Qiagen NV (QGEN) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to QIAGEN N.V. investor and analyst conference call on the Q1 results 2012. (Operator Instructions). I would now like to turn the conference over to Albert Fleury, Director, Investor Relations and Corporate Finance, NA. Please go ahead, sir.

Thank you. Good morning -- good afternoon and good morning to you in the U.S., and welcome to the QIAGEN conference call to discuss our latest quarterly results.

Joining me on the call this morning 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 the www.QIAGEN.com.

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, April 26, 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 provision.

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 U.S. Securities and Exchange Commission.

At this time, I'd like to now hand the call over to Peer.

Thank you, Al. Good morning to all joining us from the United States and good afternoon to all joining from Europe. I'd like to welcome you all to our conference call and the opportunity to discuss our results for the first quarter of 2012.

As you saw in our release last night, we are pleased with our start into 2012 and improving demand for our products across all customer classes and regions. Net sales were $296 million, representing a 13% increase at constant exchange rates. Adjusted operating income rose 14% to approximately $80 million and adjusted diluted earnings per share rose to $0.23 per share.

These results, led by double-digit growth in all regions and also contributions from all customer classes, were ahead of our targets.

What were the reasons? Demand for our products among customers and pharma applied testing and academia improved better over the first quarter of 2011, a period that was adversely affected by the disasters in Japan, as well as unrest in northern Africa.

We also saw solid gains among our growth drivers in molecular diagnostics. These include companion diagnostics for personalized healthcare. These areas are contributing more than $75 million in sales across QIAGEN and growing rapidly.

We are also seeing solid growth for our disease-profiling tests. Growth in this area is further underpinned by the success of QIAsymphony.

HPV sales were flat in the quarter. As we have said, HPV is not expected to be a growth driver in 2012; however, it remains a solid foundation for our expansion of molecular diagnostics into the growth driver areas that include personalized healthcare and profiling.

In terms of the 13% constant exchange sales growth, about seven percentage points came from the Cellestis and Ipsogen acquisitions completed in the third quarter of 2011. The rest of our business delivered six percentage points, so we are seeing signs of improvement over 2011.

A key driver has been the progress we have been making on our strategic initiatives to drive platform success, to add content, to broaden our geographic presence, and to grow efficiently and effectively.

Important developments in the first quarter of 2012 included the first regulatory clearance of a QIAsymphony component in the United States, the Rotor-Gene Q real-time PCR cycler. And in China, we received approval for the second of three components, in this case the QIAsymphony SP module.

In terms of adding content, we are preparing for the U.S. approval of the KRAS biomarker tests. FDA decisions are expected during 2012.

And we are improving our efficiency and effectiveness. The efficiency program launched in late 2011 is making good progress, and we are now implementing projects that are freeing up resources to reinvest.

Also in our press release, we announced some organizational and leadership changes. Effective July 1, we are creating two business areas, molecular diagnostics and life sciences. I will touch on this topic later.

Moving to slide five, I wanted to show you how we view the various contributors to our performance. Molecular diagnostics, which represented 47% of QIAGEN sales, rose 21% on a constant exchange-rate basis. We are going to invest even more in our rapid growth drivers. These include personalized healthcare, profiling, and the QuantiFERON latent TB test. These and other products together delivered 37% constant exchange-rate growth and represented 29% of our sales.

As I mentioned earlier, we are seeking to maximize the value of our HPV franchise. We had flat sales in the first quarter of 2012, both in the U.S. and globally, and this product now represents 18% of net sales globally. In the United States, the contribution has fallen to 14% of sales in the first quarter of 2012, compared to 16% in the first quarter of 2011.

I want to reaffirm a few statements. First, no HPV competitor has come out with a better product, neither in terms of clinical data nor in terms of automation. Most, in fact, have significantly inferior clinical profiles.

Second, HPV is valuable in providing critical mass and building relations with customers. We are determined to maintain our HPV leadership and are successful in doing so, as we have a very strong competitive offering.

Third, we believe our rapid growth drivers should more than outweigh any concerns in 2012 about lower HPV sales in the United States.

Turning to the life sciences, which involves the academia, pharma, and applied testing customer classes, here we are focusing on new opportunities. You can see that applied testing and pharma both delivered very robust double-digit growth in the first quarter of the year.

Academia was also a contributor amid improving trends, albeit growth at a much slower pace than in the past. We are still seeing uncertainties about funding in academia going into the second half of the year and in 2013, both in the U.S. and Europe.

Overall, this performance gives us confidence about accelerating full-year growth in 2012 over 2011. As for our full-year guidance, we see it as a balanced and taking into account the opportunities and risks we see. What we can say at this time is that we are increasingly confident of achieving the guidance, and we will review it accordingly as the year progresses.

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

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

As you heard from Peer, we have started the year with good momentum and are committed to accelerating our full-year growth in 2012 over our results in 2011. Today, I will briefly talk about our performance in the first quarter before providing you an update on our outlook on the rest of the year.

On slide six, you see our key results for the quarter. Net sales were 13% at constant-exchange rates to approximately $296 million. Consumable sales were up 14% using constant-exchange rates, while instruments rose at a slower 5% using constant-exchange rates pace in the period.

Adjusted cost profit was 10% to approximately $210 million. The adjusted gross profit margin was 71% for the third quarter of the year, down slightly from 72% in the third quarter of 2011. As you may recall, the adjusted gross profit margin in the fourth quarter of 2011 was 69%. We saw this as an anomaly to slip below 70%.

That [setsis] was due to specific factors in that period, namely the gross margin on companion diagnostic co-development payments that were booked as revenues. As you can see, we returned to a level above 70% and are on track to meet our full-year target of an adjusted gross margin of between 70% and 71%.

I also want to highlight that we achieved this adjusted gross profit margin while driving rapid growth of the QuantiFERON-TB test. Since it is manufactured by a third party, it has a gross margin below the QIAGEN consumable average.

Adjusted operating income rose 40% to approximately $80 million from the first quarter of 2011 and the adjusted operating margin remained steady at 27% of net sales.

As a percentage of net sales, higher manufacturing and sales costs were essentially offset by lower spending on R&D, marketing, and administration. Adjusted diluted earnings per share were $0.23 in the first quarter, up from $0.21 in the same period of 2011.

We achieved this result despite a higher adjusted tax rate. First quarter of 2012, this was 28%, compared to 26% in the same period of 2011.

I also want to note here the difference between the reported tax rate, which was 40%, and the adjusted tax rate. The difference was due mainly to a much higher tax rate on the adjustment since these were mainly in high tax jurisdictions.

In summary, the first quarter for QIAGEN was a solid start to the year.

I'm now on slide seven. For the quarter, we delivered double-digit growth in all regions, and we were particularly pleased with the broad business expansion in the Americas, namely the U.S., Canada, and Brazil.

The Americas, which account for 47% of net sales, grew 15%, using constant-exchange rates. Placement of QIAsymphony tests across all customer classes, as well as contributions from the QuantiFERON-TB test, underpinned this growth. In the U.S., as noted by Peer, HPV sales were stable in the first quarter.

The Europe, Middle East, and Africa region, which account for 34% of net sales, grew 12% using constant-exchange rates. Spain and some other areas of southern Europe remain challenging. However, our exposure in this region is quite small and other areas of Europe are doing better, such as Germany, France, and the Nordic region, and we also saw improvement this year already in Italy.

The Asia-Pacific and Japan region accounted for about 18% of net sales and grew 14%, using constant-exchange rates. Growth is mainly led by contributions from molecular diagnostics. We also experienced important growth contributions, however, from pharma and academia.

Key markets remain China and Japan, and we continue to be pleased with the momentum of the QuantiFERON latent TB test in this region as well.

Moving to slide eight, here is an overview of our financial position at the end of the first quarter. We continue to have a healthy balance sheet and solid financial position, one that we can use to strengthen our operations. We continue to review various M&A opportunities along our three strategic areas of novel technologies, adding content to our portfolio, and geographic expansion.

As of March 31, group liquidity was approximately $275 million, which compares to approximately $276 million as of December 31, 2011.

Our equity ratio stood at 69%, compared to 68% at the end of 2011. Our leverage has decreased slightly to approximately 0.8 times net debt to EBITDA from about 0.9 at the end of 2011.

As for free cash flow, we had said in the Q1 results we'd be adversely affected mainly due to the restructuring payments for the efficiency program launched late in the fourth quarter of 2011. And this was the case.

Although reported net income was essentially steady at $28 million, we experienced adverse development in other non-cash components in income and working capital, which led to negative free cash flow for the first quarter. Among reasons for the change in working capital, which amounted to $45.5 million in the first quarter of 2012, compared to $16 million in the year-ago quarter, were cash restructuring payments of approximately $20 million.

Also in the first quarter of 2012, we experienced an unusually low level of Accounts Payable compared to the first quarter in 2011, and we also made some tax payments for both 2011 and 2012 in the first quarter of this year.

So those were among the main reasons for the performance on free cash flow, and again, we expect improvement during the course of 2012.

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

Thank you, Roland. I am now on slide six and to provide you an overview of our strategic initiatives and goals set for 2012.

We are well on track to achieve our number one goal, which is to add more than 200 new QIAsymphony systems by the end of 2012. This builds on the more than 550 systems in place at the end of 2011. We are in the early years of a decade-long product cycle, and we expect the rollout to be successful, based on QIAsymphony's versatility in terms of sample processing bandwidth, as well as flexibility to prepare and process assays.

In terms of adding content, we are preparing important regulatory submissions that include a therascreen EGFR biomarker test in the U.S., and decisions on our two therascreen KRAS submissions could be expected in 2012. Discussions with the FDA remain positive.

As we broaden our geographic presence, we are reviewing options to expand in new markets in Eastern Europe, Asia, and Latin America.

And in terms of growing efficiently and effectively, we have completed the streamlining of our organization that began in late 2011. We are now working to free up additional resources that can be reallocated to further initiatives through various operational projects. These actions and reinvesting the savings will help improve our growth profile in 2013 and beyond, and also provide positive impulses to our adjusted operating margin.

Turning to slide 10, I want to give you an update on the QIAsymphony automation system. We see QIAsymphony as a family of components that offers customers the industry's first fully-integrated system from sample preparation to clinical result.

First, we recently received U.S. regulatory clearance for the Rotor-Gene Q and we are working on development plans to gain clearance for the QIAsymphony SP and AS modules. Gaining this first clearance is critical to expanding our test menu in the United States since future assay submissions will be based on this platform and can now leverage the work that led to the submission of the first module.

We are continuing to see strong growth in demand for consumables. Every placement creates an opportunity for annual consumable sales, or so-called pullthrough, of anywhere between $30,000 to $300,000. So we continue to view QIAsymphony as a very valuable, very long-term growth driver.

Turning to slide 11, here is an overview of the submissions for which we have recently received regulatory approvals, as well as completed in 2011 and what we have planned for 2012. We are looking forward to completing a number of important regulatory submissions to expand the menus of our system.

Top priority is the U.S. submission of the therascreen EGFR assay. The first submission for this assay is planned as a companion diagnostic for Tomtovok, the lung cancer drug in development with Boehringer Ingelheim. This will build on the 2011 submissions of KRAS and also the 2011 approvals of the KRAS and EGFR assays in Japan, one of the largest markets for companion diagnostics.

With over 15 projects, we have the industry's deepest pipeline of partnered molecular companion diagnostics that will build on these submissions.

Moving on to global regulatory affairs, we presently have over 50 ongoing R&D projects, which include regulatory submissions or registrations. As you can see, this represents a growing global portfolio of regulated products, and we are now moving to build up the testing menu in the United States to mirror what we have in other regions.

Turning to slide 12, I wanted to address some of the questions we have been getting about the market potential for QuantiFERON-TB. We believe this product, which we acquired with Cellestis in August 2011, is being underappreciated. 2011 pro forma net sales were about $55 million, and the growth rate continues at more than 20% constant exchange rates. We see long-term growth potential for QuantiFERON-TB in the United States worldwide. We're at a very low market penetration level still.

As we've been saying, we see the latent TB testing market, which is a market in the developed world, as about 50 million tests and one valued at about $1 billion. Alone in the United States, our current estimate is that the market is about 15 million tests and distributed among these segments, as you can see here on this slide. Apart from the more than 100-year-old skin test, there is no other test on the market with any significant sales, nor is there any in the pipeline.

Areas in blue are the primary targets at this time. However, we are building up sales and marketing organizations to move much more aggressively into the other segments, especially immunocompromised patients. So you will be hearing a lot more about QuantiFERON-TB in the future and seeing it become a key contributor to our growth.

Turning to slide 13, QIAGEN has established a leadership position in personalized healthcare, one anchored on various revenue streams. The sale of commercial biomarker kits for use as companion diagnostics, but also in clinical trials involving patients. Milestone payments from co-development projects. We have a robust portfolio of projects underway with many leading pharma companies and we are looking to add new projects during 2012. And we also have revenues from associated products, such as sample technologies, assay technologies, instruments, gene global molecular pathway analysis tools, etc.

We have created a business with sales of about $75 million in 2011, growing at more than 20% overall, with contract development services as a base and strong growth, very strong growth, in therascreen-branded assays and related products.

We expect ongoing strong growth in 2012, especially as we expand the commercial sales of our tests in Europe, as well as build up our presence in Japan after the approval of therascreen KRAS and EGFR biomarker tests during 2011 in that region.

And most important, we are preparing for the commercial launch of our therascreen KRAS test as a companion diagnostic for Erbitux and Vectibix in the United States.

We wanted to outline the U.S. market potential for KRAS testing in colorectal cancer only, which will be the indication for this test. Based on the breakthrough data presented at ASCO a few years ago, we currently estimate that about 75,000 KRAS tests are being performed annually in this area for this indication in the United States.

We currently sell about 20,000 PCR-based KRAS tests in the United States, while the rest of this market is estimated to involve laboratory-developed tests. Our first priority is to convert laboratory-developed tests to our test. We are very encouraged by the response and acknowledgment by these labs about the benefits of switching to an FDA-approved test.

Beyond these tests, we will be working with our pharma partners to drive penetration to an even higher level, based on an estimated price of about $200 per reportable test.

KRAS in colorectal cancer will be an attractive growth driver for QIAGEN. And that is just the start. We are working to add a therascreen KRAS test for lung cancer, and beyond KRAS, the next submission will involve EGFR, also for lung cancer, already in 2012.

These opportunities represent potential markets and show you why we are optimistic about maintaining a rapid growth pace in the future.

I'm now on slide 14. As you know, we announced a project in November to grow more efficiently and more effectively. We are enhancing productivity and have a goal to free up about $50 million of pretax resources for reallocation to strategic initiatives.

In the first phase, we have completed the streamlining of our organization, and the workforce was reduced by approximately 10%. This is a net number since we are going to redeploy resources into areas that can provide faster topline growth.

Teams are now working on initiatives across the organization. Key areas include focusing our R&D portfolio on growth areas across all customer classes. This obviously also includes personalized healthcare, as well as QIAsymphony. We're also going to optimize capacity utilization and are reviewing our site network.

The project is moving quickly, and we booked approximately $11 million of restructuring charges in the first quarter. Further charges are likely to be taken during 2012, and we had said that these could total up to about $20 million for the full year.

And as we mentioned earlier, the payback on these investments will become evident in 2013.

Moving to slide 15, as you saw in our announcement last night, we have made important changes to QIAGEN's organizational structure at the top level as well. These changes are designed to capture new opportunities and better address customer needs.

Most importantly, as of July 1 two new business areas are being created to intensify the focus on our customers. They are molecular diagnostics and life sciences, whereby life sciences comprises academia, pharma, and applied testing.

As I mentioned earlier, Dr. Helge Lubenow is appointed Senior Vice President, Molecular Diagnostics, and Dr. Dietrich Hauffe is appointed Senior Vice President, Life Sciences. Both will become members of the executive committee.

Joachim Schoor, who had been Senior Vice President of Research and Development and a managing director, has decided to leave QIAGEN and pursue personal projects, but he has been retained as a consultant.

Michael Collasius, former Senior Vice President of Automation, will take on a new role with responsibility for project management and business process excellence, reporting to me. All other members of the EC remain in their previous roles.

We believe these changes will promote faster decision-making, customer-centric decision-making, and our goal is to deliver targeted innovation at a faster pace through better connections with our customers.

This is the appropriate time in the development of QIAGEN to make this transition into business areas and regions. It will help to better prioritize and align our R&D and commercial activities, all with the goal of driving innovation and growth at a faster pace.

I would now like to hand back to Roland.

Yes, thank you, Peer. I am now on slide 16. I would like to review our outlook for the second quarter and full-year 2012 and the assumptions for adjustments to operating income.

As we mentioned earlier, we have reaffirmed our full-year outlook for 2012. We also provided targets for the second quarter, including our expectations for net sales growth of approximately 12% to 11% at constant-exchange rates.

As was the case in the first quarter, we expect some headwind on reported results due to year-on-year foreign currency movements. Adjusted EPS for the second quarter is expected to be about $0.24 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.

For the full year, we continue to expect total sales growth of about 6% to 8%, using constant-exchange rates, based on a mix of contributions from Cellestis and Ipsogen acquisitions, as well as from the result of our business.

These estimates, as usual, do not take into account any acquisition that could be done in 2012.

Based on the average foreign exchange rates so far in 2012, our reported full-year results will continue to show some pressure from currency movements. We currently expect currency headwind of about 2 to 3 percentage points. The actual reported results would then be lower than total constant-exchange rates [width].

Adjusted earnings per share for the full year is expected to be between $1.03 and $1.05 per share. This is based on approximately 239 million fully diluted shares outstanding.

You also have here on this slide the assumptions for adjustments to operating income for the second quarter of 2012 and the full year.

For the full year, equity-based compensation of about $21 million to million remains the expectation. About $110 million is planned for the amortization of acquired intellectual properties. About $30 million is planned for business integration acquisition and restructuring. This includes about $20 million for the efficiency project, of which $11 million was taken in the first quarter. Also included here is about $8 million of acquisition-related costs for Cellestis and Ipsogen and their integration.

Suggested tax rate is expected to still be about 21% and 23%, which compares to 23% in 2011.

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

Yes, thank you, Roland. I'm now on slide 17 for the summary before we move into Q&A.

We've started 2012 with an intensified focus on accelerating our full-year growth rates, and we are increasingly confident of achieving our full-year targets. Critical to achieving this goal is 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 targeted acquisitions and licensing.

We're 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 efficiency and effectiveness through the project we launched in 2011.

In closing, we have shown with our results in the first quarter that QIAGEN is improving its performance and is ready to accelerate growth in 2012, compared to 2011. 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. Also please note, to ensure we can accommodate as many people as possible, please limit yourself to only one question and, if necessary, one follow-up. We're implementing a new policy to mute your line after you ask one question and then the follow-up. However, you are welcome to rejoin the queue to ask another question if time permits. Operator?

Thank you. (Operator Instructions). Daniel Wendorff. Please go ahead, sir.

Yes, good afternoon. It's Daniel Wendorff from Commerzbank. Thanks for taking my question and congratulations on a good quarter.

Thank you.

I have actually two questions, but I'll start only with one, then, and that is on the QIAsymphony. Could you potentially quantify the impact of reagent [rental] agreements, and on your instrumentation sales growth in Q1, i.e., what would be the underlying instrument sales growth excluding this effect?

And also on the QIAsymphony, could you give an indication on the average consumable revenues per year per machine which you potentially strive for in 2012? Thank you.

Sure. The first question, if you take our annual number of about 200 instruments that we put out there as a target, and we reiterated today that we feel confident that we can achieve this number, that would equate to about 50 units a quarter.

Now, 50 units a quarter at -- and with an average design -- you know, you put together the modules. You can go to $150,000, you can go as low as $75,000 for the base module.

So if you assume $100,000 per system times 50 systems, that would be about $5 million of sales. That would be somewhere in the range of 1.5% of organic growth impact if you'd have 100% switch.

So it's very meaningful in terms of revenue contribution on the instrumentation. You can assume it's about a percentage point of organic growth differential overall for a quarter, if you averaged this out over the year.

Yes, okay.

In terms of reagent pullthrough, we said anywhere between $30,000 to $300,000, significantly above -- well, in the higher numbers for the European arena, where we have a menu of about 20 tests that is also cleared to run on the system, including also the blood virals that immediately create a large volume. Those would be hepatitis and HIV.

And that portfolio is generating a significant pullthrough already. As soon as you have a placement like that, you immediately go into higher numbers. As we calculated in the last call, in theory the system can go several times that $300,000 number if you want to put it to the max.

So Daniel, this is Roland. Again, just in addition to that, of course, for example, if you look at our guidance and, of course, for example, the second quarter was a 10% to 11% at constant exchange rate growth. That, of course, includes also an increase in inputs, which is exactly what we expect to substantially to grow over the next couple of quarters and years, so it's clearly a significant contribution factor for us.

Okay, thank you very much. I'll go back into the queue, then.

Thanks, Daniel.

The next question comes from Mr. Tycho Peterson. Please go ahead, sir.

Thanks for taking the question. Peer, just wondering if you can reconcile your comments here about improving trends in academia, and then I think you also said uncertainties in the U.S. and Europe.

As the follow-up to that is you had a good quarter. You didn't raise guidance. Are there things we should be thinking about later this year that are variables here or are you just trying to kind of be a little bit more conservative? Thank you.

To the first question, we are definitely seeing an improvement also in the overall sales of our products into academia.

And while the end markets remain still a little bit uncertain in terms of their long-term funding, we have quite successfully been able to reallocate the portfolio and also the marketing directions onto the areas of clinical research that are providing superior growth rates and the overall growth in the academic arena.

We are currently seeing a stable environment in the United States. Question marks around 2013. We're seeing quite stable academic growth in many countries across Europe. Some improvements Roland mentioned, Italy, for instance. This is something where we expect the market to continue pretty much at the same pace through 2012.

And in 2013, clearly there is a question mark in the U.S. around academic funding and sequestration, but these impacts will become more visible during the year.

But just to put this into perspective, the U.S. academic market is for us -- a 10% swing in the sales into U.S. academia would be about 1% organic growth for us. So it's not as meaningful as such swings would be for companies that are more exposed to the academic markets.

Now in terms of the outlook, clearly we're moving into the year. It's the first quarter of the year. We gave a range of different targets for the full year. We are increasingly confident that we'll be able to meet these targets, and so going forward we will be reassessing also our guidance as such in the first quarter of the year. Moving into this year, we decided to leave the guidance where it is today.

The next question comes from Quintin Lai. Please go ahead, sir.

Hi, good morning. Congratulations on a really nice start to the year.

Thank you.

Peer, you said that the year did start better than expected. What are some of the things that positively surprised you in this quarter?

Sure. There were quite a few things, actually. There wasn't any single event, and I would hope that this is an indication of a continuing good trend going forward.

We are seeing good uptake in the QIAsymphony portfolio, as we said before; very strong uptake on the personalized healthcare area; strong performance in the QuantiFERON-TB franchise. And as these things are moving in to our portfolio and are now being directed in a very deliberate way to the market, we're seeing everything together being offered very nicely to our customer portfolio in an efficient and effective way in terms of channel management. So, that would probably be -- those would probably be the highlights in the MDX area.

We've seen very good growth in countries such as Japan or good growth also across Asia-Pacific, and that is interesting to see because we're starting to see some of the initiatives that we started last year also now generate the numbers to show the success that we were hoping for.

So, the positioning we think is one of the ingredients to this. Individual products, QIAsymphony, QuantiFERON, therascreen, but also things like the Ipsogen portfolio doing very nicely and coming in ahead of their targets. So we will do everything to continue this trend and make this trend also more visible over the next few quarters.

Thanks for that, Peer, and by the way, pass on our best to Joachim and all the best to -- as he goes on to his future.

As you look at your R&D now that you have formalized the split, will you put more of the R&D allocation more toward maybe the diagnostics side and the higher growth areas?

We will have a balanced application of capital to maximize shareholder value, and I think that's one of the elements that we're driving in a much more deliberate way, so allocation of capital and target setting to make sure that we get the maximum out of the resources that we invest.

So, there are definitely very exciting areas also in the life sciences that provide great returns on capital. As we said before, the life science market is getting more diverse. You have broader portfolios and certain very exciting technologies to spice up the whole portfolio, and that's how we're going to look at it going forward on a more portfolio basis, but allocation of capital to maximize shareholder value.

The next question comes from Mr. Martin Wales. Please go ahead, sir.

Good morning, good afternoon. I suppose my first question really would be if we look at your molecular diagnostics business specifically, what sort of organic growth are we seeing there because, as far as I can tell, the strong growth you are seeing seems to be largely -- in that particular business seems to have been very largely driven by the acquisitions you made last year.

My second question, in terms of your reorganization, if you would be anticipating a -- that you will present your topline in a slightly different way after July 1 to reflect the way you're organizing the business, or will we still get the same numbers that you've presented pretty consistently in recent years?

And my final very quick one is, can you give us some sense of -- a quantitative sense of how the revenue per QIAsymphony has developed and where you think it will go from here? And also how long for the U.S. to catch up to Europe, given that you're beginning to roll out (inaudible) you're hoping to get more test approvals in the U.S. in the near term.

Thanks. First question, we are actually generating -- or, I've seen a significant jump in the organic growth rate, so not only due to the acquisitions, but actually due to the organic underlying growth rate (multiple speakers) 6% compared to the 2% to 3% that we saw over the course of 2011. It is an improvement and (multiple speakers)

Sorry, it is, I agree, but my question specifically relates to the molecular diagnostics segment. All of the acquisition-driven growth, presumably, is reflected in that business.

Right, we didn't disclose that number, but if you run the numbers, you'll see that the growth rates in molecular diagnostics, also excluding the acquisitions, was quite strong.

That's good to hear.

So we definitely expect to see further momentum also in this area going forward. In the underlying, as the acquisitions become organic, I think it will give a fairer picture, and that will happen in the third quarter.

Of course.

Second question was around the transparency, and you probably see we are providing you with a lot of transparency on the revenue trends in our customer classes.

We will continue with this approach with the new organizational structure that we've created, and we will continue to provide color on certain areas of the business that are interested in financial community, such as HPV and QIAsymphony trends. And at the same time, generate significant synergies within our operations and we'll continue our current reporting practices.

But if you see what we actually -- if you look at what we actually split out and have been splitting out now for a few quarters, it goes far beyond just the revenues of the business areas. We actually go into sub-areas and individual product lines, so this transparency has increased quite considerably, also compared to standard industry practices.

I agree. I would be reluctant to lose [some place] to hear that you continue.

Thank you, and in terms of the revenue of QIAsymphony, that's -- you know, we're splitting out the numbers of the systems, and the what we see as average pullthrough in these systems and a range, but I would be very reluctant to put that into a revenue number at this point in time.

And how long do you think for the -- given that you were indicating U.S. revenues per instrument, understandably, are below those in Europe for the moment because of where you are in terms of your test offering, how long do you think it would take for the U.S. to catch up to Europe?

Well, the U.S. is a much larger homogeneous market, so it doesn't need a lot for the U.S. to catch up. It needs the approval of a few of the assays, in addition to the broad menu of LDTs that are currently already being run in the United States on the system.

And today, as we said in the last call, we actually have a significant number of QIAsymphonys and are placing (technical difficulty) QIAsymphonys in the United States for LDT testing. So these systems will be getting the approved assays and cleared assays coming through on them as well, and so we already have the placements out there, which is a nice preparation of our future growth opportunity.

The next question comes from Zarak Khurshid. Please go ahead, sir.

Hi, guys. Thanks for taking the questions. First on the molecular diagnostics piece, I wasn't sure if you broke out the portion of that which is booked in the academia and pharma bucket. Can you just talk about that and how that is trending?

And then, secondly, getting more granular on the applied testing business, can you just talk -- globally, it sounds like things are going well, but just talk about kind of globally what are sort of the drivers of that business? Thank you.

Great. So the first question was around molecular technologies in the academic markets, if I understood that correctly.

That is an area that is indeed one that we're focusing on considerably because the pharmaceutical sector, remember, is part of the life sciences overall piece and also partly in the academic area, due to collaborations, tripartite agreements with pharma and academic institutions and potentially even CROs.

So, we are seeing a good uptake also, in particular personalized healthcare products in the academic piece. But it is not really materially enough to be driving the growth in a meaningful way in this area. It's pulling along, I think, the whole portfolio of products due to the positioning that we can create.

Second question was around the applied testing markets. We had a very strong initiative in 2010 and 2011 to significantly expand the menu in that area. If you remember, we entered or acquired the IPE and portfolio in forensics, and we're very successful in Europe in forensics and are looking forward to the IPO opening up in the United States soon. So the portfolio is doing quite well.

The food testing portfolio, also doing very well, and in some of these outbreaks in certain regions, we have 60% 70% of the food testing market right now. This is still a very small market.

Veterinary testing, also a few tests out of there, and also the QIAsymphony coming together and the whole portfolio being sold is driving that revenue considerably. We were not pleased with 2011 in that area. I think we put in a lot of initiatives for 2012 and they're showing the first effects, and I hope this trend continues.

The next question comes from Mr. [John Grodeck]. Please go ahead, sir.

Hi, this is actually Travis in for John today. Just a couple of quick questions related to your sales. You saw impressive growth in applied testing. You had an easy comp and it wasn't a small base, but were there any one-time items we should be aware of? And secondly, do you expect HPV sales in the U.S. for the year to be flat?

On the second question, I will answer that. Roland, if you will take the first.

So in terms of the HPV sales, we said that this will provide a stable base for 2012 and 2013. We are expanding the market. There are other competitors emerging. We are clearly leading the market also in terms of signing up new contracts, while there is an expectation for us for this to be a stable base for 2012 and 2013. Roland?

Yes, first question, very straightforward. Nothing material or significant, which is a one-time revenue or a nonrecurring item in terms of (multiple speakers).

All right, and how fast did Cellestis grow year over year and kind of what are you thinking about the growth rates in that business over the next three years?

For Cellestis, you mean?

Yes, for Cellestis, yes.

As we said before, we had clearly a good contribution factor from acquisitions in the first quarter. It's clearly mainly driven by Cellestis because Ipsogen is much more 2013 and going forward event. So again, we expect 20%-plus growth rate for 2012 and beyond.

The next question is from Mr. Bill Bonello. Please go ahead, sir.

Hey, good morning. Thanks a lot. I have a question on the KRAS assay. Can you give us some sense of how you think the market is going to convert once there is an FDA-approved assay? What percent of that 75,000 tests that I assume are currently done using a lab-developed tests will convert to an FDA-approved assay? If there is any, you know, pushback that you might get from any of those labs on why they think their homebrewed test is better? And then, finally, as part of that, if the molecular coating plays in in any way. I think right now the labs are probably billing using stacked codes, and by next year there will probably be a specific KRAS code, I think, and how that fits in?

Sure. I think the reason for adoption is if the test is, number one, good, i.e., addresses the mutations that are relevant. There are examples that have emerged recently that were -- it was quite clear that the test was not addressing the information needs required to make a good judgment.

Number two is the system has to be more than a one-trick pony, so there needs to be visibility for a menu coming forward, so if somebody makes a $50,000 investment for the base modules, or maybe even $150,000 for a full system, he or she has to know that there is going to be enough volume to amortize this investment going forward. And for that, KRAS is an interesting marker because it is the largest volume marker in companion testing today, molecular companion testing.

And number three is the validation that is unprecedented and also for multiple different drugs, not only for one captive drug that might even be small in some cases, but no, we're looking at major, major drugs that we are co-validating with that is a differentiator.

And number four, as you said, FDA is clearly making signals that they want to see more FDA-approved products, and reimbursement is also going in that direction.

So all of these things together make us feel quite good, also based on the initial surveys, that we are quite -- will be quite successful in creating a widespread adoption of this test.

So you think that could convert pretty quickly, then?

We think this market will convert, but this will not happen overnight, and the product has to be validated internally.

There's a certain internal procedure that labs have to go through. They will do that when they have the appropriate resources available, so this is something that would be done over, let's say, the course of months or a year or so, and would then lead to the product becoming the standard routine product.

Perfect. And then, one true follow-up on that, which is just based on your answer. Your assay is going to -- it's going to run on QIAsymphony? I guess I had misunderstood that.

The current submission is based on the Rotor-Gene Q module that is an integral part of the QIAsymphony system. We just launched the FFPE protocols on QIAsymphony now, and that will be updated going forward also in the form of a subsequent submission. These would be then modular increases to the base submission that we have already submitted.

Okay, perfect. Thanks so much.

The next question is from Mr. Brian Weinstein. Please go ahead, sir.

Thank you for taking my questions. A little bit on HPV here. Just curious, when a lab would take on maybe a different instrument platform, is there one test that becomes the default there if it's not specified from a lab requisition from a physician? And for a large network, like a LabCorp or something, is it an individual lab manager decision on which default test that would be or is it sort of a broader systemwide discussion on that?

Yes, the answer to the first question is, yes, there will be -- most labs will have multiple different systems, like to have multiple different Chlamydia systems running, and they will typically have a primary test.

So this is something that we've been getting strong feedback on from our customers that they see us as really the only test that is truly validated in providing the relevant clinical quality that would allow them to run this as a primary test. So, while there will be a diversification of the market and if a physician would like to have a different type of test, then that can be ordered, the big labs don't want to turn a customer like that away, but there will be a primary test. And the decision is typically based on a team decision in a very centralized way.

Okay, and then, a question on your [artist] assays that are approved in Europe. I believe there is around 30 or so that are approved. I'm just a little surprised that you're not pushing a little bit harder to get some of those approved faster in the U.S. in order to gain as much content as you can here, especially the ones that can go down the 510(k) route. Is it just a matter of not having the regulatory bandwidth or is there something else there?

Well, every one of these initiatives is quite significant. If you look at our pipeline, it's one of the densest in this industry. Typical is to have one or two, three, maybe, clearances, and if you look at that list, it is quite significant.

We have clearly identified this as an area we want to prioritize and put a lot more resources against, so you are spot on that this is something that we are going to emphasize and drive over the course of 2012. And as you say, the 510(k)s can lead to fast [also] revenue generation in 2013.

The next question comes from Mr. Peter Lawson. Please go ahead, sir.

Hey, Peer, just on the potential delays around U.S. academia, is there anything you can do to help the customers from freezing their spending? And then, is that the market you're most worried about for 2012 and 2013?

Thanks, Peter. No, actually, we're not worried about academia, and if you look at our growth rates, they are quite a bit above the average in this industry.

So we are actually working quite well in this market and are not necessarily now resorting to any mitigating special measures to bridge anybody. There is, I think, an outlook that we see as stable. There are challenges, as always, but it is not an area that is requiring any premium or special support in any way at this point.

Again, I would like to point to the growth rates, two or three times other growth rates that have been reported over the last few weeks.

Thank you. And then, just on the personalized medicine business, that's what $75 million. What's the breakdown of products versus service, and how much of that is KRAS?

Products is the majority and growing quite rapidly. The services are typically quite stable, and they were -- they're typically also -- as we have a certain amount of resources, we are adding many resources as we can, but this is not a 40% to 50% growth area. We are seeing the growth on the product side.

Remember, our products are approved already in many countries of the world, including Europe and Japan, and many other countries in addition to that.

The next question comes from Dan Leonard. Please go ahead, sir.

Thank you. Just a question and follow-up on the R&D expense. I'm trying to understand, so the drop in R&D expense year over year and sequentially kind of contradicts a little bit my assumption that you'd be investing heavily in menu expansion and QIAensemble development. So, can you address the source of the fall and maybe give us an update on your automation programs? Thank you.

Good catch, Dan. What we basically did in Q4 and early Q1 is we reprioritized the R&D portfolio to make sure that every R&D program provides the maximum benefit for the Company in terms of returns and value creation.

And for that, we actually cut from about 180 programs. We cut almost half and are reallocating them to projects that we see significant growth opportunities behind and putting those resources in those areas. That has led to a temporary reduction, but we see the growth rate hovering 1%, 2% around where we have been seeing it in the past, so don't expect us to deviate from that path that you've seen over the course of the last few years.

And on the automation update, ensemble?

Yes, we're moving along on these automation elements also for QIAensemble. I suggest that we put that into an upcoming conference call. There is great progress in that area as well that we can share sometime in the August timeframe.

Thank you very much. At this time, we will close the call, and I would like to thank you all for participating. If you do have any additional questions, please do not hesitate to contact John or myself. Thank you.

Ladies and gentlemen, this concludes the Q1 investor and analyst conference call of QIAGEN N.V. Thank you for participating. You may now disconnect.