Qiagen NV (QGEN) 2012 Q3 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 Q3 results 2012. 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 John Gilardi, VP Corporate Communications. Please go ahead.

Good afternoon, and welcome to our conference call to discuss our latest quarterly results. Joining me on the call are Peer Schatz, our Chief Executive Officer, and Roland Sackers, our Chief Financial Officer. A copy of the announcement and the presentation can be downloaded from the Investor Relations section of our home page at QIAGEN.com.

Before we begin, I'd like to thank you on for your understanding on our decision to postpone the announcement for a few days. We always strive for equal access to information about QIAGEN, and that investors have access to both NASDAQ, where about half of our daily trading takes place, and the Frankfurt Stock Exchange. So given the weather in the US last week, and also the fact that we had a holiday in Europe, we thought this was the best option.

And for those of you in the US, in the areas hit by the storm, we hope that you and your families are in good shape, and came through this situation as good as possible.

Before I turn it over to Peer, please keep in mind that the following discussion and responses to your questions reflect the views of management as of today, November 5th, 2012. Today we will be making statements and providing responses to your questions that include our intentions, beliefs, expectations, or predictions of the future. These constitute forward-looking statements for the purpose of the Safe Harbor provisions. They involve certain risks and uncertainties that could cause our actual results to differ materially from those projected. QIAGEN disclaims any intention or obligation to revise any forward-looking statements. For more information, please refer to our filings with the US Securities and Exchange Commission, which you can also find on our website.

I would like to now hand over to Peer.

Yes, thank you, John. Hello. I would like to welcome you to our conference call, and the opportunity to discuss our results for the third quarter and first nine months of 2012. As you saw in our release last night, we are achieving our goal to deliver faster growth in 2012, despite the challenging macro business environment.

We are pleased with our progress, and we delivered on the targets set for the third quarter. Our focus on driving innovation and growth is paying off. Based on the good performance so far in 2012, we have reaffirmed our full year outlook.

In the third quarter, net sales rose 10% at constant exchange rates, and were up 5% on a reported basis, to $304 million, on growth across all customer classes and regions. Adjusted operating income grew 12% to $84 million, and adjusted diluted EPS rose to $0.26 per share, which was $0.01 ahead of our target.

As you can see on this slide, we had similar growth rates for the first nine months of the year. Net sales were up 12%, to $908 million, and adjusted EPS rose to $0.74 per share. These results give us confidence about our full year targets.

At the start of 2012, we took a balanced view on a range of opportunities and risks. These included contributions from the recents acquisitions, and expectations for growth in all customer classes and regions. We also took into consideration the challenging environment, especially in the US and Europe. As you can see, these factors have so far been largely playing out as we had anticipated.

In terms of the 10% constant exchange rate growth in the third quarter, about 7 percentage points came from the acquisitions of Cellestis, Ipsogen, and AmniSure. The rest of our business added about 3 percentage points to growth. This is below the 5 percentage points for the first nine months of the year, but we still expect about 4 to 5 percentage points as part of the total 2012 constant exchange rate sales growth target of 8% to 9%.

Like others in the industry, QIAGEN experienced a slowdown in the academia and pharma customers classes in the third quarter. This was due to the uncertain funding environment in the US and Europe, and like others, we do not anticipate improvements in the funding situation in the fourth quarter.

Another factor has been the disruptions in R&D activities among some pharma customers in light of recent restructuring actions. While these created some impacts, the clear trend towards increased used of our molecular solution in preclinical and clinical development is continuing with very robust growth.

We also continued to see strong demand in Molecular Diagnostics, which rose 15% constant exchange rate growth in the third quarter, and also in Applied Testing, which has had a dynamic performance during 2012.

And the growth drivers in Molecular Diagnostics are gaining momentum, with about one third of our overall business facing or experiencing strong above-industry growth. These include companion diagnostics for Personalized Healthcare, and infectious disease tests in Profiling, both of which are underpinned by QIAsymphony.

Other growth drivers are the QuantiFERON latent TB test in our Prevention category, and in our Point of Need category, the AmniSure test, which is used during pregnancies.

We are making good progress on our strategic initiatives. These are to drive platform success, add content, broaden geographic presence, and grow effectively and efficiently. Among the highlights, we are well on track to achieve our goal for more than 200 new placements of the QIAsymphony automation platform. This builds on the 550 systems in place at the end of 2011. The majority of placements this year are in Molecular Diagnostics, and in the form of reagent rental agreements, where revenues are recognized over a multi-year lease period.

In fact, we believe we are placing more QIAsymphony systems in many regions than our two largest competitors in this category combined, for their own systems.

A few days ago, we announced a co-development agreement for companion diagnostics with a new pharma partner, Bayer Healthcare. This expands the list of leading pharma companies working with QIAGEN. The launch of the therascreen KRAS test, which received FDA approval in July for use in colorectal cancer patients, is also progressing very well.

And today, we are kicking off a first wave of our next-generation sequencing initiative with the launch of our four consumable products at the ASHG meeting in San Francisco. We're making good progress on our very exciting workflow solutions, and will provide an update in early 2013.

We also wanted to provide you with an update on some recent activities in the capital markets. The first tranche of our $100 million share repurchase program has been completed, with QIAGEN buying back 10 million shares -- $10 million in shares. We continue to believe our shares are undervalued, and see this program as a signal of our conviction.

Last night, we also announced the successful completion of a $400 million debt offering through a US private placement, at very attractive rates.

The net impact of these activities is about $0.005 of dilution on our adjusted EPS results in the fourth quarter, but we have absorbed this into our existing outlook, thereby effectively slightly increasing our guidance. Roland will provide more details on these activities later in the presentation.

Turning to slide 5, I would like to review the performances and contributions from our four customer classes. Molecular Diagnostics continues overall to perform very well, particularly the group of growth drivers. Instrument placements for QIAsymphony are going very well. Although this is weighing on our current instrument sales, these are creating long-term customer commitments and future demand.

In Prevention, the QuantiFERON TB test continues to deliver more than 20% constant exchange rate growth in 2012. Our PersonalizedHhealthcare portfolio, which includes sales of companion diagnostics around the world as well as revenues from our co-development programs, is expanding at a rapid pace as well.

AmniSure is on track to contribute about $12 million of additional sales in 2012. Our Profiling business is also growing at a good pace.

Revenues of products related to HPV testing so far in 2012 have declined at a single digit pace, in line with our expectations, as we seek to maximize the value of this franchise. Sales were indeed higher in the third quarter of 2012, but our focus remains on the year to date trends and not on quarterly swings.

As for sales of products used to test for HPV in the US, the contribution to our total sales has now shrunk to about 13%. Our view has not changed. Volumes so far in 2012 are actually modestly higher. Employment and physician utilization levels remain sluggish, but our market conversion initiatives are successful. The recent update to the ACOG guidelines reaffirmed the recommendations of other organizations earlier this year. In short, the guidelines show that every physician who does a pap smear should also order an HPV test, and a combination of a high-risk HPV DNA screening test and a pap test represent the complete solution.

We are successfully managing our market share leadership and the superior clinical utility of our solutions continues to be demonstrated in studies. No signs of major shifts in market share have so far emerged, and we do continue to anticipate modestly increasing market share from our competitors in future periods.

Prices, however, remain under pressure as we absorb the impact of multi-year agreements reached with our customers. So the net impact on sales remains negative, but manageable, and the decline so far is in line with our expectations. Again, a single digit decline represents about 1% organic growth headwinds.

Pharma sales experienced a slowdown as we felt the impact of various industry restructuring activities. However, full year sales appeared to be in line with our goal for mid to single digit growth. Academia continues to be a focus, with modest growth contributions.

We remain cautious about funding at the end of 2012, and are also looking ahead to 2013, both in the US and Europe. But we expect to grow faster than the market, and gain further market share.

On the situation in the US, like you have been hearing from our peer companies, there is no clarity on sequestration in the NIH budget in 2013. All eyes are certainly on the US elections, but even that will not provide full clarity. We are preparing for various scenarios on the outcome of these factors. And that is what we see our customers doing as well. We will provide more insights in January.

And on top of that, we are assessing the impact of Hurricane Sandy, but it's too early to predict.

On summary, we are pleased with our performance so far in 2012, and are confident of achieving our full year targets. I would like to hand over to Roland now for a review of our financial performance. Roland?

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

As you heard from Peer, for the third quarter of 2012, we achieved our target for net sales, and exceeded it for adjusted EPS, and we made significant progress on our strategic initiatives. We are committed to accelerating full year growth in 2012 over 2011, and based on the ongoing strong performance for the first nine months of 2012, we are reaffirming our full year outlook for higher net sales and adjusted EPS.

Before I go into more detail on the outlook, I will briefly review the results.

On slide 6, you see our key results for the third quarter. Net sales growth was a mix of benefits from the acquisitions of Cellestis, Ipsogen and AmniSure, as well as expansion as the result of the business [admitting] challenging market condition.

Adjusted gross profit was 6%, or approximately $219 million. The adjusted gross profit margin remained steady at 72%, compared to the third quarter of 2011, but was slightly higher than in the second quarter of 2012. With three consecutive quarters above 70%, we are confident of achieving our full year target for an adjusted gross margin of about 71%.

I want to highlight here that we have been able to maintain this level through various initiatives, especially since the QuantiFERON latent TB test, which is manufactured by a third party, has a gross margin below the average for consumables.

Adjusted operating income rose 12%, to $84 million, over the third quarter of 2011, and the adjusted operating margin improved to 28% of net sales from 26% a year ago. We have been restructuring our organization as part of the efficiency initiative launched in late 2011, and we expect more benefits to come.

Adjusted net income grew 11% to approximately $62 million, and adjusted EPS amounted to $0.26 per share. The adjusted tax rate was also as planned, at 22%, and this shows the benefits coming from our tax optimization effort. This level is also in line with our full year expectations for an adjusted tax rate of about 21% to 23%.

I'm now on slide 7, and will provide a few comments on the sales of instruments, as well as consumables and other revenues. Consumables and other revenues currently account for about 87% of total sales, and with a double digit constant exchange rate base for both the third quarter and first nine months of the year.

Our customer classes have been supporting the business expansion so far in 2012, although with slower growth rates for academia and pharma in the third quarter than earlier in the year. Growth has come from a mix of contributions from the recent acquisitions, as well as the rest of the business.

Instrument sales currently account for about 13% of total sales. The third quarter, sales were up 4% constant exchange rate, which follows the strong, very strong 28% constant exchange rate growth rate in the second quarter of 2012.

As Peer mentioned, the rollout of QIAsymphony is going very well, and placements are up more than 30% in 2012 so far compared to the same period in 2011. However, some other product lines have seen some slowdown, in part, due to the focus of our sales staff on QIAsymphony placement.

So this was a number of reagent rental deals had an impact in particular on Molecular Diagnostic sales, but consumable sales did well in this customer class.

I'm now on slide 8. As I mentioned earlier, among the regions, the Americas provided 47% of sales, and grew 11% constant exchange rate. The QuantiFERON latent TB test continues to be a top performer in 2012, and we also saw higher sales of the HPV tests in this region, including the US. Applied Testing has been steadily growing at a double digit pace in the US, with improving sales in forensics, as well as food safety and veterinary medicine.

Results in Europe, Middle East and Africa were not as strong as in the rest of the world, rising 7% constant exchange rate over the third quarter of 2011. A number of countries in Northern Europe continued to perform well, and results are also up significantly in Russia and Turkey.

However, southern Europe, as you know, is facing increasing pressure. Governments are cutting healthcare expenditures, as well research spending. But keep in mind that we have limited exposure to these countries.

In the Asia/Pacific and Japan region, sales rose about 14% in the third quarter. China, Japan and Korea all grew at double digit rates in the third quarter, and we are seeing good placements for QIAsymphony as well in the region. However, we have seen some slower momentum in other countries of this region such as Taiwan and Australia, due to funding restrictions.

Moving to slide 9, I would like to summarize our results for the first nine months of this year. We have maintained a good momentum to date, and this gives us confidence about achieving our full year targets. Net sales were up 12% at constant exchange rates, to approximately $908 million over the same period in 2011. In fact, the adjusted operating income margin improved to 28%, and we are determined to achieve further improvements in the future, including the benefit of the efficiency and productivity initiatives launched in late 2011. Adjusted net income grew at a similar pace as adjusted operating income, and also with a steady year on year adjusted tax rate of 24%.

Moving to slide 10, here is an overview of our financial position at the end of the third quarter. We continue to have a healthy balance sheet and solid financial position. The proceeds from the $400 million private placement in the US has further strengthened our position. This amount is not shown here, since the placement was actually completed in mid-October.

As noted in the release last night, we used some of the proceeds -- about $220 million -- to pay off the revolving credit facility, and the rest will flow into the balance sheet. We felt it was an appropriate time to take advantage of the historically low US interest rate environment. It was also an opportunity to align our debt profile with longer term business investments and our value creation strategies.

As for our position as of September 30, Group liquidity stood at approximately $311 million, and the equity ratio improved to 68%, from 65% at the same time in 2011. Leverage remains at about [one third] of net debt to adjusted EBITDA, and we see this trending up slightly in the coming quarters.

Free cash flow also improved over the year-ago period, amounting to $49 million in the third quarter of 2012. This amount is based on the significant rise in net operating cash flow, and also higher investments in property, plant and equipment, in part due to expansions of our North American headquarters in Maryland.

I would now like to hand back to Peer.

Thank you, Roland. I'm now on slide 11, to quickly review the achievements of 2012 and the progress we are making on our strategic initiatives.

In addition to the QIAsymphony rollout, we are moving ahead with our next-generation sequencing initiative. In many ways, we are repeating a strategy that has worked out very well for us, developing customer-friendly automated workflows involving breakthrough technologies. We did this with Real-Time PCR, and you can see the success with QIAsymphony RGQ.

With the addition of the QIAGEN next-generation sequencing portfolio, we will have a very strong competitive position to offer customers a broad range of technologies with complete proven routine workflows.

In terms of adding content, a number of contents are moving ahead towards key submissions by the end of the year. This includes the therascreen EGFR test in the United States as a companion diagnostic for use in lung cancer patients. In combination with the recent approval for the KRAS test, gaining approval for the EGFR test in the United States will complement the existing approvals in Japan, Europe and other important markets around the world.

After our direct entry into India and Taiwan during 2011, we are reviewing options to further expand into new markets. The top seven markets are growing at a very attractive pace, up 24% on a constant exchange rate basis in the first nine months of the year, and providing 11% of sales.

The efficiency program launched in late 2011, along with a series of organizational leadership changes, are having a positive impact on QIAGEN. These actions will help improve our growth and profitability in 2013 and beyond.

I'm now on slide 12. We've been talking about the various growth drivers in Molecular Diagnostics, and it is important to consider what they are providing in aggregate. This group of growth drivers, this group of products, now accounts for about one third of total sales, or in other words, about two to three times larger than our revenues from HPV testing. And they are expected to keep growing at a strong double digit growth rate pace. We are freeing up resources to invest in various initiatives that would further accelerate growth rates.

In terms of QuantiFERON, as we've been saying, this product is expected to deliver more than 20% constant exchange rate sales growth on an annual basis for the next few years, and coming from a performance base of about $55 million in 2011.

In Personalized Healthcare, we are set to top $100 million of sales in 2012. And this, coming from a business only created in 2009. We continue to expect annual sales growth of more than 20% constant exchange rate, here as well driven by contributions from assays and other products used for biomark analysis and development.

In Profiling, which is our business involving primarily assays for a broad range of infectious diseases in the Artus portfolio, we're seeing growth at an attractive rate, and supported by the QIAsymphony rollout. The ability to automate laboratory developed tests, or LDTs, is also a key selling point, given that about half the test volumes in laboratories involve LDTs.

And in Point of Need, the addition of AmniSure is having a catalytic effect. We expect $12 million of sales from AmniSure in 2012, and doubling to $25 million in 2013, and prospects for rapid growth in the coming years. This is a very attractive group of differentiated products that together are growing at a rapid pace, and they will incrementally become a larger percentage of our business in the coming years.

Moving to slide 13, a few days ago, we announced an important new co-development collaboration for companion diagnostics, with the addition of a new pharma partner, Bayer Healthcare. This adds to our industry leading group of partnerships with major pharma companies around the world. QIAGEN has, by far, the industry's leading number of companion diagnostic collaborations and molecular diagnostics.

Together with Bayer, we will be working on various companion diagnostic projects involving existing biomarkers in our portfolio, as well as new ones. As is the case with these agreements, we are restricted on what can be made public.

A number of other new projects with many pharma companies with whom we are already working as well as such with new partners are in negotiation phase. These discussions include a range of novel biomarkers in many disease areas. Interest has picked up considerably following the regulatory approval in July of the first therascreen assay, therascreen KRAS. This first approval is so important, since it provides a template for the delivery of a very deep pipeline of therascreen tests.

More than 15 programs are running within QIAGEN. This highlights the depth and breadth of our pipeline, and provides an indication of several new products expected over the next few years.

Turning to slide 14, we are pleased with the launch of the therascreen KRAS test for use in patients with metastatic colorectal cancer. Our number one priority is to convert LDT labs to our tests. We are very encouraged by the response and acknowledgement by these labs about the benefits of switching to the high performance FDA-approved therascreen test, and we will report on the many initiatives we have created to achieve this goal.

Beyond these tests, we are working with our pharma partners to drive therascreen KRAS testing penetration to an even higher level. Based on an estimated price of about $200 per test, therascreen KRAS in colorectal cancer alone, and alone in the US, will be an attractive $20 million market opportunity and a great new growth driver.

As you see on this slide, the therascreen KRAS test has a proven clinical utility, one that is backed by an FDA approval based on data controlled in -- data from a controlled clinical trial, which is fully aligned with the drug.

Our marketing activities are focused on highlighting a few key messages against the most widely used LDTs, which are mostly on Sanger sequencing. First, using the therascreen KRAS test means you are meeting the FDA requirements of the Erbitux drug label. Only our test enables customers to consistently and reliably provide a result for clinical use with patients. Further, the use of the FDA approved therascreen test will not expose the laboratory to what could be significant reimbursement regulatory and liability risks.

Therascreen KRAS is an automated, robust assay with a rapid turnaround time, so oncologists and customers can get results much more quickly. It is a highly sensitive and specific test in detecting any mutation among the seven codons on KRAS that are critical for analysis, and providing objective results as opposed to subjective results from Sanger and next-generation sequencing.

And customers almost benefit from a standardized workflow on the Rotor-Gene Q MDx platform, one common platform for all QIAGEN companion diagnostic assays, and a pipeline of future therascreen assays is visible and very deep.

The sales uptake for the therascreen KRAS assay in the US is developing very well. We are building a new market, and growth will continue to unfold in the coming quarters as we continue converting US labs and expand the market. And most important of all, preparing for the entry of additional therascreen companion diagnostics in the coming years.

I'm now on slide 15. As I mentioned earlier, we are launching a first pre-wave of our next-generation sequencing initiatives at the ASHG meeting in San Francisco with four new products that improve critical sample preparation processes in the pre-analytical phase. These build on our core capabilities, and address urgent needs to simplify these steps, reduce hands-on time, and provide easier to use protocols for labs.

We will incorporate these and other products into our sample to result workflows, and we will be providing more details on those complete workflows in early 2013. These kits are also compatible with currently available next-generation sequencing platforms as well.

Here are some details on the four kits. Single cell analysis and next-generation sequencing needs much higher amounts of starting DNA, and therefore requires an amplification step to achieve reliable results. The REPLI-g single cell kit enables sequencing from single cells and minute amounts of DNA with highly accurate whole genome amplification.

The second kit involves ribosomal RNA, which makes up about 90% of total RNA. It uses up sequencing capacity and negatively influences RNA analysis. GeneRead Ribosomal RNA Depletion Kit provides very effective and highly selective removal of ribosomal RNA through novel hybrid capture technology for RNA analysis, which is one of the fast growing applications for next-generation sequencing.

As for the third kit, library quantification is a required step in every next-generation sequencing protocol. The GeneRead Library Quant Kits enable reliable and simple DNA library quantification, and this allows also non-experts to quickly process samples. These kits can be paired with other QIAGEN products for sample preparation, target enrichment, newly developed libraries, and the new NGS platform.

I'm now on slide 16, to discuss the fourth product being launched. This is a further example as to how we are leveraging existing QIAGEN products for NGS applications, a significant competitive advantage. Traditional NGS requires whole genome analysis with multiple runs to process an entire sample. The cancer researchers, or clinical research, in the broader sense, prefer to do targeting sequencing, which saves time and money.

The GeneRead DNAseq Gene Panel system enables fast enrichment of target gene panels for next-generation sequencing analysis, with multiple pre-defined and validated cancer panels, as well as custom-made gene panels supported by easy to use online software for sequence variant analysis.

This product is based on our industry leading portfolio of biologically and clinically characterized and annotated molecular content. GeneGlobe, the name of this portal, already today offers more than 60,000 well-defined and characterized molecular assays, and we are using exactly these for next-generation sequencing applications. These assays have already generated well over $100 million of sales in the last two to three years.

In the first wave, we are offering eight pre-configured gene panels for use primarily in cancer, and also provide customers the opportunity to create their own customized panels.

As we said on the last call, we want to capture rapidly emerging opportunities in select areas, particularly by bringing routine next-generation sequencing workflows into clinical research in Molecular Diagnostics. Customers in these areas have been telling us that the current competitive offerings, which are focused on the Life Sciences, do not meet their needs. And this is delaying the uptake.

Our workflows will incorporate the QIAcube or QIAsymphony automation platforms, and again, this is a key competitive advantage in our favor.

As for the sequencer module, we believe this system will have a very competitive profile against alternatives. It builds on proprietary sequencing by synthesis technologies, and the benefits of QIAGEN's chemistry as well as unique instrumentation capabilities.

Most importantly, it will offer many novel features that are essential for clinical sequencing, and again, in a much more attractive workflow. This includes being able to process up to 20 individual samples in parallel, and also for flow cells and reagents to be reloaded continuously while in operation. Also, up to 20 different assay types can be processed at the same time.

You will be hearing more about this initiative in 2013, as we provide much more detailed specifications on the systems and prepare to launch the first products.

I'm now on slide 17. As you saw in our release last night, we announced a senior leadership change. We are recognizing the significant accomplishments of an outstanding leader to our growth during the last decade, and once again, our ability to develop and promote talented internal leaders to the executive committee.

After 12 years with QIAGEN, Bernd Uder, Senior Vice President, Commercial Operations, has decided to retire in early 2013, in line with his own career plans. He has agreed to stay on board in an advisory consulting role.

I want to thank Bernd for his contributions to the success of QIAGEN, his inspiration and leadership of our global sales organization. His broad industry insights have been invaluable to QIAGEN.

When Bernd joined in 2001, our annual sales were about $200 million, and came from a single channel approach focused on the Life Sciences. During the next decade, he led the global transformation of our sales organization into a high performing team, creating a multi-channel strategy that was critical to our expansion into all of our four customer classes we have today.

As part of this transition, I am very pleased to announce that Benedikt von Braunmuhl has been selected as Senior Vice President, Commercial Operations, and as a member of the executive committee. He will assume this position as of January 1, 2013.

We at QIAGEN are fortunate to have many strong leaders in our organization, and Benedikt is a great example of this deep and strong talent pool. He has developed a strong track record of continually exceeding his targets in both the Life Sciences and Molecular Diagnostics area since joining QIAGEN as Vice President Latin America in 2008. His responsibilities have been continually expanded to a wide range of countries in the emerging markets, and also to oversee other areas within commercial operations. He has strong global business experience, having worked in Western and Eastern Europe, Latin America, and Asia.

In summary, we are making significant progress on our strategic initiatives, all aimed at driving innovation and growth at a faster pace in 2012, and have a strong, experienced and diverse leadership team in place.

I would now like to hand back to Roland.

Yes, thank you, Peer. I'm now on slide 18, to review some of the details about our share repurchase program, and the recent US private placement.

As for the share repurchase, this is a signal of our commitment to improving the [trends] to shareholders, and also, that we feel our shares are significantly undervalued. We have begun the repurchase of up to $100 million of our shares, which represents about 6 million shares based on current stock price. The program was launched on October 1st, and so far, we have bought back about 500,000 shares for about $10 million on the Frankfurt Stock exchange.

Also in the release, and in line with the comments we made on the second quarter conference call, we took advantage of the currently low interest rate environment and completed our first debt-raising activity in the US. The $400 million of long-term debt came from US insurance companies in the form of a private placement.

A roadshow was held during the third quarter, and the payout was in mid-October. You can see that it's offering attractive, strong demand, and we succeeded in getting a very attractive yield.

You see the higher interest rate expenses from raising this debt as a worthwhile short-term tradeoff, given the risk for higher interest rates in the future.

As for the net impact of these activities, we see it as about $.005 of dilution on adjusted EPS for the fourth quarter, but we can observe this with our existing outlook.

As a preliminary estimate for 2013 -- and this is all subject to the speed at which we complete the share repurchase program -- we currently expect a net impact of about $0.01 of dilution for the full year. This estimate is based on higher after-tax net income expense of about $9 million, and this being offset by a reduced number of shares outstanding from the buyback.

As for our financial flexibility, we still have significant capabilities to support our business expansion without relying on equity and benefit from our strong free cash flow. Moreover, we intend to continue pursuing targeted (inaudible) M&A opportunities in line with our long-term strategy.

I would now like to turn to slide 19. It shows that we have reaffirmed our full year outlook.

For the full year, total net sales are still expected to rise approximately 8% to 9%, constant exchange rate. It is still too early to estimate the impact from Hurricane Sandy on our results. With a number of business closures and power outages on the East Coast, we are still evaluating with our customers. But based on the current situation, and also assuming no major disruption due to the US elections, we anticipate achieving the middle to high end of the range.

Adjusted diluted earnings per share are expected to rise to about $1.04 to $1.06 for the full year 2012.

Based on 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 a currency headwind of about 3 percentage points on full year results.

For the fourth quarter, keep in mind that we had significant one-time sales contributions in the fourth quarter of 2011 from the HPV tender in Mexico, and also a high level of milestone payments from co-development projects for companion diagnostics. So this will affect the year on year results.

You also have here on this slide the assumptions for the adjustments to operating income for the full year. For the full year, we now expect equity-based compensation of $24 million to $26 million, about $132 million for the amortization of acquired intellectual property, about $45 million to $48 million for business integration acquisition and restructurings. This is up from the second quarter 2012 estimate. These are non-cash charges being taken as we accelerate some restructuring projects for the year-end. Adjusted tax rate is still expected to be about 21% to 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 20 for the summary, before we move into Q&A.

We are performing well in a challenging macroeconomic environment in 2012, achieving our goals for innovation and growth. Let me review again what we have announced.

We achieved our targets for the third quarter of 2012 in terms of net sales and adjusted EPS growth. Based on the performance so far in 2012, we have reaffirmed our full year targets, despite the challenging business environment. We are actively developing our Company while enhancing shareholder value, and at the same time, maintaining our financial strength and flexibility.

Our program to repurchase up to $100 million of shares is underway. This is a signal of our conviction and our future prospects and views that there is significant value potential in our shares.

At the same time, we have strengthened our balance sheet through our first US debt offering at very attractive rates. This will provide longer term financial capabilities to support our business expansion.

In closing, we remain on track in 2012, and are optimistic about achieving our targets an delivering a stronger performance in 2012. And with that, I'd like to hand back to the operator to open the Q&A session. Thank you.

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. (Operator instructions) And the first question comes from Romain Zana from Exane PNB Paribas. Please go ahead.

Yes, good afternoon, gentlemen. I have three questions, actually. The first one, I think, Peer, you mentioned that the 4% to 5% organic growth guided for the full year is still confirmed. So I was wondering, what makes you confident that you can achieve such sequential acceleration, especially given that the very tough comps?

The second question will be on the margin improvements, because you previously mentioned that the guided margin improvement for 2013 especially will be mainly driven by SG&A cost management. And it seems that so far, it has come from a lower R&D cost. So first, I was wondering, is that sustainable? And second, do you expect optimization of SG&A? When do you expect SG&A optimization to deliver?

And last question, just on Profiling, if you could give us more color on the constant exchange rate growth that you achieved in Q3. Thank you.

Okay, great. Thanks, Romain, good questions. I'll take one and three, and Roland, if you could then take the two.

Sure.

So I'll start out with the last question. Profiling is delivering very nicely, and the growth is definitely driven by the QIAsymphony placements. The overall franchise is developing very nicely. The revenues are not a good indication of that good growth, because we are clearly seeing a lot of reagent rental placements.

QIAsymphony, the platform that is driving this growth, is typically being placed now under reagent rentals. The majority of these placements are in the clinical lab. The majority of these placements are actually in combination with some sort of a tail to it, in terms of reagent streams, or similar.

So, with this, we are definitely seeing an impact on the top line, and in terms of these instruments not being recognized any more as straight cash sales, but they are now being structured on these lease agreements. If you factor this out, you actually get to very good growth rates in this area as well, and we expect this to continue over the foreseeable future. This system is developing very nicely.

In Europe, we're primarily placing with a complete menu of approved tests. In the US, it's primarily for LDTs. And now with the emerging visibility of the menu coming onto the system, they will be added to that growth and drive that further.

We're actually seeing very strong uptake also in the US of this system, and it's a very balanced placement profile.

So number two is -- Romain, I hope you understand, I won't give the details on this sub-group. I can only confirm that this is an area that we continue to see, and expect to see a good growth in.

Yes, I see.

And the 4% to 5% growth rate for the year, this is something that we're pretty much there in the third quarter. We were a little bit above that in the first half of the year. There are always -- you know, special programs, deals, tenders, initiatives, new product rollouts and these types of things that drive these types of forecasts. And this was carefully done, and as Roland said, we think we can even be to the -- in the mid to high end of the range of the forecast for the fourth quarter of 2012.

So there's not a specific factor I would point to. Again, there is caution around, will Sandy have continued impact? We don't necessarily factor in a big number yet beyond what we've seen today. And the elections are always a question mark. But we feel very comfortable in giving this guidance.

Does it mean that your order book actually gives you visibility on this?

It's simply because of the pipeline. If you remember, a lot of our products are purchased and delivered overnight, or within a very few days. So the -- it's basically the pipeline, the leads that we see, and also the customer feedback that has been given to us in terms of demand now over the next few weeks.

Okay. And in terms of margin development, Romain, a couple of reasons. As you know, in terms of pricing, QIAGEN typically is able to increase prices, ex-HPV. I do believe even in a more challenging environment right now, we will see some improvements here.

The second reason is clearly in terms of utilization of our production environment. I do believe that there is still room for flexibility for QIAGEN. But still, the final utilization ratio is somewhere around 60%, 65%, so more volume, same kind of equipment, gives us a clearly better costing situation.

In terms of R&D, you shouldn't forget that, of course, especially over the last 18 months, we have seen a significant number of deals with pharma companies around companion diagnostics. So have in mind that even if you see a certain volatility around R&D expenses, that doesn't mean that actually -- or, R&D firepower decreases. It actually means it's a firepower, significantly has increased without hitting our P&L too much. And in terms of leveraging SG&A, I think it's also important to know that you have to look at it on a yearly number, and typically, the fourth quarter is also here our best quarter. And looking into 2013, we are clearly sticking to our EBIT operating income margin goals as indicated in our long-term planning.

Okay. Would that be fair to say that --

Romain, I'm sorry. We need to move on. We have a queue of other people.

Okay, [that's fair].

So, operator, if we can move on, please. And let's try to keep it to one question, to give everybody a chance.

The next question today comes from Tycho Peterson from JPMorgan.

Hey, thanks for taking the question. As we think about the early traction with the KRAS assay post-FDA approval, can you just talk about reception in the market, how you think about that tracking? And I guess just more broadly on companion diagnostics, do you see any risk around sample access for some of these programs, given that most of the samples for developments have to come out of pharma?

Good, I'll -- good questions. I would like to start with the second, first. Our business model is that we partner with pharma, and by doing that, we ensure a perfect clinical profile, or as perfect as it gets, clinical profile, because we actually work with them on their samples that they are actually using in their own clinical trials, where the drug is being validated as well.

So our business model actually takes their -- very differently to most other players in this space, the diagnostic into complete alignment with the drug. And therefore, the sample access is part of that benefit that we have, one of the many benefits. It is a -- often, a more onerous road, but one that we think is the right one to take.

In terms of the uptake, we've seen very good receptivity in the US on this. We have a very strong share in KRAS. We're very often converting from -- you know, the LDTs, or RUO version set, have been used in the market previously. The conversion from Sanger sequencing is one that benefits, due to the specification benefits that I gave you as part of the presentation. So we've seen very good reception, and we expect reimbursement and also regulatory changes to further amplify that over 2013.

So we're well on track, and we had very high targets for conversion, and we're very confident that we can get them.

Okay. I'll hop back in the queue. Thanks.

Thanks.

The next question comes from Daniel Wendorff from Commerzbank.

Yes, hi, it's Daniel Wendorff from Commerzbank. Thanks for taking my question.

Hi, Daniel.

Hi. It's related to the weakness in pharma growth in Q3. Can you potentially already comment on whether you see this as an ongoing trend in light of the restructuring activities which will likely continue as well, and also, which role does an increased use of pharma companies also of these reagent rental contracts for instruments played in Q3? And maybe a little housekeeping item at the end. The $100 million share repurchase program, do you still intend to finish that in 2012? Thank you.

Okay, I'll take the first, and Roland, if you could take the second. So, pharma, the trend on the development side continues to remain very strong. So the use of molecular tools and clinical development is definitely seeing a very strong demand, and that will continue for a very long time.

Remember, five, six, seven years ago, 50% or 60% of our sales, or even -- probably even more, were in the area of clinical -- in the research area, in the R part of R&D. And now, we're growing in D, and R is typically being seen under pressure and restructured.

So the R part is not as much taken up in the biotech and other smaller industries. The D part is the one that continues to develop very nicely. It's sometimes difficult to keep them apart.

The QIAsymphony systems, or the reagent rentals, there are very few actually going into pharma. The majority -- and I've seen a lot of notes with other information, but actually, by far, the majority are in the clinical area and the diagnostic area. And the pharma industry is a much smaller percentage of these placements. They're starting to see the adoption, but they're typically cash sales. So it's -- it wouldn't have an impact. Roland?

Yes, on the share buyback, we clearly are going to keep up our flexibility on the one hand side, and the other hand, we all know that especially in Europe, we have a significant number of regulations around volume and so on, what you can do in a share buyback.

So having that in mind, I do believe we are going to continue the share buyback in a similar pace as we have done it, but again, it's also a question on total -- the market volume and trading volume. And -- but all in, I wouldn't believe that we are able to fulfill it in 2012.

Okay. Thank you very much.

Your next question comes from Brian Weinstein from William Blair. Please go ahead.

Hi. Thanks for taking the question.

Hi, Brian.

My question is on sequencing, and what role FDA is going to need to play to get this done for you guys. I think, Peer, the [amp] analysts that you were talking about kind of a mid-2013 type of a launch. So, can you characterize your discussions with the agency, and what they're specifically looking for on the sequencing side? Thanks.

Yes, good questions, Brian. I think if somebody knew where this were going, then this would be helpful to everybody. And right now, it -- there are definitely a lot of moving parts.

If you look at the current regulatory pathways that next-generation sequencing systems are going, they typically are going for assays that probably never would be used in the format that they are being submitted for. Or it is for instrument only submissions. Both, really, is not very helpful in the long run, and especially in an area that -- where you see dramatically changing technologies and new improvements emerging almost on a quarterly or certainly annual basis.

So, I think the regulatory agency is very open to finding a -- and are very interested in finding a way to find some sort of regulation around this. But to me, the question is not necessarily the analytical or technical capability to do it. It's the clinical validation. To really validate a high end or a high value clinical diagnostic test, it would need some quite significant validation, and that is still something very tricky, because more information makes it ever more complex and ever more difficult.

So we see a strong role in the (inaudible) environment in the US. We see a strong role, perhaps, in the secondary or third line testing. We see a different situation in Europe and in Asia, with a more faster adoption, certainly, in certain areas.

But we're pretty much agnostic. We have all our chips placed. We have great solutions for all segments, and we will just be able to offer, I think, a best-in-class solution for any type of shade that the customer wants. We're prepared for all options.

Okay. And a follow up here would be, when you look at your KRAS launch, can you talk about the economics of the test for you, versus how it was being sold previously as kind of an LDT, or an RU -- in an RUO format, what the upcharge is for you guys? Thank you.

The economics are more favorable in a FDA-approved product, compared to selling an RUO or an LDT. It's just much easier to sell. You know, you can share the specifications, the performance benefits of the complete solution. It is much preferred by the salespeople, and that is something that also reflects in the accelerated adoption.

So the economics -- you know, it has been fully expensed, the R&D expenditure around this, and so if the price is higher, it's about a 30% to 40% higher price. We are, obviously, also showing a higher gross margin.

So a 30% to 40% higher price?

Well, yes. You know, typically, RUOs in this range would be in the high double digit [100 to 150] range. And so, here we have a solid, about $200 per test on price. And this is an approximation. But yes, it's about that.

Okay, great. Thank you very much.

Your next question comes from Bill Quirk from Piper Jaffray. Please go ahead.

Great. Thanks. Good afternoon, everybody. Say, just to follow up on Brian's question, Peer, with the higher priced approved assay for therascreen KRAS, can you talk a little bit about from the lab's perspective? My understanding is that the reimbursement, the payers don't really discriminate between an LDT and between an approved test. And so, can you help us think about why the labs should adopt -- and obviously, the ASP to them is going to be a little higher.

And then secondly, just asking a question about long-term plans for QuantiFERON. Can you just remind us at what point you might be able to bring the manufacturing in-house, and then obviously, capture that incremental margin? Thank you.

Sure. The -- you're right that in these early days, there -- the differentiated reimbursement of an LDT versus an FDA-approved product is not there, but it has started. And we've already seen the first examples. There is one first mutation test that has received a differentiated reimbursement by a major payer, and we will continue to see that going forward, because it's the right thing to do.

And we are seeing that -- that is probably much more effective than the regulatory risk going forward. So I wouldn't be surprised to see a more broader differentiation going forward, and this would be an amazing tilting situation.

But you know, we're right now still in these early days, and there is this discussion out there, if it might change or not. And the first indications are that it is moving in that direction, but that remains to be seen.

In terms of the QuantiFERON manufacturing, Roland, do you want to take that one?

Yes. Right now we are working on that move. Right now the actual planning is sometime end of next year. We are clearly working to get it done earlier, but I wouldn't expect it too much earlier next year (multiple speakers) next year.

Understood. Thanks a lot, guys.

The next question comes from Zarak Khurshid from Wedbush Securities.

Hi, guys. Thanks for taking the questions. A couple of just straightforward ones here from me, as -- it looks like KRAS is gaining some mind share here. So, where are we with the total penetration of the KRAS opportunity today? What is the size of that market, and if you could kind of break out US versus Europe, that would be great.

And then secondly, just on the sequencing strategy, upon launch, do you anticipate having a cost per base advantage versus some of the competitors? Thank you.

You know, the second question, if that's okay, I would like to leave that for when we actually come out with the specifications of the system. I think there's a lot to be told, when that -- when we come out with the specifications, and I would like to leave it to them. We've shared some specifications, but I think that should remain the story for now.

The KRAS adoption, we had a slide, actually, in the second quarter conference call that I could refer to. If you look at the number of tests that are being done currently in the United States, it's somewhere in the range of 100,000 to 150,000 -- in theory, the potential opportunity that we're penetrating into. And this is only for colorectal cancer. And as we disclosed, also in other press releases, we have with other pharma companies also partnerships in the -- in other oncology areas where KRAS is one of the elements of the mix, or the test as well.

So it is a -- if you sum up everything, this is a significant high double digit million dollar market opportunity, if you cover several indications and a global geography. And that's what you'll see in companion. You'll see a lot of $50 million to $120 million opportunities, global market opportunities, that in sum add up very nicely, and have typically high margins.

Great. Thank you.

Thanks.

The next question comes from Vamil Divan from Credit Suisse.

Yes, thanks for taking the question. I guess, one, I just wanted to ask, in terms of the QIAsymphony, it sounds like you're already pleased with the rollout. Can you give any sense of how much uptick you had in the US, versus outside the US?

Yes, the -- well, it has actually seen a very strong reception in the US, and the area it's placed in is typically in the LDT, in the broad menu LDT area, at the moment. In perception, you will also will see the first assays coming through more on the esoteric side on us, in our portfolio, and then a few of the larger ones in addition to the companion.

So this is an area where we definitely have a sweet spot, broad menu, a broad array of different samples, very difficult to process moving into a standardized downstream format.

So I've seen a few interviews out there asking questions, is this something you would see in a typical chlamydia lab, or is this something you would see in a typical HIV lab, or if this is something you'd see in a typical cystic fibrosis testing lab? And the answer is clearly no. It is typically the esoteric lab where you'd see these placements being done. And this is, by the way, if you look at the labs, one of the faster growing areas of their business.

So the US has been a large part of the -- it's -- in some quarters, it's been above also the European area, but based on the large size of the LDT market in the US. And it's very balanced, compared to the overall revenue portfolio that we have.

Okay, thanks. I guess one of them, if I could just squeeze it in, in terms of the Applied Testing, where you guys did better than we were expecting this quarter. It looks like that's doing well. Just anything you could -- in terms of things to think about for the fourth quarter, or looking in the next year, kind of how you see that playing out. I know there's a couple of specifics that you mentioned about this quarter, which we've modeled going forward.

You know, it's a good question. We actually had a slide in on Applied Testing, but we had to take it out, because we were just pushing the time limit of our presentation a little bit. And we'll do that in an upcoming call as well.

The growth is primarily in the area of veterinary testing and forensic testing. In both areas, we have significantly expanded the assay menu in 2011, and are rolling those out in 2012. And this is delivering very strong organic growth in those areas.

We also entered into food testing, but that's much smaller. And the big drivers are currently the food -- sorry, veterinary, forensics, to a certain amount also pharma quality control, and environmental, and then food testing. So this is about the ranking.

Okay, thank you.

Thank you.

The next question comes from Mr. Peter Welford from Jefferies.

Hi, Peter. Good morning.

Oh, hi. Good morning. Thanks. I've just got, I think, two very boring questions left on the financials, which is, with regards to the amortization of intellectual property and also the restructuring charges, both of those -- both amortization and the charges seem to tick up markedly in the fourth quarter, looking at your 2012 outlook. Could you just give us some insight into that, particularly, I guess, the amortization, and why that's going to tick up in 4Q? Thanks.

Amortization of -- I actually think it's not a significant change. But in terms of business integration, you are right. It's roughly $15 million to $20 million higher than we had said on the second quarter conference call. And that's driven, as I said before, that we're actually faster in speed and probably also getting closer to the finalization of our restructuring efforts. So we clearly had a significant benefit here, as certain of our programs did quite well.

By the way, these increases are all non-cash charges, so I don't think that has any impact on our -- to our cash flow. We do expect also for the fourth quarter a significant increase in terms of cash flow generation. So it's really -- it has to do with, we are able to finally faster work on our restructuring program efforts.

That's great, thanks.

Your next question is from Jon Groberg from Macquarie.

Thanks. Just one quick question from me. Peer, can you -- I may have just missed the detail, but if you look at the Molecular Diagnostic business, it looks like all their growth came from acquisitions. And I think HPV was actually up 7%. So can you maybe just talk about what happened in those other businesses that were down? Just trying to understand that. Thanks.

Jon, they were not down. I'd be happy to share these numbers, or discuss these numbers with you as you'd calculate them. But we have seen actually the -- growth across all these areas.

In the Profiling area, what particularly impacted the revenue growth and dampened it was the fact that we are aggressively doing reagent rentals right now. Customers are pulling in a lot of reagent rental contracts. And that is reducing our instrumentation sales component, which was higher in 2011, and now much lower in 2012.

And if you look at the Diagnostics segment, that is a higher portion of sales. Normally we have like 12% of our sales. It's actually higher in Diagnostics. And if you basically have that, you see that there's a significant slice taken out of the instrumentation component, which would take you up into very good growth rates, again, even on the calculation that you just gave. So this is where the big difference to 2011 is.

So, if you look at our growth rates that we're having right now, we're actually seeing -- and you factor those impacts back in, it's actually a quite good growth rate that we're seeing all across the Diagnostics franchise, even across the Company.

Just to be clear, though, all the acquisitions, I think, fall under Molecular Diagnostics, right, that you've done -- the Ipsogen, the Cellestis, and the AmniSure?

They fall to -- by far, the largest percentage, into that bucket, yes.

Okay. And so, what you're saying is, with maybe on instrument -- so maybe whereas you had more instrument sales a year ago, that's moved a lot more towards reagent rentals? So the actual utilization of the tests and other things you're talking about are still growing, and you're saying it was that delta there that caused maybe the overall --

Right.

Ex-acquisitions, ex-currency, do not look as -- do not -- be looking at those growing as quickly?

Well, you know, again, look, if you basically run a calculation, say last year, you had 20% sales in instrumentation, and this year this falls down to 5% or so, you have about 15 percentage points of growth that you had to make up in different areas.

Now, this is not that you lose these sales. These are instruments that are placed out there against more than that in reagent commitments going forward, with a very profitable reagent stream.

So this is what we're doing, actually, moving away from straight sales that we had a lot of last year, and are now moving much more aggressively in reagent rentals as the customer validation period has kind of like taken its time, and in 2012, they're moving into routine adoption.

Okay, that's a helpful clarification. Thanks.

Thanks, Jon.

The last question today comes from Mr. Jeff Elliott from Robert W. Baird. Please go ahead with your question.

Yes, thanks for sneaking me in, guys. Just congrats on the private placement. I'm curious, given that you've placed that money, can you give us an update on your capital deployment and priorities for 2012 and maybe 2013?

Thanks, Jeff. Roland, do you want to give an outline on that?

Yes, sure, and thanks for the question. Yes, as I said before, we are just started with the -- for the first time, with the share repurchase program, and we still have a long way to go. We just bought back roughly 10% of the authorized program. And I would say, once we have finalized that, we will look for the next time.

Right now, we clearly do believe our shares are undervalued. We still have a very strong cash flow generation, so we do believe on -- in terms of capital flexibility, we have a very good position right now. So I would say that gives us additional flexibility in doing the next step.

Thank you.

So, with that, I'd like to close the conference call and thank all of you for participating. And if you have any additional questions, don't hesitate to give us a call, or send a note, and we'll get back to you. With that, thank you very much.

Thanks.

Ladies and gentlemen, this concludes the Q3 investor and analyst conference call of QIAGEN N.V. Thank you for participating. You may now disconnect.