Qiagen NV (QGEN) 2013 Q1 法說會逐字稿

Welcome to the QIAGEN N.V. Investor and Analyst Conference Call on the First Quarter Results 2013. Throughout today's recorded presentation, (operator instructions).

I would now like to turn the conference over to Mr. Gilardi, Vice President Corporate Communications. Please, go ahead, sir.

Good afternoon, and welcome to the QIAGEN conference call and this opportunity to discuss our latest results.

Our speakers today are Peer Schatz, CEO of QIAGEN, and also Roland Sackers, our CFO.

A copy of the announcement and the presentation can be downloaded from the Investor Relations section of our homepage at www.qiagen.com.

When you look through the slide deck, you'll see in the list of upcoming events at the end that we have set a date for an investor and analyst day in New York for Monday, November 18. We will soon be sending out more information about the event, which will provide an opportunity for you to gain deeper insights into QIAGEN, and we'd look forward to your participation at that event.

As for this conference call, please, keep in mind that the following discussion and responses to your questions reflect management's view as of today, April 30, 2013. Today, we'll be making statements and providing responses to your questions that state 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 material from those projected. QIAGEN disclaims any intention or obligations to revise any forward-looking statements. And, for more information, please, refer to our filings with the United States Securities and Exchange Commission.

With that, I'd like to now hand over to Peer.

Hello, and welcome to our conference call and the opportunity to discuss the releases we issued last night.

First, we achieved our targets we had communicated for net sales and adjusted earnings per share in the first quarter of 2013. We saw solid demand in Molecular Diagnostics and Applied Testing and grew in all regions. At the same time, conditions were challenging in Academia and Pharma, an industry trend also mentioned by some of our peers.

Second, yesterday, we announced an exciting acquisition with Ingenuity Systems, the global market leader in software applications to quickly analyze and accurately interpret the rapidly growing volumes of genomic data. To underscore the importance of Ingenuity's products, consider for a moment that we can sequence a human genome in a couple of days for a few thousand dollars, but it can take, often, tens of thousands of dollars and months for its interpretation. Rapid data analysis and accurate interpretation are becoming ever more critical. Tools to detect, analyze, and read DNA are important, but as they are now available, solutions to interpret the information and that are integrated seamlessly into those workflows are becoming critical. Ingenuity is the undisputed leader in fulfilling this interpretation need through a suite of databases and software applications drawing on the Ingenuity knowledge base. I will provide some insights on this strategic acquisition later in the presentation.

And, in the third release, we announced proposed changes in the composition of the supervisory board. We are very pleased to see the nominations of two highly respected, international business leaders, Larry Rosen from Deutsche Post DHL and, formerly, of Fresenius, and Stephane Bancel, formerly the CEO of bioMerieux and now based in the US in Cambridge as the CEO of a startup biotechnology company.

I would also like to thank Erik Hornnaess and Heino von Prondzynski, who are stepping down, for their valuable contributions to QIAGEN.

Returning to the results, net sales rose 3% at constant exchange rates, which, again, was in line with our target for 2% to 3% constant exchange rate growth and amounted to $304 million.

Adjusted operating income slipped 2% to $78.4 million, as we continued to make investments in our growth drivers.

And adjusted earnings per share was steady at $0.23 per share, in line with the target for $0.22 to $0.23.

As for our goals for 2013, we are making progress. We are very pleased with the customer and key opinion leader response at the unveiling of our sample-to-result, next-generation sequencing workflow at the AGBT conference. People at the conference had an opportunity to see firsthand our workflow and the many features that we see as critical to enabling routine use of this technology in clinical applications.

Development activities are very advanced and on track, targeting first launches in 2013. As we expand our presence in next-generation sequencing, the addition of Ingenuity will provide an important differentiator through our ability to efficiently deliver highest-quality interpretations and actionable results from complex data as part of the complete workflow.

In terms of the QIAsymphony, placements here continue at a very fast pace. We are well on track to break through 1,000 cumulative installed systems during 2013. Demand remains impressive, as customers appreciate the unprecedented features. These include continuous loading, random access, and, above all, the ability to automate laboratory-developed tests in addition to having a broad range of commercially available assays in many markets.

In Personalized Healthcare, we are very active, having expanded our team and also having reached an important, broad agreement with Lilly in February that provides a framework for future projects. This is similar to the agreement we announced last year with Bayer.

So we're off to a good start in a challenging environment, having achieved our communicated targets for the first quarter in terms of sales and adjusted earnings per share. We are focusing on driving innovation and growth at a faster pace, building on the progress of 2012.

Turning to slide 5, I would like to review the sales results of our customer classes.

Molecular Diagnostics led the performance, growing 11% at constant exchange rates and providing half of our sales. In prevention, the QuantiFERON latent TB test continues on a 20%-plus constant exchange rate growth trajectory. It is interesting to note that the US is experiencing an ongoing national shortage of the derivative needed for the traditional skin test that QuantiFERON is replacing. Many states have recently issued new guidance that recommends using alternative tests, such as QuantiFERON, the broadly available, modern test.

Our Personalized Healthcare portfolio, which includes sales of companion diagnostic kits as well as revenues from our co-development programs, also grew, despite significant confusion around US reimbursement levels for companion diagnostics. Earlier in the quarter, new US government rates were published. This led to confusion, and many customers temporarily reduced their testing volumes. The good news is that we are starting to see the uncertainty clear up with revisions to some of the rates. So we are anticipating a return to higher testing volumes and stronger growth rates during the year. We are also seeing the recent progress quite favorable, as the rates are actually quite favorable for FDA-approved companion diagnostic assays.

Our Profiling portfolio grew at a good pace due to rising sales of consumables for use on the QIAsymphony automation platform. As I mentioned earlier, QIAsymphony placements are going very well. However, as you know, the full sales contribution of these placements is understated in these results due to the shift to reagent rental contracts. At the same time, these placements are creating important, lasting, multiyear revenue streams. By far, the majority of the placements are in molecular diagnostics, and a significant proportion are being placed as reagent rentals.

Also among the Molecular Diagnostic growth drivers, AmniSure sales are improving as we realize the benefits from integrating this novel, point-of-need test into our commercial operations.

Overall sales of products for HPV testing were down, a result of a single-digit decline in the United States but high, single-digit, constant exchange rate growth in the rest of the world. The same story line continues in 2013. The headwind is on about 12% to 13% of our total sales; so, about 1 percentage point headwind on our overall revenues. In the United States, volume trends are supporting our market leadership, but prices remain under intense pressure, which is typically created by the new entrants in search of at least minimal market share gains and against the proven, clinical value of our solution. So we continue to expect about a 10% constant exchange rate decline in the HPV franchise for the year as the positive volume trends continue in the United States and, however, are expected to be more than offset by the pricing impact.

Applied Testing will face challenging comparisons during 2013 due to the outstanding 22% constant exchange rate sales growth in 2012. These customers reacted very favorable to the QIAsymphony launch in early 2012 for use in human ID and forensics, food safety, and veterinary medicine. Our goal is to leverage this installed base and create consumable sales to show solid growth in 2013.

One of the biggest differences in growth compared to Q1 with the last year was in Pharma. Here, we had soft results, continuing the trend from the second half of 2012 due to pharma industry restructuring activities inside consolidations. The trends are expected to improve during the year as we work through the comparison effect against the high, single-digit growth in the first half of 2012.

Academia sales declined in the first quarter, and this was due to the increasingly cautious spending environment in the United States and Europe. Another factor was what we believe to be a temporary weakness in Asia; particularly, in Japan, where funding anticipated for release early in the year has been delayed. Like others in the industry, we expect academia to remain soft in 2013 as a result of the ongoing levels of reduced government funding; particularly, in the United States. Now that sequestration has been implemented and we can see how customers are responding, we have incorporated this into our updated, full year 2013 outlook.

I would like to now hand over to Roland.

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

Today, I will briefly talk about our performance in the first quarter before providing you later with an update on our outlook for the rest of the year.

Looking at slide 6, net sales in the first quarter of 2013 were $303.6 million, representing 3% growth at constant exchange rates over the same period a year ago, with AmniSure provided a percentage point. The drop in the value of the Japanese yen accounted for essentially all of the negative currency impact, which was about 1 percentage point on reported sales growth.

The adjusted gross profit margin was 72%, a slight improvement over 71% for the fourth quarter of 2012 and, in part, due to a higher percentage of consumable sales in the 2013 period.

Adjusted operating income declined 2% to $78 million in the first quarter.

The operating expenses that you see in the first quarter are not an indication of the full year run rate due to the distribution of revenues and expenses across the quarters of the full year.

I would like to note that R&D expenses a year ago was unusually low due to the initiatives launched in the late 2011, where we reevaluated our R&D program and had temporarily lowered R&D expenses in the first quarter of 2012. The current rate at 11% of sales is in line with our target.

As Peer mentioned, we continue to reallocate resources to our growth initiatives while taking a full year perspective on investing in QIAGEN. We have been funding our growth initiatives, especially as we expand in the top emerging markets. We also have initiatives underway to provide our sales teams with enhanced customer targeting and market analysis tools.

The adjusted tax rate was 24%, and this was in line with our target. We continue to expect modest improvements for the adjusted tax rate in 2013.

Adjusted net income was largely unchanged, at $54.7 million in the first quarter of 2013, and the same was the case for adjusted diluted EPS, at $0.23 per share in both periods. Again, that was in line with our target.

I would like to provide some insights to the weighted average number of diluted shares. We completed the program in March with the repurchase of about 5 million shares. However, given that QIAGEN share price has been above $20, we had dilution for the convertible bond. So the overall share count was up.

I'm now on slide 7. In terms of sales by geographic regions, all delivered growth at single-digit, constant exchange rates, led by the EMEA region, where net sales rose 4%.

Among the countries in Europe, we saw the most important contributions from Germany, the United Kingdom, Turkey, and Italy. Europe continues to be a key growth driver for the QuantiFERON latent TB test. There is a significant attention for the major public health risk involving TB; particularly, in the UK.

The Americas region grew 2% constant exchange rate and contributed 47% of net sales. Molecular Diagnostics continues to lead this region, as well, while, at the same time, results were soft in Academia and Pharma.

In the Asia-Pacific and Japan region, sales rose about 3% constant exchange rate-wise. China and India delivered double-digit constant exchange rate growth, while sales were flat in South Korea. Contributions from Japan were down at a modest, single-digit constant exchange rate, as the distribution of some academic research funds was postponed to later in 2013.

I'm now on slide 8 and will provide a few comments on the sales of consumables and instruments. As you can see, consumables and other revenues provided about 89% of sales and were up 4% constant exchange rate-wise in the first quarter 2013. This had a positive impact on the adjusted gross margin in terms of product mix.

Reported revenues from instruments were about 11% of total sales and were down 3% constant exchange rate over the first quarter 2012. However, despite revenues being down, we still had very strong placements of the QIAsymphony with long-term reagent rental agreements in Molecular Diagnostics.

Uncertain government funding conditions in the US and Europe weighed on Academia with delays in capital purchases.

Applied Testing faces tough comparison against outstanding instrument sales in 2012.

The healthy financial position provides QIAGEN with resources to support attractive expansion opportunities. This is very important, given the pace of change with new technologies and products and also new opportunities in emerging markets.

On slide 9, you see a snapshot showing the strength of our financial position. This excludes Ingenuity acquisition, which was just completed. Group liquidity rose to $461 million as of March 31, compared to $275 million at the same period in 2012, in part, also due to the private debt placement completed in October 2012.

Net debt rose to $405 million from $342 million, and the shareholder equity ratio was about 67%, compared to 69% a year ago, even with the Ingenuity acquisition, which was $105 million, or a level which remains at about one turn of net debt to adjusted EBITDA; so we continue to have strategic flexibility.

As for the share repurchase program, we will continue to evaluate the possibility of new programs in the future as part of our capital allocation strategy, which also includes targeted acquisitions.

Also in the first quarter of 2013, we saw a sharp increase in operating cash flow to $46 million over the year-ago period, and free cash flow also rose significantly, even with the major investment.

I would now like to hand back to Peer.

I'm on slide 10, where you see the goals for 2013 and how they build on the achievements for 2012.

Our top goal is to accelerate growth through expansion of our current business portfolio, as well as through targeted acquisitions, such as with Ingenuity. We will continue to consider these types of acquisitions that fit with our strategy and strengthen our molecular testing ecosystem.

And, as we mentioned earlier, we are working on key assay submissions for 2013 and 2014; particularly, to expand our menu in the United States, as well as the range of content available on QIAsymphony across all customer classes.

This focus on improving the top line is accompanied by a commitment to improving profitability. This includes concentrating operations at locations with strong critical mass. Based on the KRAS and EGFR submissions, we have begun to consolidate all regulatory activities into a global hub at our Manchester site. We have built great expertise for even the most complex submissions there, so we decided to create a seamless verification and validation process for the final stages of development at this site; particularly, for assays on QIAsymphony. As a result, the site in Hamburg, Germany is planned to be closed and these activities moved to Manchester.

We're continually evaluating additional projects to implement in 2013 designed to improve our efficiency and effectiveness while also freeing up resources for growth initiatives, and these projects could result in additional restructuring charges. We are moving quickly and expect the majority of the restructuring efforts to be completed by the end of the second quarter.

We also recently launched a new version of the QIAGEN Website, a highly interactive site that includes a new e-commerce channel.

In summary, we have begun 2013 with a clear focus on accelerating innovation and growth in the coming years, as well as improving our efficiency and effectiveness.

I'm now on slide 11. In Personalized Healthcare, we reached $100 million of sales in 2012, and we are moving ahead in 2013 with growth driven by contributions from assays, co-development project revenues, and other products used for biomarker analysis and development.

As I mentioned earlier, we are actively signing Pharma collaborations, such as the broad agreement with Eli Lilly in February. This type of master agreement provides a framework for collaboration across many therapeutic areas and will significantly streamline the discussions to get started on new projects.

In terms of pending regulatory decisions, we are working with the FDA on the review of our therascreen EGFR test, which was submitted as a PMA in late 2012. This companion diagnostic is designed for use in patients with non-small-cell lung cancer and paired with afatanib from Boehringer Ingelheim. The six-month priority action date is in the third quarter of this year. Once we receive EGFR approval in the United States, we will then be able to offer regulated assays for the two big biomarkers, KRAS and EGFR, in the three largest pharma markets of the United States, Europe, and Japan.

Even in light of the reimbursement issues, which I touched on earlier, the launch of the therascreen KRAS test for use in patients with metastatic colorectal cancer is gaining momentum. Our number-one priority has been converting labs to our test. We announced in January a big step forward with Clarient adopting the KRAS test. Clarient has a customer base of more than 2,000 pathologists, oncologists, clinical laboratories, and hospital. So this was a signal of the market moving to adopt FDA-approved tests.

I'm now on slide 12. As I mentioned earlier, we were very pleased with the response from customers to the unveiling of our NGS workflow at the AGBT conference in February. Booth visitors, many of whom are involved in clinical research and diagnostics, told us how they appreciated the streamlined and automated workflow features that QIAGEN is developing and will accelerate their adoption of NGS.

We have been developing this workflow with these types of customers as our top priority, not trying to repackage a product actually designed for other customers as a secondary action. (Inaudible) reaffirmed that we are on the right track. Our solutions are designed to address many of the challenges brought up by our customers. These include too many manual processing steps, having to rely on various vendors to get the job done, and batching samples to get cost-efficient runs. And the integration of Ingenuity into our ecosystem shows we are addressing their concerns about the time and cost required for high-quality, interpretable results.

So our ambition is to introduce a differentiated, next-generation sequencing workflow that will drive faster adoption of this breakthrough technology in new areas. Our development program is moving ahead rapidly, backed by significant investments, and we are on track to have the first placements with select customer groups in 2013.

Turning to slide 13, as you think about the sheer volume of sequencing data today, it is clear that the interpretation of biological information, not just generating it, is extremely important. And, with the acquisition of Ingenuity, we are going to integrate the, by far, leading resource for biological data interpretation as a cornerstone of our molecular testing ecosystem. In only a few years, as you see on the right graphic, the amount of sequencing data accumulated by 2015 is estimated to fill about 1.5 billion DVDs. So generating molecular information from a biological sample, whether through real-time PCR, pyrosequencing, or next-generation sequencing, is certainly not the only need for our customers. More about the focus -- more of the focus is shifting to generating data and providing the highest-quality interpretation in a seamless workflow.

I'm now on slide 14. As I just mentioned, the volume of sequencing is growing rapidly, but interpreting the result remains a major bottleneck for NGS adoption. This chart is from a Yale University study, and it shows how the interpretation of biological information is going to grow as a share of the overall sequencing costs. And, on this topic, Dan Koboldt of Mass Genomics made an insightful comment on the ten commandments about next-generation sequencing. He said users should remember the cost of analysis when thinking about NGS expenses. Otherwise, he said, your sequencing data, your $1,000 genome, "is about as useful as a chocolate teapot." In fact, the amount of time required for interpretation can quickly amount to many days, even for limited gene panels, because of the complexity and size of the data. Larger data sets are exponentially more challenging and require even more time.

While there is currently a lot of attention on reagents and platforms, customers are for this reason increasingly turning their focus to interpretation of the resulting data. And, by seamlessly embedding the leading interpretation resource into our ecosystem, we create a pushbutton experience for our customers from a raw biological sample to valuable molecular information that provides interpretation and insights for scientific or clinical recommendations.

While the model and the projections given for Ingenuity are based on a standalone business model, our real purpose is to create synergies across our portfolio that includes NGS assays, reagents, and platforms in the life science and diagnostic segments. Together, we are going to create seamless solutions for our customers to link the world's leading resources for interpretation of biological information into QIAGEN's extensive range of platform technologies and content to drive science throughout development in clinical diagnostics use, and doing so positions QIAGEN as a unique player with a content- and interpretation-centric ecosystem to serve the continuum of customers and their needs from basic research through to clinical diagnostics. We are therefore taking the value proposition of this next-generation sequencing era into new step. You will hear more as this unfolds. On the basis of this vision, the team at Ingenuity is excited to be joining QIAGEN.

I'm now on slide 15 to provide you with an overview of Ingenuity, which is a privately held company in Silicon Valley. I'm delighted to welcome Jake Leschly and his team to QIAGEN. They have done a fantastic job in developing the market for analysis and interpretation of biological data, and we are excited about the opportunity to form an industry-leading, content-centric ecosystem of molecular testing solutions.

In biological analysis and interpretation, Ingenuity clearly stands out as the best in class. The foundation of Ingenuity's product portfolio is the Ingenuity knowledge base, a 14-year, high-investment effort to accurately, manually create and model, and computationally structure the vast amount of biomedical literature in the world. The key to Ingenuity's superior position, reflected in their sales being about two to three times higher than the next competitor, is a perfect process, one that is supported by advanced tools and algorithms that make it possible to standardize data from a vast range of resources and make it comparable, linkable, and interoperable.

In fact, the knowledge system already includes all of the existing genomic variations implicated in human disease in thousands of disease models. I want to stress here that the process is designed to handle the growing volume of biomarker data and to provide customers with premium insights much faster than with other resources. Thousands of users and more than 600 leading institutions and companies around the world, particularly the leading genomics labs, as well as the pharmaceutical companies and, already, some diagnostic labs are already today Ingenuity customers. Ingenuity's applications, which can be used with biological data generated from any system, are accelerating scientific discovery and enhancing patient care by providing rich, accurate, and visual insights into complex biological systems.

As we discussed, one of the value propositions of this acquisition is to embed Ingenuity's dry lab interpretation solutions into wet lab molecular assays. Many of you know that we have successfully built exactly such a franchise with our GeneGlobe molecular assay content portal, which offers hundreds of panels for PCR and next-generation sequencing applications, as well as more than 60,000 fully annotated assays for the most sought-after diseases. So the opportunities with GeneGlobe and Ingenuity are going to be fascinating.

I'm now on slide 16 and would like to provide some additional insights into Ingenuity's competitive advantages and the market landscape. Ingenuity brings an unprecedented combination of an extensive database with intuitive applications designed to give answers across all interpretation needs and not just provide customers with standalone applications that need to be assembled into a comprehensive solution.

There are different types of biological data analysis products currently being offered. Some of these use open software systems, while others rely on computer-automated duration. And others may offer expert creation, meaning it has been reviewed by scientists but only for a selected, narrow disease or pathway scope.

Our decision was to add a comprehensive, biological interpretation system covering all biomarkers, pathways, and diseases, and that is why we have a new, valuable resource with Ingenuity.

What makes Ingenuity, which has, by far, the leading market share, as I said, of this fast-growing market? First, Ingenuity offers a deeper and broader understanding of biology than competitors. The superior quality of this content, which has been built up over the last decade, is, in particular, due to the involvement of scientific experts and key opinion leaders who add manual creation and quality control. This is lacking at competitors. Minute differences in quality in the database can make huge differences in scientific or clinical interpretation because the data is quite complex.

Beyond the content, customers also say Ingenuity's products are much easier to use, so we see Ingenuity's knowledge base and intuitive applications providing a sustainable, competitive advantage for years.

Moving to slide 17, you see an overview as to how Ingenuity unlocks the value of biological information. What customers have come to appreciate is that Ingenuity's knowledge base is built on algorithms that pair all human gene variance with biological interpretations based on known outcomes and findings. These pairings are collected and reviewed by experts to create standardization from a wide range of sources. These include clinical and scientific publications from around the world. The sophisticated process of standardizing the data and the associated learning algorithms translates the broad range of source data into interoperable and linkable collections of relevant information.

Customers choose from different applications for the biological data interpretation. IPA is the industry-gold-standard software application that enables researchers to model, analyze, and understand the complex biological systems at the core of the life sciences research. So this is critical for pathway analysis.

iReport is an interactive, Web-based report optimized for gene expression experiments from RNA-seq, microarray, and real-time PCR platforms.

The tool for next-generation sequencing is Variant Analysis. It answers a critical need for researchers trying to rapidly identify relevant causal variance in human diseases in a matter of hours. Customers can drill down to a small subset of compelling variants and also interrogate variants from multiple biologic perspectives.

Ingenuity is also developing a product that we believe has significant potential to help in this adoption of next-generation sequencing in diagnostic settings. This new product offers an optimized and scalable solution for interpreting and scoring clinical variants identified by sequencing-based molecular diagnostic tests. Ingenuity has been actively forming relationships with diagnostic and reference labs to bring the power of this technology to new customers.

The market leadership of Ingenuity's products grows out of the longstanding commitment to ensuring the highest standards; particularly, through expert teams to create the highest-quality data and support it by the most advanced technology. As part of QIAGEN, we will strengthen this leadership position and, in turn, reap benefits of significantly improving the value proposition of our molecular testing ecosystem to customers.

With that, I would like to turn over to Roland.

I'm now on slide 18 to discuss the updated outlook included in the press release last night. As you know, we had set a target for about 5% to 6% constant exchange rate sales growth for the full year, and this included about 1 percentage point coming from AmniSure and the balance from the rest of our business. We had not included sequestration at that time, since it was still speculation that had been going on for quite a long time.

And, for adjusted diluted EPS, we had set a target for about $1.16 to $1.18 per share. This already took into account the implementation of the US medical device tax for which we expected an adverse impact of about $0.01 to $0.02 per share, as well as the higher interest expenses from the US private debt placement in October 2012. The completion of the share repurchase program helped to mitigate some of this effect but not all of it.

Now that sequestration is a reality and there is no quick political fix, we are in a better position to estimate the impact for 2013. And this goes for the latest government funding trends in other countries as well. Together, we see these factors creating headwind of at least 1 percentage point on full-year [2000] sales growth, which, essentially, brings guidance down to the bottom of the sales outlook announced in January.

Sequestration and reduced government funding also has an impact on adjusted earnings and, likewise, brings down the outlook to the bottom of that range.

Another important development was the acquisition of Ingenuity. The accounting for this acquisition is something new for QIAGEN, since we are dealing here with software licenses and the need to present the sales being acquired. Based on the way acquisitions are accounted for, including in our industry, we have set the outlook for 2013 for adjusted sales, meaning that we include revenues that would have been reported by Ingenuity if they had not been acquired. Due to the accounting rules, it is not permitted to include these sales under GAAP. However, in order to make our revenues more comparable going forward, we are including these sales on an adjusted basis.

Ingenuity had sales of about $20 million in 2012, and we expect them to provide adjusted sales of about $15 million for the rest of the year to QIAGEN during 2013.

So, together with the adverse impact of reduced government funding and also in light of concerns about the current economic environment, the adjusted sales target has been set for around 5% constant exchange rate growth. We believe this is the right approach to take in this uncertain environment.

The acquisition is dilutive to adjusted EPS in 2013 by about $0.03 per share, and that is reflected in the updated outlook of $1.13 per share. We also expect the acquisition to have an impact of about 100 basis points to the adjusted operating income margin in 2013 as well.

On slide 18, I would also like to provide you with our outlook for the second quarter 2013. For the second quarter, adjusted net sales are expected to grow approximately 1% to 2% at constant exchange rate. Adjusted diluted earnings per share are expected to be approximately $0.25.

The distribution of sales growth for the remainder of 2013 is expected to show higher year-on-year rates in the second half of the year.

In the third and fourth quarters, the Molecular Diagnostics growth drivers are expected to continue expanding and become an even larger percentage of total sales. We continue to expect more than 20% constant exchange rate growth from the QuantiFERON latent TB test and also for solid growth in Personalized Healthcare. AmniSure is also a contributor to full-year sales, and we are looking for further growth in Profiling, driven by growing sales of consumables for use on QIAsymphony. This is on top of ramping up in investments in some emerging markets that began in late 2012. However, this will be partially offset by the price-related -- price pressure on HPV sales in the US.

This slide also contains assumption for adjustments to operating income for the second quarter and the full year. For the second quarter, we expect share-based compensation of about $8 million, about $30 million for amortization of acquired IP, about $15 million to $20 million for business integration, acquisition, and restucturings. We are making significant progress on the pace of restructuring and expect the majority to be completed by the end of the second quarter. The adjusted tax rate is expected to be about 23%.

For the full year, we expect share-based compensation of about $30 million to $32 million, about $120 million of amortization of acquired intellectual property, about $35 million to $40 million for business integration, acquisition, and restructuring. The adjusted tax rate is expected to be around 20% to 22%.

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

I'm now on slide 20 (sic - see slide 19) for a quick summary before we move into Q&A. Our results for the first quarter of 2013 show the ability of QIAGEN to grow amid challenging conditions. We are making progress on initiatives to accelerate innovation and growth and have reaffirmed our plans to deliver improved sales and earnings for the year.

Let me review again what we have announced.

We have achieved our communicated targets for the first quarter, both in terms of net sales and adjusted earnings growth.

The acquisition of Ingenuity provides us with the gold standard for the analysis and interpretation of complex biological data. Together, we will create an industry-leading, content-centric ecosystem of molecular testing solutions, uniquely integrating automation systems, reagents, and operating systems with content and highest-quality data interpretation.

Ingenuity also improves the value of our sample-to-result next-generation sequencing workflow being developed for use in clinical research and diagnostics. We are very pleased with the customer and key opinion leader response to the unveiling of our workflow in February, and we look forward to the first customer placements in 2013.

We are also nearing the milestone of 1,000 cumulative installed QIAsymphony systems, a level that we will exceed during 2013. This breakthrough automation system is helping to drive the dissemination of molecular testing and are advancing a pipeline of more than 35 assay projects to expand the menu.

In closing, delivering innovation and growth in a challenging environment is our ambition for 2013, and this is reflected in the updated outlook. We are addressing the market dynamics in light of reduced government funding for life sciences research, particularly in the United States, while at the same time maximizing attractive growth opportunities in molecular diagnostics and other end markets in which molecular testing is growing.

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

(Operator Instructions). Mr. Peterson, JPMorgan.

I'll just kick it off on Ingenuity. Can you talk to a couple dynamics here? Obviously, they were working with a number of competitive platforms in the field. Do you intend to keep it open architecture? And, then, does this impact your SAP collaboration at all?

And can you also just give us a sense of kind of their customer mix? I know you talked about tens of thousands of customers in the release. Obviously, they've got the LabCorp agreement. Can you just talk to their customer mix as well?

Sure. The first question is -- I'll take the last one. They have about 600 institutions; typically, with dozens, if not hundreds, of users. They include most of the pharmaceutical companies of the world, large genome centers, genome centers of all segments, as well as, also, clinical laboratories and, increasingly, clinical laboratories that are being targeted also with the new Variant product that has been receiving quite some positive feedback and adoption.

And it's especially the latter part, the pharma and the diagnostics piece, that we're very interested in because this is where interpretation and the high sample volume will become a very, very critical bottleneck that we want to address with a integrated solution package.

We will continue, also, going forward to offer parts of this product through licenses to third parties. All of the mainstream sequencing platforms out there have some sort of link into this product, as well, and are tapping into it. We believe that there's a value in a seamless, fully integrated ecosystem that could provide a superior user experience, and this is something that we're targeting at.

So that was the first question, I guess, you asked.

The second one. The SAP relationship is actually bolstered by this, and we're quite excited about the opportunity to use the HANA algorithm, which is, really, what our collaboration is about, to further accelerate some of the algorithm implementation across the different types of databases and integrate third-party databases, as well, in the queries. So this is actually quite catalytic and synergistic with what we're doing with SAP and has been also discussed with them in anticipation of this move.

And, then, you're guiding for about 10% growth from Ingenuity; I guess, $15 million over the next eight months or $22.5 million for the year. Why isn't it growing faster, just given the marketplace?

Well, Tycho, we see -- the numbers that we're putting forward is basically the existing business model, which is showing some very nice adoption of some of the new products, including Variant Analysis in the clinical applications. And that's what you basically see in this very short window that we are providing on the financials. But the real implementation, the real value for us, is when we are going to embed it into our integrated offering, and this is something that we expect to kick in over the course of 2014 or so. That's obviously a growth horizon that we haven't provided a lot of detail on. But we'll provide further updates on that as this unfolds.

So this is how we looked at that. In the near term, it was basically the standalone business model, but the value proposition is one through the integration.

And then a last one. Can you just talk on your thought on additional methods of returning cash to shareholders? I mean, I think people appreciated the buyback, the previous one. Can you just talk about how you're thinking about either additional buybacks or dividends going forward?

As I said, I think we got good feedback on the share back that we did, and we clearly are contemplating capital allocation measures going forward as well. Nevertheless, we also said today that targeted acquisitions are clearly also part of our capital allocation strategy, as we do believe that we're able to accretive transactions as well.

So we are quite open to every direction and are evaluating that, I would say, over the next couple of months, depending also how the market and opportunities are evolving.

Okay. Thank you.

Bill Quirk, Piper Jaffray.

I guess the first question from me -- I was just curious if you could share any performance metrics on your next-generation sequencing instrument. And how do you really plan to differentiate your offering versus the competition?

Sure. Well, we think we have a very differentiated offering, and I think we spent some time talking about the interpretation angle of it today, which is definitely unique. I think the majority of systems out there today are more focused on generating data, and we're taking it more from the content side and trying to see how the data that is being generated can actually help people in a more efficient way.

Our system is also geared for the higher sample throughput world that we're moving into, especially in the clinical and the pharma world, where sample volumes are increasing and don't want to be pooled and batched, which, obviously, creates complications in the daily routines.

So these are things that we are putting into the system. But there has been an enormous focus on things like read length and Q ratios and all these things that are very, very important. But, ultimately, what we want to do with these platforms is provide utility, and this is through the value of the data that we're generating.

We'll be very competitive on the performance specs of the system that we haven't released yet. We are going to let customers generate that data and then put that forward. And this is happening. I did say that we're -- we feel very good about the developments and that we are holding our plans for making the product available.

But the differentiation is clearly workflow content and the interpretation of that content as well.

QIAGEN today has an extremely deep content pool as well, so we have many, many IP positions and assays already available for a lot of genes of very high interest. And this is something that we want to embed as well.

In addition, we see a very synergistic approach with real-time PCR, where, for instance, positives on real-time PCR assays that are still extremely fast and very easy to use and widely disseminatable could be reflexed in targeted assays on next-generation sequencing systems. So these products are synergistic and not necessarily replacing each other in vast segments of the market.

So this is our offering. There are good other competitors out there. We understand that. It's a large market. We think we're extremely differentiated. And we're the only company that has very successfully been able to bridge the clinical and the research worlds through the pharma would as well. And this is, I think, the last capability set that is differentiating.

Okay. Thanks. Then just a quick one on the Pharma market. What can you do internally to grow sales to this segment. I think you mentioned expecting a turnaround in the back half of the year. But it sounds like that's mainly a function of easier comps. What's the strategy? Can you do anything to accelerate sales in this segment?

Sure. Remember last year, when we had very, very strong growth in Pharma, absolutely against all trends. Most were flat or down or very low growth in this segment. We were growing at high, single digits and, one quarter, even double-digit in that area. So this is -- it's always typically lumpy because you have larger sites. You have a site closure here. You have this or that there. We have a few of these things come together. So we're not baking in any growth expectations in this area. We are definitely working towards them. We have a very targeted offering; in particular, through the link into personalized medicine that we're using in this area. But, just to that year-over-year comparison, the second half should look a lot better than what we are now seeing in this first half of the year in Pharma.

If you look at the numbers, the Molecular Diagnostics area has seen one of the faster growth quarters now that we've seen in some time. Applied Testing is one that is still very small. The biggest difference in the numbers compared to last year is in Pharma, where we had in the first quarter high, single-digit growth. That took 3% to 4% of organic growth rate off the top. And, if you're looking for one thing to find an explanation for, it's exactly what you are just asking. The Pharma piece is the one that was definitely the biggest headwind in this first quarter.

Okay. Thank you.

Daniel Wendorff, Commerzbank.

One follow-up question on your next-generation sequencing product pipeline. Can you talk me through a bit about the launch pattern; so, what exactly you plan to launch during the course of 2013? And when do you expect this to make meaningful sales contribution, which I assume will be more next year and not necessarily this year?

And, as a follow-up question and just a clarification one, really, what you said on the HPV DNA tests in 2013. The minus 10% year on year you see there -- is that for the US portion of the sales, or is that for your total HPV DNA test sales? Thanks.

Sure. The plans that we communicated -- there are several ways. So, we have a suite of reagents that we have already announced. We're preparing a large suite of content products that have been leveraged off our GeneGlobe franchise and that will be further upgraded with the wealth of opportunities that we are pulling out of the Ingenuity knowledge base. Those will be launched over the course of the year. The system will selectively be made available to customers over the course of the next few months, and we are preparing for a retail launch also in 2013. So this is what we said to the public, and this is the plan that we're sticking to.

In terms of the HPV franchise, Roland, do you want to take that one?

I think it's very straightforward. We are really focusing here on the US part because the [rest of the world] also set for this quarter is going, actually, in the right direction. So we feel quite strong on HPV. For example, Asia is a good growth rate. China is a good growth rate. So it's really about the US.

Vamil Divan, Credit Suisse.

One other one just on the sequencing side quickly. The R&D expense you guys had is quite a bit up this quarter. I know you mentioned somewhat of an easier comparison to last year. Was a lot of that increase due to (inaudible) in sequencing, or is there anything else that we should factor in in terms of where that money is being spent?

Sequencing is definitely a major initiative, and it is across all of our capabilities here, from reagents to instrumentation to software. So there's a sizeable effort ongoing in this space. And, as you know, that was -- that happened for quite some time. We were on this now a couple years and, last year, then accelerated it with the choice of the sequencing chemistry.

The Company, however, has put in place also other initiatives. We have a big pipeline of molecular diagnostic assays that we disclosed. There are 35 projects ongoing, some with also near-term opportunities that are also targeting the US markets. And that was detailed in a slide in the fourth quarter release.

So we're basically back to normal, and that you see as a percentage of sales is not an extraordinary percentage of sales compared to what we had historically.

As a reminder, please, limit yourself to one question. Derik de Bruin, Bank of America.

I just wanted a couple of questions on also the general, same theme. It's about the pace of spending in the quarter was -- the slowdown you sort of saw in Japan -- did that sort of happen right toward the end of quarter? Likewise, some of the slowdown in your Academic markets -- was that sort of lingering? And did it really sort of manifest towards the end of the quarter? It was something that was pronounced. I'm just curious in terms of about what the spending trends were.

An important question, Derik. I think the important thing to note is, if you look at the sequential sales from Q4 to Q1, you'll see that Q1 is, as normal, down from Q4. This has simply to do with the normal cycles. And so this is why the first quarter typically looks different in terms of the margins and the percentages of sales and expenses. We actually came in pretty much in line with what we had expected in the Academia markets.

The big difference in Q1 was actually in the Pharma market, and that was compensated by better than expected sales in the MDx area. So there were a few factors that, basically, balanced everything out that still allowed us to make the target that we had communicated and set for ourselves for the first quarter. But, clearly, the different trends were -- Pharma was probably already visible. And, there, the hope was that some of these consolidations and changes would be worked through in the first quarter. We definitely saw a challenging market in that area. And, as we said before, this is something that clear up in the second half of the year due to the year-over-year comparisons.

Okay. And, I guess, have you seen any -- ? Now that we're sort of past the fiscal yearend in Japan, do we see any pickup in that Japanese market?

Well, everybody's waiting for the bank -- the federal reserve to print money there. And there is a significant, let's say, backlog of stuff that is being looked at for Japan. We hadn't at the end of the first quarter seen that that has accelerated, but that is normally what you'd start seeing in May due to the budget cycles.

So there is cautious optimism in our Japanese team. They feel confident about the targets for the second half of the year. So it was really pretty -- a wild ride in the last few months, including also currency fluctuations. But we hope this will and the team believes it will clear up in the second half of the year.

Jon Groberg, Macquarie.

Can I ask a couple questions on the acquisition, Peer, just a couple details I guess? One is -- what was Ingenuity growing at, I guess, prior to you buying it because I know that they have kind of a legacy expression analysis product. What was the business growing?

And, then, can you maybe -- ? I think you said AmniSure was only a 1% contribution (inaudible) year over year. Is that -- ? I'm just curious kind of what you expect for AmniSure for the year I guess.

Sure. Well, the important thing to note is that Ingenuity is not a software application; it's really a database. That's the core value of the system. The interpretation tools that are basically used to be able to mine that database -- there are various variants of that. The one product that you're referring to, IPA, which has been used for PCR and microarray testing for quite some time -- that is one that is in a solid growth rate. It's in the single digits. But what is growing -- because there's a very high penetration there.

But that same database has been expanded and added to and an additional overlay created for querying next-generation sequencing data. And that has just been launched about one or two years ago. And this is a significant growth driver, and the diagnostics product is currently available in selected sites and is also seeing very, very strong demand.

So we are looking for new ways to commercialize this core database going forward, and this is what you would see in the projections for the revenues going forward, similar to the numbers that you just referred to.

AmniSure? Roland, do you want to add to that?

Yes. AmniSure, of course -- have in mind that AmniSure is for four months nonorganic and for eight months organic for QIAGEN, as we acquired it early last year. And I think the overall run rate for the year expectation is around -- I think it's roughly around $24 million or $25 million, somewhere along that.

Okay. And then just a follow-up. You've been doing a number of deals, Peer. If I look at your free cash flow conversion rate -- the earnings you report are meant to be kind of cash-based earnings. But, over the last couple of years, you've been kind of in that 55% to, call it, 65% range or so in the first quarter as well; so, a bit below peers. Is there any plans? Or what can we expect from a free cash flow standpoint for, I guess, the year and kind of how you're thinking about that conversion rate going forward? Thanks.

Right. I think that it's an important number, and I'll ask Roland to comment on that. Just two comments in advance.

The first thing is that, over the last 12 months -- if you look at the history on how we employed cash for acquisitions, you'll see that there was significant accretion in most of the acquisitions that we did, with the exception of two, Ingenuity and the very small acquisition of IBS last year. Both were the investments in the next-generation sequencing era. That's something that should start commercializing and creating value in 2013 and 2014. And this is obviously a vast market opportunity for us. So this is, I think, important to note in terms of how we're looking at this.

The second thing is we had significant restructurings in 2012 that you'd have to factor into the calculation you just gave. If you factor that out, you'll see there's actually very clean cash conversion on the overall number.

Roland, do you want to give details on that?

Yes. I think that's a perfect statement. There's really nothing more to add. I clearly do believe that we still see an impact. And, as we said on the call, as well, also in 2013 we believe that the majority of our projects will be concluded within the first half of this year. There might be some smaller number of impacts in sort of fourth quarter, where we have a couple of cash payouts.

But, then, moving into 2014, we clearly expect a significant impact also in on cash conversion. So we do believe we are on the right track. And we clearly changed a lot strategically over the last 12 to 18 months into, we believe, the right direction. NGS is one part of it, but things are finally coming together.

Isaac Ro, Goldman Sachs.

Just one more on Ingenuity. It's obviously, as you pointed out, a company with a very sizeable database lead. Could you talk a little bit more about the longer-term strategy to go about the clinical interpretive piece? As you take sequencing into the clinical setting, you're obviously going to need more than just software and hardware. So just what are some of the investments that you need to make either externally or internally to take a lot of that data, a lot of the sequencing power, and then put that into a clinically useful interpretive setting?

It's a great question, Isaac. That was actually at the core of our strategic thought in this whole process. It's a market that is still unfolding, so a lot of the trends are still clearly in development. But, as we see it, you see here QIAGEN now poised with a $700-million molecular diagnostics franchise with one of the largest sales channels in molecular diagnostics overall with a double-digit-growing franchise in this area, suddenly having access to a next-generation sequencing platform with an extremely well-validated technology and with a broad suite of content, including also the full ecosystem for the interpretation of that content.

So the short answer is -- I'd have to cherry pick a few of the main elements. One of the important things is that we see next-generation sequencing having a role in diagnostics, potentially flanking, potentially in addition, potentially complementing also real-time PCR and other products in this area. There are regulatory reasons for that. There are reimbursement reasons for that. There are workflow reasons for that and availability reasons for that. And, again, this is now the US market.

Internationally, we see a very different opportunity in the different regions to put these two pieces together.

So I'd say having a complete portfolio across multiple different diagnostic products, including next-gen sequencing, which is only one and will always only be one of several different tools being used in diagnostics, is going to be a significant advantage.

The content going forward that we have -- as I said before, we have pharma partnerships where we're already doing next-gen sequencing panels as reflex panels or validation panels and are looking at that as secondary products, depending on the various geographies where reimbursement and regulatory pathways exist. So I think this is also an important thing in development that we can actually leverage the development expenses and the development partnerships across multiple platforms.

So channel, platform, flanking products, flanking development programs, content on -- content war chest, including also a lot of IP on content, and other things, I think, are going to be key cornerstones of the success in the clinical research and clinical diagnostics market.

Brian Weinstein, William Blair.

My question is on next-gen sequencing. As we try and understand the importance of that product for QIAGEN, maybe you can bracket or frame a little bit the revenue contribution as expected from the product over the next couple years either in terms of percentage of revenues for the Company or however you want to define it.

And then, also, on the margin side, what is next-generation sequencing mean for your margin?

Sure. Brian, it's a great question. I'd like to lay it out for you here. But this is something where there's just such an extraordinary focus on this technology right now. We want to deliver a more comprehensive information package to you also with data generated not by us but by customers and show you how everything comes together. And this is something that we will be making available in the second half of the year; certainly, at the analyst day that John described before.

The one thing I can say is that there's an opportunity out there. There are good players out there, but the market is very sizeable. We have a really differentiating offering through the diagnostics, interpretation, content, and workflow aspects that we're bringing forward. This has been done with significant efforts internally, I think, at a very reasonable cost, considering the market opportunity for us. And this is something that we would then prefer to detail in more depth than just give a headline estimate.

Okay.

I would now like to turn the conference back over to Mr. Gilardi for the closing remarks. Thank you, sir.

So, with that, I'd like to close this conference call and thank you all for your participation. If you have any additional questions, please, don't hesitate to contact us, and we will take care of your topics. Thank you very much. Bye-bye.

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.