Qiagen NV (QGEN) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the QIAGEN N.V. investor and analysts' conference call on the Q4 results 2011. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. (Operator instructions.) I would now like to turn the conference over to Albert Fleury, Director, IR North America.

Thank you. Good afternoon and welcome to the QIAGEN conference call to discuss our results for the fourth quarter and full year 2011.

Joining me on the call are Peer Schatz, Chief Executive Officer, Roland Sackers, Chief Financial Officer, and John Gilardi, Vice President, Corporate Communications and Investor Relations. A copy of this announcement and the presentation for this conference call can be downloaded from the Investor Relations section of our home page at www.qiagen.com.

Moving on to slide two, before I turn the call over to Peer, please keep in mind that the following discussion and responses to your questions reflect management's view as of today, February 1st, 2012. As we share information to help you better understand our business, we will make statements and provide responses 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 involve certain risks and uncertainties that could cause QIAGEN's actual results to differ materially from those projected. QIAGEN disclaims any intention or obligation to revise any forward-looking statements. For a complete description of the risks and uncertainties, please refer to our Form 20-F filed with the US Securities and Exchange Commission.

I would now like to turn the call over to Peer.

Thank you, Al. I would like to welcome all of you to our conference call and the opportunity to discuss our results for the fourth quarter and full year 2011.

As you saw in our release last night, we delivered dynamic growth in the fourth quarter. Net sales were up 17% at constant exchange rates to $334 million, while adjusted net income rose 19% to $74 million and adjusted EPS came in at $0.31 per share.

The strong finish led to net sales growth of 4% on a constant exchange rate basis for the full year to $1.17 billion, and adjusted EPS for the full year rose to $0.98. We achieved these results, which were ahead of our goals, against the backdrop of a challenging business environment, one that did not improve during the course of the year.

A key driver has been our progress on four strategic initiatives. Number one, we are driving platform success, especially with the rollout of the breakthrough QIAsymphony automation platform. Number two, we are adding content across all of our customer classes. Number three, we are expanding our geographic presence especially in high growth markets. And number four, we are improving our efficiency and effectiveness.

We are clearly not growing yet at a rate that we believe our Company can deliver, but our strategic initiatives are on track to get there. And achieving these results in 2011 was an important step for us to accelerate full year sales growth to a faster pace in 2012.

Moving to slide five, you can see that we achieved our goal to deliver a markedly improved year-on-year performance in the second half of 2011 compared to the first half. We had said previously that the second half of 2011 would provide a proxy as to how we believed growth could accelerate for the full year in 2011 -- in 2012.

Our sales growth in the second half of the year was above our target of around 7% on a constant exchange rate basis. For the second half, organic growth improved and contributed about 4 percentage points while the Cellestis and Ipsogen acquisitions have been performing very well, and they contributed about 5 percentage points.

So, this total sales performance helps our confidence for accelerating growth in 2012. But again, we're taking a conservative perspective, given the ongoing challenging environment.

I'm now on slide six to review a few achievements in 2011 against our strategic initiatives I described before. In terms of driving platform success, we achieved our goal for more than 550 installed QIAsymphony systems worldwide at the end of 2011. We are very pleased with the rollout and are only in the early years of a decade long product cycle.

Also in late 2011, we introduced the QIAensemble Decapper system that automates the tedious task of manually handling clinical liquid sample vials. Based on recent industry announcements, it is worth noting that both QIAsymphony and the QIAensemble Decapper have received very strong endorsements by customers. Even competitors have, for instance, now recognized that, for instance, the QIAensemble Decapper system addresses a significant gap in liquid cytology vial processing and some are seeking to create their own systems, a very significant undertaking.

In terms of adding content, we have been very active in personalized healthcare. In the US, we completed our two submissions of the therascreen KRAS assay as a companion diagnostic. Discussions with the FDA are progressing well, and we anticipate receiving decisions in mid 2012. We also added new co-development projects during 2011 that will lead to regulatory submissions in the future.

In terms of geographic expansion, you saw in our release that the top seven emerging markets are delivering dynamic growth. We entered India and Taiwan with our own operations in 2011.

And in terms of growing efficiently and effectively, we launched a major efficiency project at the end of 2011. We have streamlined our organization and are now working to free up additional resources that can be reallocated to these growth initiatives. These actions will help improve our adjusted operating income margin in 2013.

In summary, we made significant progress in 2011 on these four initiatives and are intensifying our focus on growth areas across our customer classes.

I would like to hand over to Roland for a review of our financial performance. Roland?

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

Starting on slide seven, I would like to first cover the fourth quarter financial results before going on to our full year review. The fourth quarter of 2011 for QIAGEN exceeded our expectations both in terms of net sales and adjusted EPS.

Recapping the key figures, net sales in the fourth quarter were 17% both on a reported as well as at constant exchange rate to approximately $334 million from the fourth quarter of 2010.

Consumables sales were up 18%, constant exchange rate wise, and instruments were up 11% using constant exchange rate.

Moving below net sales, the adjusted gross profit was 7% to approximately $229 million. As a result, the adjusted gross margin declined to 69% from 72% in the same period of 2010.

In the 2011 quarter, we had a very high amount of milestone payments from companion diagnostic co-development partnerships. Depending on the type of co-development partnerships, these milestones are recognized as revenues, and then expenses incurred are booked in the cost of goods sold line.

As we have said in the past, the gross margin for these agreements is significantly below the Company average. So, this was one of the primary reasons for the reduced margin, about 100 to 150 basis points.

The other key reason to note is that we reduced inventory levels in the fourth quarter that had been built up earlier in the year as a safeguard for the move of production lines to our Hilden facility. This led to a lower utilization rate in the fourth quarter of 2011 and reduced the margin by about 50 basis points. So, this is the main reason for the reduced inventory sequentially.

Adjusted operating income rose 16% to $96 million from $82 million in the same period of 2010. As a result, the adjusted operating margin was steady at 29% of net sales. At the same time, this was a good increase from the 26% level in the third quarter of 2011.

In addition to the impact from the companion diagnostic milestones, the adjusted operating income margin absorbed post-merger investments in Cellestis to expand global sales and marketing capabilities.

Adjusted diluted earnings per share rose $0.31 in the fourth quarter, up from $0.26 in the same period of 2010. We achieved this result despite an increase in the tax rate to 22% in the fourth quarter of 2011 compared to 20% in the same period of 2010. These results also include dilution of about $0.02 per share from the Cellestis investments.

In summary, the fourth quarter for QIAGEN was a solid finish to the year, and ahead of our plans.

I am now on slide eight. For the quarter, we delivered double-digit growth in all regions. And we were particularly pleased with the broad business expansion in the Europe/Middle East/Africa region. In the EMEA region, where sales rose 22% constant exchange rate, we are seeing solid growth in Molecular Diagnostics, particularly for our QIAsymphony platform, and here in this region we have a very broad menu.

We saw significantly improved sales in North European countries, but Southern European remains a challenge. However, as we have been saying, our experience with Southern Europe is less than 5% of total sales, and other areas of Europe are clearly more than offsetting this impact.

For the Asia-Pacific and Japan regions, net sales rose 18%, driven by strong contributions from Molecular Diagnostics and Applied Testing. Key markets delivering solid growth were China and Japan.

We were also pleased with the momentum for QuantiFERON TB testing, the latent TB test.

In the Americas, placement of QIAsymphony systems across all customer classes as well as contributions from the QuantiFERON TB test underpinned solid growth in this region. This will be a key growth driver going forward.

HPV test sales were particularly strong in the fourth quarter for the Americas as a whole, in part due to the timing of a national HPV tender outside of the United States. The additional sales from this tender represented about 2 percentage points of total sales growth for QIAGEN in the 2011 fourth quarter. But, even taking this into account, we were pleased with the America's performance in the fourth quarter.

In the United States, HPV sales were stable in the fourth quarter and represented about 13% of total QIAGEN sales in this period. Also, still looking at the Americas, academia sales are flat in the US and impacted by the ongoing budget concerns. Although NIH budgets are now set for 2012 and have come in better than many had expected, our concern remains about potential budget cuts and the discussion after the upcoming 2012 presidential election.

Moving on to slide nine, I want to briefly cover the full year 2011 key financial results. Net sales rose 4% using constant exchange rates to $1.170 billion. So, this was slightly higher than the 3% constant exchange rate growth that we had been expecting.

The adjusted operating margin was 27% of net sales, down from 28% in 2010. But again, keep in mind that we were able to maintain a solid margin by making investments in QuantiFERON TB as well as supporting direct marketing entries into India and Taiwan in 2011. In fact, the adjusted operating margin would have remained flat, about 28%, compared to 2010 without the acquisition investments.

Adjusted diluted EPS were $0.98 per share, which was also ahead of our target. And the adjusted tax rate remained steady at 24%.

Moving on to slide 10, as we announced to the markets, we took action in December to improve our financing structure. As you can see on the chart, we have two convertible bonds and they remain in place. However, we have taken action on other elements.

First, we have entered into a new EUR400 million revolving credit facility, or RCF, with an international bank consortium and a five year maturity. The new revolving credit facility has a very favorable pricing and an initial margin of only 80 basis points over EURIBOR. This rate is based on market standard pricing components and also our current leverage level.

We then used cash on hand and EUR110 million from the RCF to repay the remaining balance of $350 million due on a term loan that was due to expire in July 2012. We also cancelled our previous $150 million RCF that had not been drawn.

This action has many benefits. It has extended our maturity profile, given us increased flexibility, and has shortened the balance sheet.

Moving on to slide 11, here you see an overview of our financial position at the end of 2011. As of December 31st, Group liquidity was approximately $276 million, which is down from approximately $935 million and mainly due to the Cellestis and Ipsogen acquisitions as well as the repayment of the term loan.

Our equity ratio improved to 68% from 63% at the end of 2010, and leverage remained at about 1 times net debt to EBITDA.

As for free cash flow, figures are still under review and the full cash flow statement, as usual, will be included in the regular filing with the SEC.

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

Yes. Thank you, Roland. And we are now on slide 12.

Building on the progress of 2011, we have set goals for 2012 that will help us accelerate our performance and return to an even stronger growth profile. First and foremost, we want to drive platform success with QIAsymphony. Our top priority remains to increase placements and improve the utility of these platforms with an expanding menu across all customer classes. Our goal is to reach more than 750 installed systems by the end of 2012.

Another priority is to further improve automation for our gold standard HPV test, building on the late 2011 launch of the QIAensemble Decapper. This is a top priority for our revised QIAensemble program.

We are also looking forward to completing a number of important regulatory submissions to expand the menus of our systems. The top priority is the US submission of the therascreen EGFR assay as a companion diagnostic to Tomtovok, the lung cancer drug in development by Boehringer Ingelheim. This will build on the 2011 submissions of KRAS and also the 2011 approvals of the KRAS and EGFR assays in Japan.

In terms of geographic expansion, we want to further develop our direct operations in high growth regions. Eastern Europe and Russia are top on our list. We also want to expand into untapped markets in Asia and Latin America.

And to grow efficiently and effectively, we are moving forward rapidly with our efficiency project. These actions are freeing up resources to reallocate to our strategic growth initiatives.

I'm now on slide 13 to give you an update on QIAsymphony. We are in the early stages of a platform and content story that will play out over the next five to 10 years. This will lead to increasing sales growth as we expand the menu of assays. The full version, QIAsymphony RGQ, which includes three modular elements for sample preparation, assay setup, and real-time PCR detection with the Rotor-Gene RGQ, was launched at the end of 2010. We are very pleased with the uptake.

We are also seeing strong growth in demand for consumables used on the system. Every placement creates an opportunity for annual consumables sales, or so called pull-through, of anywhere between $30,000 and $300,000. We already have a number of customers with annual consumables levels well above $100,000 to $150,000.

A conservative estimate is that the average consumable pull-through is currently about $50,000 to $60,000 per installed system. We expect this level to increase markedly during 2012 as customers increase system utilization and add more tests to the system.

The majority of QIAsymphony placements in the first wave are with customers who are adding modules, in other words, creating full QIAsymphony RGQ systems. But, full off the shelf systems have jumped significantly as well.

We are often asked about cannibalization of QIAsymphony and the incremental sales growth. We do not see this as a major issue. Our analyses show that more than two thirds of sales to QIAsymphony customers are incremental and building upon their earlier use of our products. As we increase the installed base and win more and more customers new to our assays and products, we see this issue becoming less and less of a factor.

During 2012, we will be launching several new tests and also updating the software. A key element will be the expansion to enable the processing of formalin-fixed, paraffin-embedded samples, so-called FFP samples, one of the key sample types for companion diagnostics. We can then begin the migration of these companion diagnostic tests onto QIAsymphony.

Moving to slide 14, here is an overview of the content we are adding to our platforms. The addition in 2011 of the QuantiFERON based test from Cellestis and the market leading portfolio of blood cancer assays from Ipsogen fully support our strategic initiative to add content.

We are adding content across our customer classes. For example, we are adding new tests for food safety to our mericon portfolio and also expanding the portfolio for human ID in line with the internationalization of standards.

And we are expanding our GeneGlobe portfolio of products available for molecular pathway analysis. This is a natural fit with our biomarker activities and provides very valuable technologies for the evaluation and validation of molecular targets that could one day become companion diagnostics.

I'm now on slide 15. I mentioned earlier that we are targeting expansion in high growth emerging markets. The reason is clear. We see dynamic growth potential in emerging markets that is really only just beginning for us. In the top seven emerging markets, we generated 12% of net sales in 2011 and grew 21% on a constant exchange rate basis.

China is our largest emerging market, our second largest market overall, and delivering sustained growth in 2011 and representing more than 5% of our total sales. Also of note are the rapid expansions we are experiencing in Brazil, Mexico, and Turkey.

So, these top seven emerging countries are going to increase as a percentage of our total sales in the coming year. We are going to expand and invest in these and other attractive high growth markets.

I'm now on slide 16. As you know, we announced a project in November 2011 to grow more efficiently and effectively. We are enhancing productivity and have a goal to free up about $50 million of pre-tax resources for reallocation to strategic initiatives. Some incremental projects were started during 2010 and 2011. But, we felt at the end of that, major actions were needed and that this project is therefore the result.

In the first phase, we have streamlined the organization by reducing approximately 8% to 10% of the workforce. These actions are not reflected in the year-end 2011 numbers of employees, and will become more evident with the Q1 2012 report.

Teams are now working on excellence initiatives across the organization. The overall project is being managed by a senior executive, and he reports directly to me on the progress of this project. Key areas include focusing our R&D portfolio on growth areas across all customer classes. This obviously includes personalized healthcare as well as QIAsymphony.

So, as we have been saying, you will see fewer but more substantial new product launches from QIAGEN in the coming years. We are also going to optimize capacity utilization and are reviewing our site network.

The project is moving more rapidly than we had anticipated, and this is a reason why the $75 million restructuring charge was higher than our target and also involved more cash, about 40%. As we announced, we are planning to take an additional charge of about $20 million in 2012.

We believe that the payback on these investments is very significant and these actions will help drive improvement in the adjusted operating income margin in 2013 and the coming years.

I'm now on slide 17. I wanted to spend a few minutes and provide some perspectives on the situation for HPV tests in the United States in light of the actions we've been taking to diversify and globalize our business. We've been saying for some time that 2011 and 2012 years are, in some ways, transition for QIAGEN.

During the last 18 months, we have been addressing the impact of a markedly changed environment for HPV test sales in the United States. We have also been preparing for new competitors, which happened in the second half of 2011. As you can see, the relative contribution to QIAGEN of HPV tests in the United States was about 15% in 2011 and even at only about 13% for the fourth quarter.

This is down from over 20% in 2008. HPV sales in the United States declined at a modest rate in 2011 as market conversion efforts were more than offset by pricing actions taken to secure multiyear contracts.

I want to make a few statements here. First, no competitor has come out with a better product, either in terms of clinical data nor in terms of automation. Most, in fact, have significantly inferior clinical profiles.

Second, we have been saying that HPV is no longer going to be a growth driver for us, but very valuable for us in terms of critical mass and building relations with molecular diagnostics customers. We are determined to maintain our leadership and have a very strong competitive offering.

Third, we believe the key growth drivers we have in place will more than outweigh concerns in 2012 about lower US HPV sales. As the leader with about 90% share in the United States, it is clear that we are going to lose some share. Pricing is under pressure since new competitors do not have a superior product and are already today offering very low prices.

But, there is untapped market potential. The penetration rate is still below 50%, and we are cautiously optimistic about higher volumes in 2012 as the decline in doctor visits begins to stabilize at a much lower level than in recent years.

We have been successful in signing many customers to new multiyear contracts, stressing the benefits of our Hybrid Capture 2 test as well as the risks and costs of switching. This has been accomplished with only moderate pricing concessions. This pricing pressure will continue into 2012, but this was to be expected.

Customers have repeatedly told us that they are pleased with the Rapid Capture System and the Hybrid Capture 2 test, but want to improve automation. So, the QIAensemble Decapper launch was a big step forward, and we are working on other automation initiatives that we will talk about at the appropriate time.

Our growth drivers in molecular diagnostics, personalized healthcare, QuantiFERON TB, and also the use of QIAsymphony for our virology portfolio, these are all growing at robust double-digit rates.

In Applied Testing, we are looking for a return to a much stronger growth pace in 2012 after the disappointing flat results in 2011. The 2011 performance was in part the result of customers waiting for software releases on QIAsymphony that will have a significant value for applications in Applied Testing.

Pharma is benefitting from the demand for our GeneGlobe molecular pathway tools. And we are well positioned with our operations in China to benefit from the shift in R&D to Asia as well. We are expecting modest growth in this customer class in 2012 which takes into account the adverse impact of industry consolidation.

And in academia, we have a unique portfolio of products supporting translational medicine research and, again, here are well positioned for the growth of life sciences research. But, given the uncertain environment in the United States and Europe, we are anticipating flat sales in this customer class.

As you can see, we have a broad range of growth drivers in place. We believe the outcome in 12 months will indeed be accelerating sales growth for QIAGEN versus 2011.

I would now like to hand back to Roland. Roland?

Yes. Thank you, Peer. I am now on slide 18.

I would like to review our outlook for 2012 and the assumptions for adjustment to operating income. As we have been saying, our goal is to accelerate the growth rates for full year sales and adjusted earnings growth in 2012 compared to 2011.

For the full year, we expect total sales growth of about 6% to 8% using constant exchange rates based on a mix of contributions from organic growth as well as the Cellestis and Ipsogen acquisitions. These estimates, as usual, do not take into account any acquisitions that could be done in 2012.

Based on average foreign exchange rates in December 2011, our reported results will show some pressure from currency movements. We currently expect currency enhancements of about 2 to 3 percentage points. The actual reported results would then be lower than the constant exchange rate growth rate.

On adjusted EPS, we anticipate full year earnings of between $1.03 and $1.05. This is based on about 239 million fully diluted shares outstanding.

In terms of adjusted operating income for the full year, we expect about $21 million to $22 million for equity-based compensation, about $110 million for amortization of acquired intellectual property, about $30 million for business integration, acquisition, and restructurings. This includes approximately $20 million for the efficiency project. Also included is about $8 million for the Cellestis and the Ipsogen integration.

The adjusted tax rate is expected to be about 21% to 23%, which compares to 24% in 2011.

I am now on slide 19 to review our assumptions for the first quarter of the year. In terms of sales for the first quarter, we expect about 8% to 9% growth using constant exchange rates. Adjusted earnings per share is expected to be about $0.20 per share. This reflects the usual trend of relatively higher costs at the start of the year, but then an improving margin profile as the year progresses.

We also have here the assumptions for the adjustment to operating income. The tax rate in the first quarter in recent years has typically been above the full year average, and we expect this to be the case again in the first quarter of 2012. So, we are expecting a tax rate of about 26% for the first quarter of the year.

I am now on slide 20 to review our perspectives on the adjusted operating income margin before handing back to Peer. As we have been saying, our goal is to reach 31% in the fourth quarter of 2013. Let me walk you through how we expect to get there.

First off, as we highlighted earlier, the second half of 2011 was much stronger than the first half and we ended the year with an adjusted operating margin of 29% in the fourth quarter.

For 2012, we have set a target of about 27% to 28%. We are going to face some pressure on gross margin, mainly due to product mix including good instrumentation growth and milestones from companion diagnostic co-development deals. This will be to a lesser degree than we have seen in the fourth quarter 2011.

On the operational expense side, we expect meaningful contributions from SG&A, which should give us a higher margin at the end of 2012.

As an aside, keep in mind that the timing of milestones from companion diagnostic co-development projects can be difficult to predict, and this can insert some volatility into our results on a quarterly basis.

We expect to get benefits in 2013 from the efficiency project. Just as an example, a key margin driver is expected to be the full integration of procurement. We have now created one global team handling all procurement activities across the Company and we believe this will help generate even more savings. We are going to improve the margin while investing in our businesses and accelerating sales growth.

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

Thank you, Roland. And I'm now on slide 21 for the summary before we move into Q&A.

We had a strong finish in 2011, achieving our goals for faster growth in the second half of the year against the backdrop of a continuing challenging business environment. As we begin 2012, we are intensifying our focus on accelerating full year growth rates.

Critical to achieving this goal will be making further progress on our strategic initiatives. We are creating a foundation for future growth led by the ongoing strong rollout of QIAsymphony, and we are stepping up our initiatives to add content to our portfolio both through internal R&D as well as through targeted acquisitions and partnerships.

We are going to continue expanding our geographic presence in high growth markets which are increasing their contributions to our results. And we will intensify our actions to improve in efficiency and effectiveness through the project we launched in late 2011.

In closing, we have shown with our results in the fourth quarter and second half of 2011 that QIAGEN is improving its performance and is ready to accelerate growth in 2012.

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

Thank you, Peer. We now look forward to taking your questions. To ensure we can accommodate as many people as possible, please limit yourself to only one question and, if necessary, one follow up. Operator?

Thank you. Ladies and gentlemen, as this time we will begin the question and answer session. (Operator instructions.) One moment for the first question, please.

Mr. Lai, please state your name, company name followed by your question.

Hi. This is Quintin Lai from Robert W. Baird. Good afternoon and good morning.

Good morning, Quintin.

So, Peer, thank you very much for all the color on some of the products and some of the initiatives. One of the comments you made was that your 2012 guidance takes into account kind of some of the ongoing uncertainties. Could you elaborate a little bit about how you -- what are you taking into account and how you built out the 2012 expectations?

Sure. The guidance reflects the very balanced views of the risks and opportunities that we see in 2012 based on the variables that we feel comfortable in putting into the equations at the moment.

As we all know, there remain great uncertainties in the macroeconomic environment. They are far from over. And while I think companies have started to become better at managing them, including us, there are still a lot of question marks out there that are impacting public funding and academic research and in the healthcare system.

So, that said, we are taking a balanced view on these risks and, at the same time, the opportunities that we're creating for ourselves to create an outlook that, if you look at the second half of 2011, shows a nice trajectory and a continuation of a growth trend that we have proven already in the second half of 2011.

And then, kind of as a follow up to that, when you're -- it seems like that when we're in these periods of uncertainty, the one thing that really resonates with customers that might be more frugal are new products. And QIAsymphony certainly has gotten a lot of traction. Can you tell us a little bit about is it diagnostics? Is it academics? Is it pharma? Where are you seeing kind of the most uptake now?

Sure. It's really across the customer classes. In each of customer class, we have dedicated investment criteria for the development of new products and programs.

And if you look at the content rollout that we have, personalized healthcare, virology, and also in the other infectious disease and genetics area, it's quite a record rollout, in particular in Europe but also the US submissions are quite a few. And this is something that -- we had the list on one of the slides, and clearly we have the hope to add more to that list in addition to what we've shown here. So, there is a lot of opportunity that we have in terms of menu expansion in diagnostics with the existing platform in the rollout phase that we have today.

In the applied markets, the rollouts, in particular in the forensic area and food testing area, are going very well. The porting of these assays over to the QIAsymphony system, the creation of complete packages is resonating very well. And I'd say there is certainly an innovative aspect to that, but it's just a breakthrough utility proposition that we're giving in that applied testing area, which was typically running very cluttered, not very integrated, or very streamlined workflows. And we're creating a very nice workflow from sample to result for assays that have become quite routine, and this is clearly seen as a breakthrough in many areas.

In the academic research area, as you know there are few products that generally do more than $10 million in sales. And a portfolio in the research area is one typically defined by a strategic focus, and our is sample and assay technologies. We will be launching one to two dozen new products this year that are quite innovative in the area of sample preparation for several types of applications. I prefer to announce them when they come forward, but there is a significant R&D resource base that is allocated towards the life science research markets.

But, what we're doing in both life science research and pharma is not only platform technologies but content. I think few people recognize this, but if you look at QIAGEN today, one of the major revenue sources is actually content, diagnostic content, life science content, applied testing content that we sell in the form of tests. And we will expand -- further expand that content offering.

That was increased quite significantly in 2011 through hundreds of new mutation assays that we put onto the GeneGlobe system in addition to the gene expression portfolio and the epigenetic portfolio. So, there's a lot going on that is starting to link the academic and the pharma world that are actually working very closely together.

Thank you.

Thank you, Quintin.

Mr. Schenkel, please state your name, company name followed by your question.

Hi. Good morning and good afternoon. This is Doug Schenkel from Cowen & Company.

Good morning, Doug.

Peer, maybe a high-level question for you. Clearly, the business environment remains difficult. But, through this period, to be fair, you've been aggressively investing. You've deployed almost $1 billion on acquisitions and about $500 million on R&D. And recognizing this, if 2012 organic revenue guidance plays out as you guys have outlined, I think this would be the third straight year of low single digit organic growth.

What do you believe the long-term growth rate is of your business? Do you think that, coming out of 2012, that we'll hit some inflection point? And then, I guess for Roland, what growth rate do you need to achieve in 2013 to get to that 31% operating margin target exiting the year?

Okay, Doug. I'll take the first part of the question, Roland the second.

I appreciate your comments, however I don't think it's the third year. I think it's the second year in a row. We had quite a good performance in 2009, coming in actually ahead of our expectations on the top line that were quite strong. So, if you look at 2011 and '12, we clearly had a very difficult time in the healthcare industry overall.

The one thing, however, I'd like to note is that we are gaining market share in all markets that we currently serve. So, we have been outperforming growth in the overall molecular diagnostics market. We have been outperforming growth in the life science research markets and even in pharma. In applied testing, if you take 2010 and '11 together, we have been outperforming growth there as well. So, there is a macro trend and there's a micro trend. And clearly there's a lot that we can improve on.

I also recognize your statement on the acquisitions and the R&D spend. At the same time, if you note that in 2006, 2005, we generated 60% to 70% of our sales in the academic research markets. This is today about 25%. I don't think the business would show anywhere close to these growth rates if it were just an academic research supply business and the critical mass would not be there.

So, we transitioned the Company to a much stronger strategic position going forward with a longer growth profile in front of it and, as you see from QIAsymphony, one that is, for instance, just unfolding are personalized medicine.

So, are we focused on driving our growth rate up? Absolutely, and everything we're doing is targeting in that direction. And I think if you look into further out years, you see some trends coming stronger into fruition than what we've seen or what we will see in 2012.

It just doesn't make sense at this moment to project for us to grow three times the market growth rate in 2012. And you're seeing lots of other parties come out with conservative guidance at the moment that -- we think, if we look at our guidance at the moment, it's balanced. It allows us to continue to build our growth initiatives. And we think it is the prudent thing to do at this moment. We are, however, managing for a maximization of the top line growth opportunity that we have.

Roland, do you want to add to that?

Sure. Yes, just to add on what Peer said, 2009 our organic growth rate was 13%, by the way.

Yes, I was actually -- sorry, I was talking about '10/'11 and the guidance for '12. So, that's how I got to the three years, '10, '11, and '12 in terms of what you guided to. Yes, obviously '09 was a good year for you guys.

No problem at all.

But, going back to the second part of the question, which is what is the underlying growth rate required to go to that margin, what we believe is very valid here, I would answer in the first way as also looking back, actually, to 2011.

So, one thing, I think, which is, I think, essential to understand is that we have actually a very good increase quarter-over-quarter in terms of both revenue growth as well as in terms of profitability. And also, the second half of the year, at the end of the day, was, I think, a good finish for us for the year.

And also, I would like to remind you that, especially in terms around profitability, we also made our guidance as we said earlier in the year of 2011. Of course, we have to remind we clearly announced that we have a $0.02 dilution on the Cellestis acquisition.

Having that all said, I do believe that we have significant leverage within our cost opportunities. Not only the efficiency program which we started in 2011 will lead over the more efficient programs we are now executing on in 2012 into a higher profitability for 2013, in general I would also assume there a kind of a solid mid single digit growth rate would be already sufficient. So, if we come above that, we have, I think, even a good chance to be significantly overachieving our profitability targets going forward.

Nevertheless, I think part of my view important is we have a good leverage scale in terms of profitability, in terms of cost. I think we have a proven track record of having our hands around our cost situation as well.

Okay. Well, that's really helpful. It's really just -- the point is really to get at how you guys are thinking about running the business operationally moving forward. So, I appreciate the color.

One very quick follow up. In the press release, you talked about, I think, single digit growth in the kit business on the academic side, which is good. Could you provide any more color on how that part of the business is holding up more broadly across different end markets and, more specifically, what's going on in terms of pricing? Thank you again.

Sure, Doug. I think the academic markets are facing a shift in terms of consumer behavior that we haven't seen in quite a few years, 10, 15 years or so. It's quite impressive to see how everybody's preparing for the new, more difficult funding environment in academia. Back to the comment I made before, I don't believe that the academic markets, as an overall market, provide growth for the next five, maybe even 10 years, as public funding will always be constrained.

However, there is room for technology driven growth in pockets and as the public funding shifts to higher growth areas. For instance, our MI clinical content offerings and platforms are being perceived quite nicely, and that is why we are achieving above market growth in this area. Professionalization of purchasing, the alliances with pharmaceutical companies becoming tighter and more formalized, all this is significantly changing the way that commercialization is being done in the academic research markets.

As one of the efficiency programs significantly stepped up our direct marketing efforts, we have a much broader reach now into the market. And instead of having a field sales force, we have expanded the customer touch points significantly with electronic and other methods. And that is working very nicely for us in the regions where we have implemented it.

So, there's really a lot of underlying change that we can't really just explain in a very simple way because a lot of consumer behavior is changing quite considerably as we speak.

Operator, next question, please?

Thank you. Mrs. Koshal, please state your name, company name followed by your question.

Good morning. This is Nandita Koshal from Barclays Capital.

Morning, Nandita.

Good morning. I have a question on the impact of the mix on margins. So, in profiling, firstly what does the economics to QIAGEN look like on the consumables pull-through on the QIAsymphony system, especially on the non-branded piece, the LDTs that seem to a pretty meaningful proportion?

Sure. Roland, do you want to address that?

Yes, sure. One other thing also quite obvious out of the numbers we delivered over the course of 2011 is that profiling is, in the meantime, as I said, also a quite meaningful business for us. And of course, with the success of QIAsymphony, it's getting even more important for us. And therefore, it is clearly also a focus for us, in terms of margin expansion, to drive that portfolio to a new level, if you like.

On the implementation part of the business, we are clearly missing the upfront revenue recognition part, as most of our customers, especially in the diagnostics side, want to have a kind of reagent renter contract instead of a straight line sale of the instrument, which rather then clearly gives us a typically three to five year contract with the customer.

On the margin side, typical consumable margins also for the profiling product. And so, I think that is something that actually, over time, will be beneficial to our portfolio.

If I may add to that, Nandita, a typical LDT would be composed of sample preparation and assay platform technology. Reagents would probably end up at a cost of around $5.00, $6.00 depending on the application. A typical, let's say, commercial HIV test, viral load test -- and by the way, they're winning a lot of praises right now in scientific publications, both hepatitis C and HIV tests that are running on the Symphony.

They would be costing -- they cost around $25.00, I'd say. However, the upfront cost is more significant due to the validation. So, the margin on the reagents, as you know, is usually in the high 70%'s on the assay, on the commercial assay as well. But, you have the regulation -- the burden of the validation and the development process, which is obviously much more onerous.

But, we like to have this mix. The LDT portfolio is actually very profitable for us as well and gives us a much broader menu very quickly. And there are even a lot of customers exchanging now the LDT recipes on the QIAsymphony platform.

That's very helpful color. And also in personalized healthcare, Peer, what sort of uptake pricing and margin assumptions do you have for, say, the first couple of FDA approved Gear assets over, say, 12 to 18 months after launch?

I'm basically trying to figure out the dynamics of this maturing companion diagnostic partnership pipeline, which seems to be a lower margin companion diagnostic multi payment versus the commercialized assay revenues and the profitability on those.

I think we have to differentiate between the development work, which is an FTE service, basically, where we act like a CRO basically and charge the FTE services at a certain margin. These margins are not really what we're after. We're more after the product, and the product typically has a high margin. And prices of a KRAS test, for instance, depending on the country, can easily be $150.00 to $200.00. The cost of a product is comparable to the cost of an HIV product. So, there's a little bit more complexity to it, but not much.

So, the margins of a commercial kit product are very high. The margins on the development services should be dwarfed by the kit sales over time. The margins on the development services are below average.

I see. But, as the ramp up on the commercial assays -- then I don't know if you can share some assumptions around the initial ramp up. But, is it fair to assume that the bulk of personalized healthcare revenue growth will come from companion -- the CDX milestone payments in the near term, near to medium term? Thank you.

No, Nandita, the bulk of the revenue is already today coming from kit sales, and that is ramping up very rapidly. So, the development milestones or services are a smaller portion of the overall sales base.

Nandita, you will find a slide on that in the recent analyst presentation -- conference presentation we did. I did a slide on that for your reference.

Thank you, gentlemen.

We'll send it to you. Thank you. Operator?

Mr. Peterson, please state your name, company name followed by your question.

Thank you. It's Tycho Peterson from JPMorgan. Peer, with regards to your comments on the academic markets, if we look back, not too long ago you had talked about accelerating some of your direct sales channels, stepping up some of your direct marketing efforts. If we listen to your commentary now, it's a little bit more cautious on the margin than what we've heard from some of your peers that have reported on at least the near term trends. Can you talk to maybe some of the underlying dynamics there? I mean, are you getting traction from this refocused sales effort on the academic side? And what do you see as the opportunity for market share gain, if you will?

In the academic markets?

Correct.

Yes. Well, if you look at the growth numbers that we are pulling in the academic markets and you isolate them out to direct peers that have already reported, you see that we're gaining share. Some are reported -- have reported negative numbers, others very low single digit numbers, and we're above that.

So, the traction that we are -- we have in this market is that we are positioned as a company that transitions from life science research through to clinical through to applications that are getting closer to the patient. And this is an area that is getting more funding. So, that's a big differentiator compared to the typical purely academic basic research supplier that you might be peering to us. That's why we're getting higher growth.

Okay. On QIAsymphony, you've put a wide range of utilization numbers out there. How should we think about -- with the menu expansion this year, how should we think about where utilization is and where that could go? And can you also talk to the percentage of placements now that are maybe competitive wins versus Abbott or Roche, or how many of those are, alternatively, upgrades?

Sure. There's a big difference between the US and Europe. In Europe, we have over 20 assays running on the system including all the big blood virals. We're winning a lot of the direct comparisons. And I'd like to refer to some of the publications that have come out in scientific journals highlighting the significant improved automation workflow and convenience for customers compared to the competing systems. So, we're winning both on automation menu and also the quality of the individual assays.

I won't go into direct wins. I think this is a market that -- there are many players in there and we don't typically publish individual customers. But, we are very successful in Europe on all those three fronts.

In the United States, we clearly have a menu buildup phase which is more onerous due to the regulatory requirements. But, you see the menus starting from the board. And especially in companion diagnostics, we're building a critical mass and for pathologists, very importantly, a pipeline that is (technical difficulties).

And are you able to talk at all about where you think utilization in the US could be 12 to 18 months down the road with a fuller menu?

We have a very clear idea where this could go, and it's significantly above where we are today. I wouldn't want to give a specific target right now, because this would be very closely tied to our assay roadmap that we haven't disclosed in full detail.

So, the current numbers are currently still validation numbers and limited menu numbers. And they're moving up and we hope they will move up quite significantly.

As we think about --.

Operator, we -- I'm sorry, Tycho. We need to move on. We need to really limit this to one question per person because of the issue of time. We still have time for people. Thank you. I'm sorry.

Mr. Groberg, please state you name, company name followed by your question.

Great. Thanks. This is Jon Groberg from Macquarie. I just had one clarification in the slide, and then one question. In the slide deck, you have the employee count. And I was just curious, given the restructuring that you announced, what number is that expected to be by kind of end of 2012? And then, my question, Peer, strategically is with Roche going after Illumina, I'm curious about your view of the need to have maybe a more substantial position in the sequencing space, given your focus on personalized medicine and some of the target therapeutic areas that you're going after. I know you have a small business there or a small technology there, but just maybe you can talk strategically. Thanks.

Sure. Roland, do you want to take the second -- the first question?

On the headcount side, first of all you have to have in mind, of course, given the different employee laws especially also in Germany and US, that as we announced, we clearly will -- are expecting a reduction of 8% to 10% of headcount. This is not reflected in the end of December number. Even if most people sign the agreement in December, they typically have an employment at the end of the year. So, that's something which you will see over the course of the first quarter fading into the number.

And on the other end, we clearly -- as Peer laid out during the call as well, as we're going to invest in other areas as well, so, at the end of the day, we would assume that we have a lower number, but not necessarily 8% to 10%.

Okay. The second part of the question, the recent consolidations in this space clearly emphasize two things. One is the importance of personalized medicine going forward and the various trends that this is taking. And number two is the importance also of sequencing.

The importance of sequencing is primarily focused on the life science research markets. The move into clinical applications is still targeting more niche applications and will take some time. The reason is that the validation of multi gene parameters is extremely expensive in personalized medicine, and the roadmap to get there is still not clear. It will depend on the geography and on the application.

So, the majority of the applications that are coming in to us are single gene or multi gene panels that are very well manageable at a very acceptable cost on real time PCR and multiplex platforms and Pyrosequencing.

The situation might change in five to 10 years, and this is something that we clearly recognize. We have received offers for access to platform because, again, we are not a platform play but a content play and have a significant portfolio of content that we can port over to any platform that would make sense. So, this is a roadmap that we have very well laid out and we feel comfortable with.

Thanks a lot.

Thank you.

Mr. Wales, please state your name, company name followed by your question.

Hello. It's Martin Wales from UBS.

Hi, Martin.

Can you tie something to -- you've seen something more than 150 of your machines placed in 2011. You're going for north of 2000 in -- 200, sorry, in 2012. What's driving the acceleration? Is it the content? It is the redundancy with the RGQ frontend in the system fully? What's driving that and, I guess, where do you think it can go longer term?

The QIAsymphony system is by far the most versatile molecular processing platform in the industry. So, this is evidenced by the current placement of 550 systems in a record time, as we just really rolled out the consumables and the first menu basically starting mid 2010 probably to the research markets, and then sometime early 2011 to the diagnostic market.

So, there is a significant runway in front of us that we think we can address. And I wouldn't want to put an overall market size, but it's definitely a four-digit number. And that's -- I'd say you see other systems out there that are selling 2,000 to 3,000 units a year, this should be -- that have a placement of 2,000 to 3,000 units, these are market sizes that are not unreasonable.

Competing products in the market from other competitors have a high hundred number, 700, 800 systems or maybe 1,000, 1,500 systems in some cases, but these are by far the leading systems in the market. And if you look at the numbers that we have at the moment, we are reaching very quickly towards those numbers with the clear intent to surpass them.

And given that the RGQ frontend drives a much bigger consumable stream per instrument, I gather that the majority of the machines placed last year had RGQ. But, then you're expecting something similar this year, but overall still a minority of instruments have the RGQ frontend. How should we think about revenues per instrument developing across 2012?

The majority of our customers were actually RGQ detection customers. And they acquired the QIAsymphony to synthesize a full QIAsymphony RGQ by themselves. So, there are several thousands of RGQs out there and, in some cases, the Symphonies were added to their workflow to add a -- create a complete system. And that is -- a good chunk of the placements that we have out there are therefore QIAsymphony RGQs per definition.

So, what sort of revenue per instrument should we be thinking about from within?

It would be $50,000 to $60,000 currently, but we're driving that up very quickly as the validation periods are completing. And some customers are well into several hundreds of thousands of dollars.

Okay. I'll leave it there. Thank you very much.

Thank you.

Mr. Quirk, please state your name, company name followed by your question.

Thanks. Good afternoon. Bill Quirk from Piper Jaffray.

Hi, Bill.

Hi. Good morning, or good afternoon. Question and a quick follow up. First off, Roland, thanks very much for the color around the margins. Just help us think a little bit about 2012, because in the release you also noted that there is some pressure from some HPV pricing deals as well as obviously just mix as it relates to instruments. So, if you could give us a little more color there.

And then, as a follow up or perhaps an unrelated follow up, Peer, just thinking about some of the changes upfront in the molecular diagnostic space for reimbursement, doesn't look like it's going to be directly affecting you guys. Maybe you could speak to the longer term implications here. Thanks, guys.

Yes, let me go ahead. Yes, as I explained during the call and also in the press release, I would expect that 2012, in terms of gross margin, they're probably back into the low 70%'s. The fourth quarter of 2011 was clearly an exception with a couple of things coming together, especially also the change in inventory levels by the move there in Germany in terms of production.

And so, I guess that is a significant one-time impact. And also, the number of co-development projects with pharma partners in one quarter was exceptionally high. So, I think that shouldn't be also the basis on a yearly basis. So, I guess we have a good chance here with also the additional leverage programs going on to go back to the 70%'s, even including a certain, as I said, price pressure situation on the HPV front in the US.

On operating margin, just to conclude on that, we stick very firm to our 31% adjusted EBIT goal for the end of 2013.

Great. And the first question, Bill, as you point out correctly, the implications are not too direct for us at the moment. The one thing that we have been very actively working on is the reimbursement of companion diagnostics moving from code stacking to targeted reimbursement codes. That has seemed to be quite favorable for us. It's not quite complete, but we are looking at making companion diagnostics an attractive proposition also for pathology customers in addition to the healthcare system overall.

Thanks, guys.

Thanks.

Mr. Zana, please state your name, company name followed by your question.

Hi, gentlemen. This is Romain Zana speaking from Exane BNP Paribas. I have a question actually on the profitability. And on the top of the companion diagnostic milestones, I was wondering what were the impacts or actually the magnitude of the impact on the gross margin from HPV pricing pressure on the full year 2011. And also if, Roland, you could give us a fair assumption of what would be the gross margin level in 2012.

The second part of that is probably around 70%, probably. And our goal is to have 70% as well, and that is what I just said before as well.

On the HPV side, clearly 2011 year was a different mix on the running side volume stabilization. But, clearly entering, in a significant number, an extension of multiyear contracts where we'll be able to sign all material contracts as they can do, which we believe is a significant success and probably what you should expect from a market leader.

But, clearly pricing was a topic. Overall, I would say it's still moderate but I think this is nothing that should be unexpected. And so, it's a question now also going now into 2012 if this is going to continue. And as we said before, we do believe so. I think pricing will be an ongoing topic for our US franchise on the HPV side. We don't see HPV as a growth driver for the Company in North -- in the US. Nevertheless, we stick very firm to our franchise. We are the 1,000-market leader, and we will be going forward as well.

Romain, if I may just add to that, if you look at the number, 13% of sales being US based HPV testing that you are referring to, it would need huge swings in the pricing to really have a meaningful effect on the gross margin.

And what was the overall organic growth for HPV inside the market in the US?

Well, what we looked at and what we said also in previous calls is that the HPV portfolio did not grow in 2011. There was even a moderate decline. We expect a continuation of this trend, flat or moderate decline, in 2012 potentially. It really depends on how the market stabilizes and moves forward.

But, we are in an extremely strong competitive position. That is what we're focused on. So, we're focused more on market conversion right now and expanding the base of laboratories that are using our test.

Okay. Thank you.

Thanks.

Mr. Lawson, please state your name, company name followed by your question.

This is Peter Lawson, Mizuho Securities. Peer, just outside HPV, what's been happening with utilization rates and pricing for other clinical diagnostic assays in Q4 and the early part of Q1?

Sure. I assume you mean the United States, or in Europe? Or, any specific region, because they're very different pricing dynamics.

Yes. So, if you could tackle the US and then ex-US.

Okay. So, in the United States, we have not necessarily seen significant price changes in the market, despite an industry having gone through a difficult period. The lab industry has definitely also had its challenges in the form of stabilizing physician utilization trends. It's starting to become a little bit less of an issue for us, at least. So, going forward, we think that prices in the majority of our portfolio are very robust.

In the other -- in the European markets, there is -- it's a very competitive market. Prices in Europe are typically significantly below where they are in the United States. So, it's a very competitive market, I'd say much more transparent also in terms of competition. And there we are very competitively priced and are gaining primarily on performance and menu and workflow.

But, we have not seen significant changes other than in more mature assays like Chlamydia or like, in some cases, assays like HIV where there is a significant price maturization that is moving into some of the assays, not all of them but some of them. Luckily, we have been able to get premium prices in most markets.

Thank you, Peer. That's helpful. Just as a follow up, FDA approvals that are expected for 2012, what are they?

Well, we have the KRAS assay in two different versions in front of the FDA. We have an influenza assay in front of the FDA. And we saw two versions of the CMV assay, one a pre-molecular QuantiFERON version and one a molecular quantitative version of CMV. These are the ones that we've put out for now. There are other submissions that we expect to do as well.

Those are the ones that you'd expect approvals in 2012?

With the exception of the CMV viral load. That could take a longer time until the approval. That is a submission in 2012. Hence, a longer review would happen.

Great. Thanks so much.

Thank you.

And with that, I would like to close, this is Al Fleury from QIAGEN again, by thanking you all for participating. If you have any further questions, please do not hesitate to contact either John Gilardi or myself. Thank you very much.

Thank you, everyone. Thanks.

Ladies and gentlemen, this concludes the Q4 investor and analyst conference call of QIAGEN N.V. Thank you for participating. You may now disconnect.