR, as well as many others. We have a portfolio of more than 15 projects underway with major pharmaceutical companies. Some of these partnerships shared and thereby leveraged into multiple applications, and we have many more in the pipeline.

In the first quarter of 2011, we made further progress in a number of these projects. Among the highlights were the additions of new disease areas, such as the addition of a new project with a major pharmaceutical company in a new and very large therapeutic area. We and our partners often elect not to provide additional details in sensitive areas due to confidentiality reasons. This is typical for these agreements. We realize this can be challenging for you.

As you see in this graphic, a recent industry report by McKinsey noted that the use of companion diagnostics outside of oncology would likely focus on neurological conditions, cardiovascular disease, and other types of disorders. So, this should give you some indications as to how we see this area, in general, developing.

As you know, we are working to complete the U.S. regulatory submission of the 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 pre-marketing regulatory approval. Many of the modules have already been submitted, and the remainder is moving forward towards completion.

Turning to slide 14, I would like to provide some insights on HPV testing and prevention, which provides about 20% of our sales. As you know, the number of patients visiting doctors in the United States for HPV tests was down significantly in 2010. This decline in visits has moderated in 2011, as supported by commentaries from other market participants as well. With the slow but steady increase in doctor visits, we're becoming more optimistic about trends for the later part of 2011.

The decline in patient visits began in spring 2010 and has been blamed on the uncertain U.S. economy, the rising unemployment rate, and the related reduction or loss of insurance benefits. With that in mind, we probably had the toughest comp in first quarter of 2011. At the same time, we have been converting the U.S. market, and penetration is estimated now to be moving towards 45%.

HPV testing still remains a substantially untapped market. So conversion initiatives, particularly those targeting integrated healthcare networks and physician groups, remain a major focus. Our view remains that, based on the assumption of market conversion continuing at a good pace, the HPV franchise will, even under our conservative assumptions relating to doctor visits, achieve growth in 2011 as all fundamentals are intact.

We will capitalize on our leading position in HPV testing both in the U.S. and in other markets. As you see from this slide, around 20 pilot projects are underway in Europe and momentum continues to build toward adoption of HPV screening.

Turning to slide 15, we are often asked about our views on the entry of competition in the United States, and more so given the recent approval of Roche's HPV test in the United States. Will there be an impact? Yes. But this is taken into consideration and included in our revenue expectations.

At the same time, it is very clear that none of the competitor assays are anywhere close to being validated to the extent our assay is. Also, none provides clinical data superiority. This is quite unique. Normally, you would see new tests offer clinical benefits, but here, this is clearly not the case. So QIAGEN continues to prove its current product offering is superior, and we will continue to upgrade this portfolio further.

As for QIAensemble, our next-generation platform for use in prevention and particularly our HPV molecular diagnostic test, we are planning to provide the details of our upgraded development pipeline coinciding with two important medical meetings in May, EUROGIN in Lisbon and CVS in Daytona Beach. This will provide us an opportunity to update the financial community as well as our key customers on the status of this program simultaneously.

So in summary, we are focusing on driving conversion to HPV testing. This will position us to benefit from the eventual U.S. economic stability or even improvement, which will be a key factor for increasing patient visits.

Turning to slide 16, I would like to provide you with some insights on the proposal we have made to acquire the Australian diagnostics company, Cellestis. This will be a very attractive acquisition and fully in line with our strategy to add molecular content to our platforms. Cellestis is a profitable publicly-listed company with two marketed products, QuantiFERON TB for the detection of latent TB and QuantiFERON CMV for detection of the cytomegalovirus, which is a threat in solid organ transplant patients.

As we announced in early April, this is an all-cash transaction and is being proposed under a scheme of arrangement which is particular to the Australian market. We have the full support of the Cellestis Board of Directors and the two company founders. We have an option deed and the two founders -- from the two founders to acquire from them up to 19.9% of Cellestis's outstanding shares. When shares held by other Board members are added to this amount, this totals to about 27% of the outstanding shares.

The offer price is AUD3.55 per share, or about AUD340 million in total. This is equivalent to approximately $355 million when using the exchange rates at the time we announced the proposal. Closing is expected in mid-2011. This transaction will be mildly dilutive to our adjusted EPS in 2011, with the impact felt in the third and fourth quarters, so post closing.

We are planning to make large investments in sales capabilities and R&D initiatives for migration of existing Cellestis products onto the QIAGEN platforms, QIAsymphony RGQ, QIAensemble, and portable devices, as well as for the new product developments. However, starting in 2012, we expect this acquisition to help accelerate our growth and for accretion to adjusted EPS of about $0.02 to $0.03.

Turning to slide 17, Cellestis would provide QIAGEN with exclusive access to the novel QuantiFERON technology. This is a next-generation proprietary technology to query a previously untapped information source in the human body. QuantiFERON is a pre-molecular testing technology in that it enables disease detection far earlier than possible with other diagnostic methods. It is a sample and assay-based technology, just like our other products, and it can run on QIAGEN instruments.

QuantiFERON tests whole blood samples for the presence of systemically amplified molecular analytes. These tests provide information from the immune system's memory. If the target disease antigen is present, you will be able to measure the release of interferon gamma from infected T cells. This technology can find pathogens, such as bacteria, viruses, fungi, or other clinical syndromes, that are present in such low amounts that they are not detectable with traditional DNA- and RNA-based molecular diagnostics. So you're able to get critical information even on latent infections.

Turning to slide 18, based on this novel profile, we believe QuantiFERON is highly complementary to our DNA- and RNA-based molecular diagnostics. So we see the opportunities, where appropriate and clinically relevant, of mirroring our molecular diagnostics portfolio with QuantiFERON-based tests. This acquisition has a technology focus, but TB also has an attractive market dynamic, so I would like to provide some insights on the commercial opportunities.

In combination with our molecular diagnostics for TB, we are creating the largest leading next-generation position in TB testing. To understand the TB testing market, it is critical to understand that there are two different types of TB status. One, active TB -- in other words, basically full-blown disease with symptoms, and two, latent TB, where the patient has no symptoms, but where the disease can flare up and threaten the patient and cause potential spreading of the disease as well.

There are no molecular diagnostics for latent TB, as the amount of pathogen DNA is far too low. In the developed world, latent TB is far more important as a testing franchise than active TB testing. Latent TB tests are critical for identifying those at risk and immediately treating them, and to thereby reduce the disease burden and the spreading of disease.

If a patient tests negative, then this is great for the patient, and they will come back for routine testing at some point in the future. If they test positive, DNA- and RNA-based molecular diagnostics would then be used for further testing and monitoring.

People undergoing routine testing include health care workers, college students, people in prisons, the military, and it is also used in immigration. Regulatory clearances, reimbursements, and guidelines are done in most countries, so we are going to work on global expansion. As part of QIAGEN, we can certainly drive this more effectively in the larger organization we are now combined.

Turning to slide 19, we also see opportunities to apply this technology across all areas of our molecular diagnostics' customer class -- in prevention profiling, personalized healthcare, and point-of-need testing. In prevention, for example, we'll be adding more content to QIAensemble, increasing the value of the platform for our customers. We have many of the same customers for HPV and the QuantiFERON test, particularly in the United States with large reference labs or in hospitals.

In profiling, the QuantiFERON CMV test has the potential to accelerate our fast-growing leadership position in viral load monitoring. This would include monitoring of immunocompromised patients, such as those with HIV, hepatitis, or people -- or patients taking medicines that suppress the immune system.

We also see a strong link to our industry-leading transplantation position. In personalized healthcare, we see significant opportunities, given that several new classes of medicines require patients to be free of latent TB. We will also consider developing tests for other infections, given that a number of medicines require, for example, latent viral testing before treatment initiation, and this could be done with this technology.

So this is a solid deal in line with our strategy and proposed at a full and fair price. We are adding next-generation unique and proprietary technology to query a previously untapped information source. QuantiFERON is highly synergistic with our molecular diagnostics portfolio, and we will develop assays matching our DNA-based products. We will be migrating this technology to our platforms. It provides us with a strong leadership position in TB, one of the most critical diagnostic areas. And this is a financially attractive deal.

We have a clear and consistent M&A strategy, and that is to consider targets that improve our pipelines, provide access to new technologies, and offer expansion opportunities into new geographic markets. Cellestis is clearly consistent with this strategy, and given our healthy financial position, we are considering other targeted acquisitions as well.

I'm now on slide 20 to provide a quick summary before we move into Q&A. I've mentioned at the start, 2011 is developing overall as we had anticipated. In Q1, our markets were soft, and we faced some unexpected disruptions with Japan and another few markets as well. We are, however, pleased with the progress we are making to deliver on our strategic goals, particularly the global rollout of QIAsymphony RGQ and additional co-developed projects in personalized healthcare. The proposed acquisition of Cellestis, meanwhile, will provide exclusive access to a novel technology that is highly complementary to our portfolio.

And we are also reaffirming our full-year guidance. We anticipate net sales growth at about 5% to 7% in 2011 at constant exchange rates. Adjusted EPS is expected to grow at a faster pace of 7% to 13%. Our expectations do not take into account the contributions of acquisitions such as Cellestis, nor the risks associated with Japan and northern Africa. We are well positioned to expand in 2011 and to further accelerate growth into 2012.

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. Tracy?

(Operator Instructions). Tycho Peterson, JPMorgan.

Maybe just the first question on QIAsymphony, the RGQ. As we think about the buildout in the U.S., can you talk a little bit about what you're anticipating in terms of consumable pullthrough per box? Are you expecting kind of multiple placements at each customer site? And then, any color on kind of customer mix between hospitals versus smaller reference labs would be helpful, too.

Thanks, Tycho. I think there are a few answers to that. The first is that the bandwidth of the platform is very broad. So, you can, in theory, economically, run up to 50 assays a day because of the random-access continuous load feature, and this is -- primarily would be done in hospitals for some of the lower volume assays.

But we're also starting to see that this platform is being used in higher throughput formats, running up to 300 samples a shift. This competes with very large high throughput platforms, even, and with the added flexibility and the fact that you can actually continuously load the platforms, we can compete even with screening platforms. But we are primarily seeing it currently addressing the mid-range volume in larger hospitals and large to medium-sized reference labs. That has been the sweet spot so far.

We anticipate going forward, and also based on the lead pipeline, that there is, in terms of numbers, more in the hospital market because there are simply more hospitals, but we are seeing also a complete dissemination into all areas of reference lab testing.

The throughput depends on the assays that are being run. For European customers that have access to a very broad menu, including the blood virals, we see people targeting throughputs north of 100,000 to 150,000 a year. In theory, the platform can pull through much more than that. But that is about the range, you know, if you have the blood virals on them running at -- which are higher volume assays -- HIV, hepatitis, and some of the women's health assays as well. Then it gives this type of throughput.

If you're just running the transplantation panels, which is done typically in reference labs, there will be a lower throughput. But the interesting thing is, once the people have the platform and because it has a flex capability into higher volumes, we are seeing people suddenly evaluating assays that have been traditionally run on other systems. So they're interested in consolidating on one platform. And that's how we see the QIAsymphony. It's an aggregator of assays onto a compact piece of equipment with a high degree of flexibility and bandwidth.

That's helpful. And then, as we think about the HPV market in the U.S., can you just talk a little bit about what you're assuming for underlying growth rates? Any commentary on kind of pricing and just kind of the nature of discussions with the labs today?

Yes, the market is still in an early phase right now of recovery. So, you've seen commentaries from some of the larger labs hinting at improvements even in OB/GYN visits.

We typically see these improvements flow through into sales with a delay of about one to three months because customers have inventories, and they would start going to higher inventory levels once the trend is seen as permanent. So I think the next months will provide a lot more clarity. But the trends are definitely positive.

In terms of pricing -- and remember, we in our forecasts assumed a decline of patient visits, 5% to 7% or so in 2011. So, a stabilization or even an improvement would definitely provide some benefits for us.

The pricing environment has remained rather stable, and there are two reasons for that. While large reference labs are going into higher volumes, in some cases that triggers, then, improved pricing. We're also seeing more dissemination of HPV testing into medium-sized hospitals or medium-sized reference lab sites. So there is a dissemination trend, and typically these are accounts with lower volumes and therefore slightly higher prices. So overall, the stability has been quite good.

Okay, and then, just last one from me. Can you just talk about when we might see clinical data on chlamydia gonorrhea?

We'll be providing some updates on our screening franchise on May 9 in Lisbon and Daytona. So there's, I understand (multiple speakers)

So there will be some data then on chlamydia gonorrhea.

You'll be in Lisbon, so I understand. We'll be part of that. We'll be part of that communication session there. So, we obviously have a lot of updates to provide and wanted to get that to our customers also, and so we thought this was a good forum to do that.

Peter Lawson, Mizuho Securities.

Just one main question. It's just around FDA timelines for submissions. I just wonder if you could talk through some of the key products, I guess, HIV, HCV, chlamydia, and gonorrhea, when you're expecting FDA approvals for those and the standing of those (multiple speakers).

The key submissions that we had planned for 2011 included the CMV assay, which is a very important one for us, in Q4 and the KRAS test. And those are, I'd say, the two big ones that we had, and they're on track here for the submissions in 2011 as we head out -- laid it out in the Q4 announcements.

In addition, we have smaller assays that include influenza, ResPlex, and a few others that we're moving forward, which would be 2011 or 2012 submissions, and the -- on top of that, we have the whole women's health and screening franchise, which include the HPV and the chlamydia submissions. For those, I would like to refer to the May 9 date, so we're not here in this call changing anything compared to what we had announced previously, but are referring to this announcement date on May 9.

Then, RGQ, is that going to go for a full FDA submission or is that just going to be kind of research use only?

Oh, yes. The QIAsymphony RGQ is an integral part of all of these submissions. So, the -- actually, the modules covering the RGQ system have already been submitted to the FDA. So, the system is moving forward as an IVD system.

Do you think you'll get approval when you get the first approval this year, Q4 2011, for the modules?

Yes, you know, the way you approve a detection platform is you combine it with an assay, and with that, you have then an approval for use with this assay.

The sample preparation modules, we actually made a very significant effort in 2011. I don't think we ever talked about it, but we actually got a clinical sample count concentrated classification on a wide range of different sample preparation and preprocessing modules. And I think we're the only ones out there with this classification on such a wide range. So, the QIAsymphony is already designated as a clinical sample concentrator.

We also have consumables that are designated as clinical sample concentrators. For instance, the purification of viral nucleic acids from liquid cytology samples is already cleared as a clinical sample concentrator in the United States. And -- in addition to many other viral and genomic RNA extraction products. So the upfront has been taken care of. For the downstream -- for the detection, we need an integration with the assays, and there are several moving forward for the various types of clearances.

Tony Butler, Barclays Capital.

Peer, how do you tease out the increased interval in pap screening versus a reduction in OB/GYN visits? And within that expectation or that thought process, what would you think about the overall $300 million-plus HPV market, say, three to five years from now? Is that going to grow at an appreciable rate? Will it accelerate? Will it grow at a steady state rate?

And then, the last question is, your high-volume customers, if you make an assumption that they've got -- they've been using your HPV assay, and let's make an assumption that Roche is approved and they've got a COBAS machine there and let's make an assumption that they've got a Tigris, what would be your expectation of their decision tree? Is it only based on economics or are there other factors that they'll consider? Thanks very much.

Thanks, Tony. All good questions. The interval question, that's almost impossible to tease out, other than through surveys that we do with our physician partners.

So, there was a slight -- at least a perceived change in the guidelines. There was actually no change, but some physicians perceived a change in the guidelines which would extend the intervals slightly to go to three-year intervals after multiple negatives -- last year. But remember, the ones that are probably -- were probably overtesting were the ones that were the first to adopt HPV testing down at maybe 10% penetration, so we assume it varies -- it's a fraction of the market is actually overtesting and moved to longer intervals. So that didn't really cause a big change, as we see it, in the overall business opportunity for us.

The far larger opportunity is the penetration opportunity, and the -- actually the fact that you went to longer intervals on HPV actually is a benefit for some physicians because they don't have to deal with multiple information to provide to their patients. So, it simplifies the whole thing a little bit for them. So, there is actually even a benefit of that.

It's, as I said, impossible to say in what way that the benefit or the disadvantage falls. In terms of the physician offices, it's -- that's a very, very clear number. So if there are fewer people coming, they should be coming once a year for their Pap test, at least, also under new guidelines, and -- or under the perceived new guidelines. As I said, they never really changed, but the annual visit always stayed there. But if the annual visit went from an annual visit to an 18-month visit, that's a huge impact, and it's by far the larger piece.

The second question, the market growth, we're moving -- we, a few months ago, announced that we broke through the 40% mark. We are moving toward the 45% market, and our clinical sales force is doing just an incredible job for our laboratory partners in developing this market and preparing also as the numbers of physician visits would come back that this larger penetration number would translate into some very good growth, as you suddenly have almost an additional accelerator because you prepared the market for HPV testing. As the doctor visits increase, the number will increase overproportionally.

So, the question of where the market could go in the United States, there is no reason why it shouldn't be at 80%, 90%. Some markets have already converted 95%. If you take chlamydia, it's a 95% conversion compared to other types of technology. So there are basically no limits. I think 80% is a conservative and reasonable estimate for the market to be converted into.

And number three is on the high-volume testing side. None of these high-volume accounts could really live with everything running on one platform. I'll give you an example. A medium-sized account is running 300 to 500 HPV tests a day, and that maxes out a Roche platform and it maxes out a Tigris. And since most of these labs don't run two shifts, there's no benefit of basically having the ability to run two assays on one platform.

Where it is a benefit is if you're running lower volume and smaller labs. There, however, all of these platforms have a big disadvantage in that they're huge and that they don't allow uneven batch size testing down to single batch -- single sample batches. This means that their systems are still batch-based systems, and they don't provide the benefit for the low-volume customers and they don't really provide a lot of value for the high-volume customers.

The trick is to go random access on lower throughput customers, and then have, in many cases, even monoculture, very high throughput systems for the large reference labs.

In terms of preferences, look, there will always be a case where a customer really loves somebody else's salesperson or somebody else's products, and you can't have everything. The market is just so big, it can accommodate, easily, several players. We are very confident that we are fully on track, and I think most projections also confirm that, also from third parties, that our targets of very substantial market leadership still four or five years out are fully intact. Nobody switches very quickly.

I think there are two fallacies that are very often here in discussions. First, I sometimes have the feeling that the United States HPV testing market is 180% of our sales. It is actually 18% of our sales, so any switch, any impact on our numbers would mean major changes in that 18% of our sales.

Number two is, I would assume that there could be a change in market share if you would have a substantially better test, really a substantially better test out there. But if you look at the numbers and look at it black and white, and one of the competitors told me the other day in dozens of years in this market, never ever was the incumbent test still so superior after so many years to newly-entering tests. This is, I think -- we are just very fortunate to have that quality here.

Daniel Wendorff, Commerzbank.

Good afternoon, everybody. A few questions, if I may. Maybe starting off with a very stupid question, but I will ask it anyway. The launch of the QIAsymphony RGQ, are you addressing with the RGQ component mainly new customers, or is it that the customer already has the sample preparation and the assay and then only adds the detection component? Second question -- maybe you can answer that first, maybe.

I'll take it down, so if you could give us the second question.

Second question regarding the EMEA growth, or the decline in constant exchange rates you saw in the EMEA region. I was wondering whether you could potentially adjust that for the disruptions you saw in northern Africa.

And then, a simple question on the QIAensemble. Is it likely that you'll give an update on the potential [arm] schedule there as well on 9 May? And lastly, one for Roland. Did I get it right that you target a 31% adjusted operating margin by the end of 2013? So that would be my questions. Thank you.

Good, I'll take the first three, and hand over to Roland then. So, the first question is, are we simply clicking on the detection modules onto existing installed base customers?

We are doing that in part. The majority of these placements are actually completely new systems as well. So, the -- a lot of the hospitals in particular, they would like to have a complete solution, and with the menu we have available now in Europe, which is highly competitive, we -- it's actually second to none even, we have an extremely strong offering for a broad area of testing.

Number two, EMEA, you're right to assume that that primarily impacted the EMEA revenues. The impacts that we had are -- we said they were about 2%. And actually, northern Africa is quite significant for us. We're very fortunate to have a very good position in northern Africa. Not only in Egypt, but actually across most of the other countries in diagnostics, but also in applied testing. That impact was quite significant.

So it was about a couple of percent that you could allocate to EMEA on the overall side that -- and you assume EMEA is 35% of sales, and that would give you, then, you see that's quite significant. So, EMEA would be in the growth mode.

And number three is the Qe launch, yes, absolutely. So, that's why we're there.

Hi, Daniel. Last question for me, of course.

That's not what I meant.

Of course for margin improvement in front of our focus area, let me finish it. It's clearly one thing which is something where we also know, after the first quarter, still very well on track. We achieved what we expected for the first quarter.

We're very confident that over the course of the year 2011 our operating margin will improve. You have to have in mind that we started the year with a fully laid-out and running pipeline R&D project. So over the course of the year, you will see the more leverage, and especially also on SG&A leverage will help us in a quite significant way.

Our mid-term goal is 31% adjusted EBITDA margin for 2013, and of course, here are, of course, our long-term project and midterm project are helping us quite nicely. We started last year a quite significant project around procurement. We made already quite significant progress here, and as you know, most of the contracts we have here on supplier and a long-term project, so that, of course, also will help us in the middle and long term.

The second quite significant program ongoing is around logistics. We were able to [put] our logistics in the U.S. and we will do it right now in Europe, which also will save us quite significant amount, especially with increasing volumes. So, that is something where we feel very well on track.

With this, I would like to close the conference call, if there are no further questions, by thanking you all for participating. We hope to welcome you again to our second-quarter 2011 earnings conference call on Tuesday, July 26, 2011. If you have any additional questions, please do not hesitate to contact us. Again, thank you very much and have a nice day.

Thank you.

That does conclude our conference call for today. Thank you all for participating. You may all disconnect.