Qiagen NV (QGEN) 2015 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. I am Patrick, your Chorus Call operator. Welcome and thank you for joining QIAGEN's Conference Call to discuss the results of the Second Quarter 2015. At this time, all participants are in a listen-only mode. Please be advised that this call is being recorded at QIAGEN's request and will be made available on the Internet site. The presentation will be followed by a question and answer session. (Operator Instructions)

At this time, I would like to introduce your host John Gilardi, VP of Corporate Communications and Investor Relations at QIAGEN. Please go ahead, sir.

Thank you, Patrick. And thank you for all of you for joining our conference call today. We are going to review the financial results we released last night and provide a business update before the Q&A session. Our speakers today are Peer Schatz, the Chief Executive Officer of QIAGEN; and Roland Sackers, the Chief Financial Officer.

On slide two, you see the customary Safe Harbor Statement explaining that the discussion and responses to your questions on this call reflect management's view as of today, July 30, 2015. We will be making statements and providing responses to your questions that state our intentions, beliefs, expectations or predictions for the future. And these are forward-looking statements for the purpose of the Safe Harbor provisions.

These statements involve risks and uncertainties that could cause 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 U.S. Securities and Exchange Commission. Also during the call, we will be referring to certain financial measures not prepared in accordance with Generally Accepted Accounting Principles or GAAP. You can find a reconciliation of these figures to GAAP measures in the press release and the presentation for this call.

I would like to now hand over to Peer.

Thank you, John. And welcome to all of you. [One thing] I had during 2015 in line with our goals and I have these messages to summarize our performance for the second quarter and first half of this year. First, we came in ahead of our targets for the second quarter. In particular, adjusted net sales were up 5% at constant exchange rates and ahead of our 4% target, while adjusted EPS was $0.28 also at constant exchange rates and also ahead of the target for $0.26 to $0.27 per share.

We maintain the adjusted operating income margin at 25% of sales, while making important investments to accelerate innovation and growth at the same time. Adjusted net sales were $319.5 million at actual rates and declined 4% due to the anticipated currency headwind of 9 percentage points while adjusted EPS was $0.26, which was an increase from $0.25 a year ago. Second, we're moving ahead on transforming QIAGEN; as you know our performance over the last two years has been marked by the sharp impact of the decline in revenues of HPV test in the United States that are used for cervical cancer screening against the ongoing solid growth from the rest of the QIAGEN portfolio. We saw the same trend in the second quarter, sharply lower US sales of HPV tests created 3 percentage points of headwind, which was in line with our expectations while the rest of the QIAGEN portfolio grew 8% at constant exchange rates and provided 97% of sales and led to a 5% constant exchange rate overall sales growth. All customer classes delivered sales gains, molecular diagnostics benefited from increasing contributions from the growth drivers; applied testing generated 11% constant exchange rate growth driven by human identification and forensics, while academia and pharma both grew 7% at constant exchange rate on the mix of underlying growth and contributions from the acquisition in late 2014 of the Enzymatics Next-Gen Sequencing consumables portfolio. All regions also delivered gains in the second quarter, with the top seven emerging markets standing out with 11% constant exchange rate growth and 15% of sales despite continued pressures in particular from Russia. Our story is about the transformation of QIAGEN through targeted investments into its premium differentiated portfolio of products and solutions that are designed to address the needs of customers in life sciences and molecular diagnostics. Our solutions allow these customers to gain valuable molecular insights from any sample. Third, we are reaffirming our full year guidance for higher adjusted net sales and earnings per share at constant exchange rate. We've also set goals for 2015 to increase free cash flow, which is up 10% in the first half of the year to $84 million and deliver improvements in the adjusted operating income margin. I also wanted to mention a senior leadership change announced with the quarterly release. Brad Crutchfield joined QIAGEN in June as Senior Vice President and Head of the Life Sciences business area and a member of the Executive Committee. He has a great profile to lead our life sciences franchise. Brad was most recently Vice President and General Manager for Europe, the Middle East and Africa at Illumina and prior to that he was at Bio-Rad and served as Executive Vice President and President of their life sciences group. We've made some significant changes to our leadership team over the last 12 to 18 months bringing in a mix of new leaders from outside as well as promoting from within. This team is well suited to address the opportunities we are facing. Moving to slide five, this shows you how QIAGEN has been growing during this challenging transformation. As you know on the one side, we've been facing heavy price pressure in the United States for HPV test and this was due to the entry of new competitors, but we have maintained clear leadership albeit at a competition induced dramatically lower price. For 2015, we continue to expect about three to four percentage points of headwind and this is in line with the first half.

For the third quarter, we expect three percentage points and about one to two percentage points in the fourth quarter. This means the sales contribution from products related to HPV screening in the United States for the fourth quarter of 2015 will be well below 3% of our total sales. So any future change in the US HPV franchise is not expected to have a major impact on overall QIAGEN sales. So we're nearing the end of this headwind during late 2015 and then you will see a faster overall growth rate for QIAGEN that has been driven by the solid performance from the rest of our business.

I'm now on Slide 6 to discuss the growth drivers. On the QIAsymphony automation platform, new test submissions are expected later this year and we have a new collaboration we disclosed as well with Seegene. This partnership developing panels using the Seegene assay design approach to create assays for infectious disease panels with a goal to enable simultaneous amplification of up to 20 targets per tube. The test will be validated on QIAsymphony RGQ and we will market the assays.

Another highlight brings together the automation power of QIAsymphony and our leadership in liquid biopsy sample technologies. These involve taking a body fluid most often blood to gain access to DNA and/or RNA. Our presence in this field is very strong as a supplier to almost every participant conducting or evaluating liquid biopsy testing. Our teams have launched a breakthrough protocol to automate the isolation of free circulating DNA from human plasma in a highly automated format, which can address the high throughput needs of (inaudible) as well as stringent requirements there as well as in the emerging area of cancer testing.

Customer feedback has been very positive. On QuantiFERON, I want to mention the new directive from OSHA, the US Occupational Safety & Health Administration for TB screening of healthcare workers. This is the first such update on this topic in a long time and it included for the first time a reference to the modern TB test and the only one mentioned was QuantiFERON TB gold as an alternative to the traditional skin test. This is further validation of our leading position and customer value proposition, which is based on offering the most cost effective and clinically validated TB test.

We also advanced our personalized healthcare portfolio, in particular with the FDA approval of the therascreen EGFR kit as a companion diagnostic to guide the use of AstraZeneca's targeted lung cancer therapy IRESSA. This marks the fourth US regulatory approval of a QIAGEN companion diagnostic compared with a targeted cancer therapy. And this further validates our leadership position in this exciting area.

The inflow of new projects and partnership with pharmaceutical companies has never been stronger and spans across all platforms; PCR, NGS and ModaPlex.

In next-generation sequencing, preparations are progressing as planned for its commercialization of the GeneReader benchtop NGS workflow in the second half of 2015 and we are looking forward to have more to share with you later this year.

I am now on slide 7, and would like to share an update on our bioinformatics franchise. On this slide, you see that our offering goes far beyond creating a seamless workflow to transform complex biological data coming out of sequencers into valuable molecular insights. What we are offering is even more, and what our customers value is a meta-knowledge base that ties together our own solutions with other proprietary and public resources and data sets to enable a much more powerful interpretation.

Our solutions have become the standard to interpret findings by leveraging a wide range of knowledge bases and data sets, sometimes even including a customer's own data sets and findings. So this is why you see us offering a range of solutions for analyzing and interpreting biological data in various ways and behind which we are investing as well as attracting new partners.

A great example is that QIAGEN and Inova Translational Medicine Institute have launched Inova Genomes, a unique compendium of a very large cohort of whole-genome sequencing data, which is highly annotated and described as well as ethnically, phenotypically, and ancestrally diverse.

The Inova Partnership has a great additional tool that further increases the value of our offering for researchers seeking to accelerate cohort analysis programs or improve success rates in diagnostic odyssey cases. QIAGEN serves as the exclusive distributor of the database, which is accessible by our Ingenuity Variant Analysis and CLC Biomedical Genomics workbench platforms.

As Eric Schadt from the Icahn Institute said and I'm quoting him "In precision medicine, your ability to make impactful decisions and discoveries from each new dataset rests heavily on analyzing the data in the richest context possible, how much information you have about other genomes, health outcomes associated with those genomes and what's known from peer-reviewed published research. So an ethnically diverse genome database like the Inova Genome database when paired with big data computation and expertly curated content resources such as the Ingenuity Knowledge Base can dramatically advance disease research and drive the adoption of next generation sequencing in the clinical setting." As for our new Commercial Solutions, the global rollout of QIAGEN Clinical Insight or QCI is building great momentum. This evidence based clinical decision supports solution designed for clinical labs to use in the interpretation and reporting of complex genomic variants from NGS data. The first applications involve hereditary and somatic cancer panels.

QCI or QIAGEN Clinical Insight and other solutions on this chart draw insights from QIAGEN's Ingenuity Knowledge Base, which you see here is the key content foundation and which has so far been used to analyze nearly 400,000 human genomic samples. Another new solution recently launched is the CLC Microbial Genomics module within the CLC's (inaudible) portfolio. This module enables academic and commercial researches focused on food production, agricultural biology and infectious diseases to visually explore and analyze microbions.

As a standard setter, our approach is to be platform agnostic. At the same time, we will show that a perfect alignment with the platforms and assays on the GeneReader system will allow for a very unique sample to inside experience.

I'm now on slide 8 to discuss our recent entry into the high value segment of the US forensics market. The US is the largest market for forensics with around 400 accredited laboratories analyzing more than 4 million case work and reference samples per year. In the US, we have been offering sample technologies and this is part of a very high market share in sample technologies for forensics around the world.

We are on practically every laboratory worldwide conducting forensic testing with such sample technologies. Now with the expiry of some patents in the United States, we are entering the assay market segment with our Investigator STR Kits for genetic fingerprinting. Once those patents expired in June, QIAGEN became the first new entrant into a market, which previously was a duopoly, the area of STR assays or short tandem repeats, that is essential for DNA forensic testing, as well as other types of genetic fingerprinting.

The timing could not be better since US labs are transitioning to comply with USPI standards in 2017. The new Investigator STR Kits fully comply with these requirements, which include 24 markets compared to 13 before. In addition, our new line of assays have many workflow benefits and a range of novel features. The most important new feature of our offering is a new Quality Sensor that evaluates the quality of DNA in each sample prior to going into time consuming and costly testing.

This novel QIAGEN technology enables labs to therefore decide quickly, which evidence may provide valuable results and overcome key concerns such as determining truly negative results assessing DNA degradation and also assessing inhibitors in the PCR process. QIAGEN is the global leader in sample technologies in human identification and forensics; with this franchise representing them, a majority of our applied testing customer class, which contributed about 9% of overall sales to QIAGEN and also involves solutions for veterinary medicine and food testing.

We are already successfully commercializing this new QIAGEN Investigator STR Kits in other regions of the world. So moving into this new segment in the United States offer some attractive incremental growth opportunities and a chance to maximize the value of offering a full portfolio like elsewhere in the world.

With that I'd like to hand over to Roland.

Thank you, Peer. Good afternoon to everyone in Europe and good morning to those joining from the US. I'm now on slide 9, and will begin with an overview of our financial performance for the second quarter. Starting with adjusted net sales, we delivered 5% total growth at constant exchange rates, which was higher than our target for 4% growth and driven by the outstanding 18% constant exchange rate growth in instrument sales.

Consumers and the related revenues were up 4% constant exchange rates in the quarter and represented 87% of sales. The acquisition of Enzymatics provided two percentage points, while the rest of the portfolio generated three points of growth and that was after absorbing three percentage points loss to lower US HPV sales. The adverse currency movements created nine percentage points of pressure on sales at actual rates which was in line with our expectations and led to the 4% decline to $319.5 million.

Moving down the income statement, the adjusted operating income margin had 20 basis points of improvement with about half coming from operational gains and the rest coming from currency benefits. On the adjusted gross margin, we had a relatively high level of revenues from pharmaco-developed projects in the quarter and this was a key factor behind the decline of about 90 basis points. These revenues have a gross margin of about 30% to 50%, which is below the company average.

However, keep in mind these revenue have a relatively high margin at adjusted operating income. Another factor was the strong growth in instruments, which have lower gross margins in consumers. As we previously announced, the teams and activities at our site in Marseille, France were spun off earlier this year through the creation of a new standalone company. These activities were focused on the Ipsogen franchise, where we have a strong leadership position.

This was a good solution for this site, the employees and shareholders and we have future rights to sell the product and this transaction played a role in the overall lower level of R&D investments for the second quarter. Sales and marketing expenses were generally flat compared to the same period in 2014, as we made investments in eCommerce and commercial activities by generating benefits from the efficiency program done last year.

For the full year, we have a goal to improve the adjusted operating income margin by at least 50 basis points and this is from the 25% underlying margin last year. The full year margin in 2014 was 23% but this included restructuring charges taken in the fourth quarter. Keep in mind that this target is based on actual Fx rates. Adjusted net income was $60.9 million and this was unchanged from the year ago period. The adjusted tax rate was lower in the second quarter at 19% but in line with our outlook and helped to more than offset an increase in total other expenses. Adjusted EPS was $0.28 per share at constant exchange rates, which was above the target of $0.26 to $0.27. At actual rates, adjusted EPS was $0.26 per share, which was ahead of $0.25 per share a year ago. The diluted share count for the second quarter was about 3.6 million shares, below the same period of 2014 and this was due to the convertible bonds we purchased earlier this year and shares we purchased over the last 12 months. Moving to slide 10, I would like to provide you with a quick overview of the customer classes. As noted earlier, this include contributions from the Enzymatics acquisition in December 2014. Molecular diagnostic excluding US HPV sales continued at a solid underlying 10% growth pace at constant exchange rates. We delivered further double-digit constant exchange rates sales expansion for the QuantiFERON TB test and higher sales in personalized healthcare came from Companion diagnostic kits and significantly higher pharmaco-developed project revenues. We also continued the strong pace of instruments and consumer sales growth momentum for the QIAsymphony system in the quarter as well. In the Life Science, applied testing led the performance on the back of increasing demand in human ID and forensics. Trends improved in pharma as underlying business expansion at a mid-single digit constant exchange rate and first time contributions from the Enzymatic acquisitions led to a 7% constant exchange rate growth in the quarter and for 5% constant exchange rate growth for the first half year. Academia delivered the same growth figures as pharma on the same mix of underlying growth at a moderate single-digit constant exchange rate and contributions from Enzymatics. Here we are seeing more positive customer spending patterns in the US and key European markets than the first half of 2015 and remain cautiously optimistic. I am now on slide 11, to review sales on a regional basis for the second quarter, the top seven emerging markets delivered 11% growth at constant exchange rates in the second quarter and [was up] 16% for the first half. China remains a bright spot rising at a high-single digit constant exchange rate and we also had solid performance in Turkey and Korea. On the other hand, Russia remains a challenge but has now become the small share of sales. Asia-Pacific, Japan generated 14% constant exchange rate growth for the quarter and was up 10% constant exchange rate for the first half. In addition to China and Korea, Japan also generated gains but like other companies we are cautious on the current funding trend. In the Europe, Middle East, Africa region, sales were up 3% at constant exchange rate for the quarter and up 6% at constant exchange rate for the first half of the year led by the performance in Germany, Turkey and the United Kingdom. The Americas grew 11% excluding US HPV sales and this came from QuantiFERON TB test sales in the US as well as gains in applied testing, academia and pharma.

On slide 12, you have a view of our performance for the first half of the year. This was in line with our 2015 targets, which is sales growth of 4% at constant exchange rate matching our full year outlook. Adjusted EPS was up $0.05 per share at constant exchange rates for the first half of the year and this was in line with our planning and the same goes for the steady adjusted operating income margin at 24% of sales. So based on this performance and also our expectations for the second half of the year, this prompted us to reaffirm the full year outlook we provided earlier this year in January.

Moving to slide 13, we have a healthy financial position with manageable net debt to support business investments and returns to shareholders. Even with the currency volatility, we still increased operating cash flow in the first half of the year. Free cash flow also rose for the first half of 2015 while absorbing higher investments in property, plant and equipment, and this were mainly for internally developed software and expanding our US presence, especially in the Boston area.

Our leverage has now increased to about 1.6 times net debt to EBITDA, and this includes $250 million to repurchase the 2024 convertible notes earlier this year, and removed 10 million shares of dilution risk. On the share repurchase, we have about $30 million to go in the third $100 million program and our view is that these programs has been a good way to increase the tranche. The weighted average repurchase price in the third program so far has been EUR19.22 and for all programs to-date, it is EUR16.50 and this is below the current share price of about EUR25.

I am on now slide 14, which shows we are reaffirming the same full-year guidance for 2015 that we announced earlier this year in January. We continue to expect full year sales growth of about 4% at constant exchange rate. This is based on about seven to eight percentage points of constant exchange rate growth from our core portfolio against a final year of significant headwinds from US HPV testing, and we continue to expect this to be about three to four percentage points.

For adjusted EPS, we continue to expect about $1.16 to $1.18 per share, and this is at constant exchange rates. These expectations also include incremental sales from the Enzymatic acquisition that was completed in December 2014. Moving to slide 15, here you see our outlook for the third quarter and details on the adjustments. For the third quarter, our sales target is for 3% constant exchange rate growth and this is based on 3 percentage points of headwinds from the US HPV franchise, again 6% constant exchange rate growth from the rest of the QIAGEN portfolio. This reflects our view to deliver on our full year target for 4% constant exchange rate growth and the anticipated distribution of sales between the third and fourth quarter.

We are seeing more volatility in the timing of some of the larger blocks of sales in our portfolio such as from pharma development project or national tenders. And this outlook is based on how we anticipate those revenues to be realized. We are also facing a tough comparison against the strong performance in the third quarter of 2014 when we had 10% constant exchange rate growth of the portfolio excluding US HPV test products. And this is something we had factored into the guidance we gave at the beginning of the year and that we have reiterated.

As for adjusted EPS for the third quarter, our outlook is for $0.29 to $0.30 per share, which is also at constant exchange rates. As for our views on currency movements, the headwinds created by this $20 million begin at the end of 2014 and (inaudible) during the first quarter at about eight percentage points. We then saw even more volatility in second same quarter and about nine percentage points of pressure on sales results at actual exchange rates.

For the third quarter and based on the rates as of June 30, we expect about seven percentage points to eight percentage points of currency pressure on sales. So given the 3% constant exchange rate sales growth, this implies a growth plan of about 4% to 5% at actual exchange rates. On adjusted EPS, the currency impact is expected to be $0.02, so this implies $0.27 to $0.28 per share at actual rates. This slide also contains adjustments assumptions for the full year and the third quarter. The tax rate remains unchanged at about 19%.

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

Yes, thank you, Roland. I'm now on slide 16 for a quick summary report and move into Q&A. Let me review what we have announced. First, we delivered another solid performance in the second quarter of 2015 having exceeded our targets for adjusted net sales and EPS at constant exchange rates. We are pleased as well with the results for the first half of the year that put us on track to achieve our full-year goals.

Second, we're moving ahead on initiatives to transform QIAGEN and are demonstrating continued success in areas that are delivering strong growth and have very exciting futures. We had some very important regulatory approvals and new product launches in the quarter, particularly with the EGFR Vompanion diagnostic paired with IRESSA for lung cancer patients and a protocol to automate liquid biopsy sample prep on QIAsymphony. All this is in line with our ambitions to offer premium differentiated products and services to our customers in the life sciences and molecular diagnostics. The benefits of these efforts will become even more apparent during the second half of 2015, as we work through the final two quarters of significant headwinds from the declining sales in the US HPV test franchise. Indeed, his year is setting a good foundation for accelerating innovation and growth from our core portfolio.

And as Roland just outlined, we are reaffirming our full year guidance for higher adjusted net sales and EPS at constant exchange rates along with ambitions to improve our operational profitability and increase cash flow, but again for results with actual rates to be adversely impacted by currencies.

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

Thank you. Ladies and gentlemen, at this time, we'll begin the question-and-answer session. (Operator Instructions) Vijay Kumar, Evercore ISI.

So, Peer, a question on the growth driver. So I feel like there were a number of exciting announcements within the press release. And I think, couple which caught my attention was, one on liquid biopsy. I think the term you used was breakthrough. So, I'm just trying to understand sort of how big is this market opportunity for you guys and how does QIAGEN fit in? How do you think the growth from this particular end market could be for you guys and related to sort of liquid biopsy, I guess, was GeneRreeder and you said (inaudible) in the year. So would this be sort of some sort of specs on the system or maybe further updates on the commercialization or some sort of customer feedback I'm curious?

Thanks for the question. So liquid biopsy is an important area of strategic initiative for us. We have significant efforts in this area and we're working on two different axis. First axis is one we are working hard to further expand our leadership, which is very substantial in this early phase of the market in terms of the sample technology. So we are supplying almost every company, every party, every research group around the world and enabling them to conduct liquid biopsies by giving them tools that allowed them to collect, enrich and purify these rare circulating analytes in a way that make downstream testing sensitive and specific. So this is an initiative that we have dozens of products in and liquid biopsies they span circulating tumor cells, we acquired AdnaGen earlier this year that's growing fantastically. We have the liquid cell-free DNA solutions and we also have the Exosome technologies for RNA and this new launch that we're talking about here is now a QIASymphony kit of the second generation. We had an earlier version before that we were able to substantially increase the speed of and also increase the flexibility of. So with the QIAGEN's new platform, we have now a platform that is clearly targeting clinical use and has the ability to flexibly process FFPE samples, liquid biopsy samples, all in parallel for downstream processing and this is important and at a speed that is sufficiently even for a high throughput NIPT labs and at a precision that meets those requirements as well as those for [instance] in cancer. The market is substantial, it is still small and I see these huge numbers out there in terms of estimates at the market size. They typically include the full package of including also the services from a few hundred to a few thousand dollars per assay. The sample technology piece ranges somewhere in the range of $15 to $30 per assay. So you can just extrapolate the numbers, assume a high market share and that will be the goal for our franchise in that axis. The second axis is the one where we're pairing up the liquefied biopsy strength with assays that we have. We were the first to introduce a regulated liquefied biopsy assay, also with IRESSA earlier this year for the companion diagnostic and we are also ensuring that all of our downstream assays and panels, are already liquid biopsy compatible and hence also the reference that you just made to GeneReader. Yes, the GeneRead panels that we have in the market today, they are already liquid biopsy ready while other suppliers into this market typically require some sort of front-end modification to the assays to make them compatible, so the same assay that can run off FFPE samples can also be a run off from liquid biopsy samples and we think that's incredibly important to ensure good workflow opportunities and also efficiencies in clinical laboratories.

Brian Weinstein, William Blair.

Thanks for taking the question. I wanted to talk a little bit about personalized healthcare, you had a very strong quarter. I'm wondering if you could kind of give us the size of that business now and talk through the components between the FDA approved tests and the partnerships in terms of that size? And also when thinking about working with these pharma partners, what technology platforms are of interest to them at this point, PCR, next-gen sequencing, ModaPlex can you just sort of flesh that out a bit for us?

The franchise is definitely doing extremely well, and it's obviously well north of $100 million, including all the components of which the majority are Kit sales. The numbers for the partnership contract is a third or less of that number. So the majority is actually recurring revenue streams. And the number of partnerships and also the breadth of the menu had been at record level this year. We've never seen such strong inflow of new partnerships and deals as we've seen in the first half of 2015. And obviously, this is great for the future many development and expansion of the portfolio.

The platforms that expands are -- still a lot of the drugs are preferring PCR due to the very clear path forward in terms of regulatory path, in terms of reimbursement and this is true in almost all geographies across the world. That said, we're also starting to see first next-gen sequencing programs and we're working on several already today, and very often in parallel to PCR assay is to make sure that we can also address the global differences in reimbursement and regulatory. So many countries will be extremely difficult to where we will take quite some time until they will be ready for next-gen sequencing so their PCR assays would be preferred in testing both in parallel is a big benefit.

So, that's number two, and what we've actually seen a remarkable interest in is in ModaPlex. ModaPlex which is a platform we are not commercializing actively at the moment, but we are prepping here for companion diagnostic usage, is receiving also here a record inflow of new partnerships that are using this multimodality capability of that platform. And also see great value that platform is already FDA-cleared and also has a very clear path to reimbursement. So we are not platform agnostic. We're not trying to force a platform on to the pharma partners but are trying to do what is best for their uptake of the drug and that has been resonating very well with pharma and the inflow is just remarkable that we are seeing this year.

Jack Meehan, Barclays Capital.

Hi, thanks and good morning and good afternoon. I just want to start and ask about QuantiFERON and the growth in the quarter. I'm curious with some of the publications at the start the year whether you thought you had seen any changes in the market share. And then also just to how far along you though you were in converting from the 3G product to the new fourth generation out on the market?

Sure, thanks. So the 4G has been on the market since earlier this year and we've seen good uptake as always it takes some time for this transition to happen as laboratories have their existing validation routines and procedures and the uptake is moving ahead quite nicely now in Europe, the lag that you typically see is at least few months, six months or so we are kind of like now moving through that. The 4G product has a number of features that are easy to see the immediate benefit for, the workflow benefits for instance, the one, two collection and all these things, the quality comparability with the leading quality of the 3G product. But some of the benefits, such as the ability to differentiate between active and latent are features that we're still currently working on and you've seen some announcements both in developed world but also in the developing world where we're actually validating this already.

So it is going to be a multi-year validation process, but we're well underway on that as well. So 4G is going to move into the US markets as well. Once we get the PMA on that and the timing is hopefully not far away and this would allow us to then start that active conversion in the states where we do see some benefits in particular also in the workflow side.

Daniel Wendorff, Commerzbank.

Hi, thanks for taking my questions. I'd like to go back to slide 8 actually just to better understand the market opportunities there and would you be the only company entering the assay technologies markets and following the expiry of certain patents as you just mentioned, and I assume that you just have another product for an existing customer marketing infrastructures, is that correct?

The latter is definitely correct, and we are in all of these laboratories are in to today. It's a market, we really like serving, it is technologically very challenging and one that we have been in for at least 25 years now. And the second part of the question is, there are IP positions, new IP positions now that have to be accessed and also licensed.

And so we think that if you look at the obvious players in the market, I couldn't imagine anybody here now the near term to the market, which will have a meaningful impact. This is a market that is definitely going to be PCR for quite a long time, an extremely conservative market and where the cost and other benefits of the technology are just well ahead of anything else. And so we see that this is probably going to remain pretty stable for the next few years with the exception of a few smaller segments of the market where you might see diversification.

Dan Leonard, Leerink Partners.

So two-part question on the bioinformatics business. (Technical difficulty) disclose the growth rate of the bioinformatics business in the quarter? And then secondly, could you elaborate on the launch of Clinical Insight? You mentioned it was a positive launch above expectations, but can you convey what the bogey was and what you delivered?

Sure. So, I'll talk very briefly about the launch and Roland you can take the financial question. The launch went extremely well and has surpassed our expectations. Clinical Insight is hitting a very important need in the market as clinical use of high bandwidth technologies has been increasing particularly, next-gen sequencing and this has led to an enormous backlog very often and work up efforts that very often mean library visits and just working through all of the variants that are available in the institution. And we're basically using the cloud solutions that we've created.

Actually, somebody recently told me that we were actually the first life science company in the cloud early -- almost 15 years ago, which was the first Ingenuity product and we are basically leveraging that now for clinical use ensuring up-to-date information, which is very valuable for a clinical lab, so they don't make a wrong call. So this uptake is going extremely well. We're obviously leveraging a lot of the contacts that we have across the clinical industry and are using shared sales channels with the specialists and also the generalist strategic managers. So this is early in the uptake phase, but we are very pleased with the uptake and many high profile names have joined the customer roaster. Roland?

Hi, Dan. Bioinformatics is doing well on a year-to-date to end the quarter at double-digit pace and I think it's probably more important, it clearly also comes as a very healthy gross margin, (inaudible) you would we invest significantly into R&D. So there is no significant EBIT contribution this year, but clearly it's set up the [exchange rate] going forward. So we are quite pleased with the business.

Doug Schenkel, Cowen Capital.

Peer, the QIAGEN portfolio has evolved quite a bit over the past few years, and if you look back over the past few quarters, including this one. If you exclude US HPV FX and M&A consumables then related revenue growth has been around 5% with some error bars around that. And within that 5% there have been areas that have been and appear poised to grow much more quickly and we've talked a lot about these, but they include some of the nice assets you've picked up in bioinformatics, latent TB, the efforts in liquid biopsy and as we talked about earlier today, the outlook for growth in certain new applied areas. That said, there is also some core areas other than US HPV that continue to be lower growth. So when you think about the puts and takes, given all the strategic activity and internal development that you've undertaken, would you view 5% to 6% normalized consumables growth as a disappointment as we look ahead to 2016 and beyond? And I guess as a follow-up, if you believe that QIAGEN is now built to grow it and inherently higher growth rate than that, have the investments you've already made position you to generate a pickup in operating margin leverage over the next few years. Thank you.

Thanks, Doug. So the growth rate that we achieved in the second quarter was slightly higher than what we had guided for. So we're definitely pleased with the momentum across the portfolio. You're absolutely right, we clearly have big exposures in areas such as academic research, which is not really growing with the exception of next-gen sequencing and are $60 million, $70 million exposure in this space is growing at a higher growth rate is not enough to push the several $100 million that we have exposed to the lower growth academic segments. That said, the percentage of revenues that are growing at high double-digit growth rates are now north of a third of the Company and growing substantially. So our goal is to not only maintain but to try to accelerate this growth rate over the next periods, and we'll give guidance for 2016 as we always do in January. And we clearly have stated however that we are striving to increase the underlying growth rate due to the heavier exposure to higher growth segments within our portfolio. And that's why we're emphasizing them so much because we believe that all of them have very long trajectories that we will be able to benefit from.

And Doug, on your margin question, I think the best way to answer is also look just from what we have seen in the second quarter and also what we guided now for the third quarter and the rest of the year and having a mindset, it was in this quarter. So you still have a quite significant headwind on the US HPV inside, which clearly comes still with a very healthy cost margin. Despite this fact, we're still able to improve our operating margin as we have seen this quarter by roughly 50 bps. So now it's going away and phasing out over the course of the next few quarters. I think we feel quite [concerned] in terms of overall operating margin improvement as we announced before.

Jeff Elliott, Robert W. Baird.

A couple of quick ones for Roland here. Roland, can you talk about free cash flow, what's your outlook for the next couple of years? And then on the leverage, it has worked its way up a bit. What sort of metrics -- where would you expect to be or where would you be comfortable seeing that you are [now under leveraged]?

Thanks for the questions, Jeff. On the free cash flow we clearly are feeling quite comfortable with the developments, as now seen over the first six quarters, do expect also similar developments going forward. The cash conversion remains about 100% and I think that is clearly an area where we also are working on, focusing on and have still a mindset. We did a lot of restructuring in 2014, happy that we went all out on that and we are still in the earning mode on that. So, again there is more to come.

On the net debt to EBITDA side, I would say, right now we still feel -- clearly still underleveraged. We are very much committed to capital allocation as we stated before. We now still have some openness in our third $100 million share buyback program, that's clearly one thing. And more important probably also in terms of cash flow and then [firepower] at the same time (inaudible) up to 3 is still reasonable for a company with a cash contribution on – with the cash generation we're having. So, I think there's a lot of room for us to be flexible on the strategic side as well as the capital allocation side in general.

Zarak Khurshid, Wedbush Securities.

Thanks for taking the questions. As we think about your total liquid biopsy related businesses versus your NIPT exposure. Any sense that you can quantify for us kind of in an absolute sense how large these buckets are and/or how fast they are growing? And then as a follow-up, just curious how -- as those end markets continue to grow very fast, how does your business scale with that? Does it grow at kind of a slightly reduced rate to the end market or do you kind of keep pace?

Sure. So there are a few million liquid biopsy tests performed every year. The majority are NIPT. It's maybe a quarter or cancer today. And a lot of them are exploratory, maybe a third, but the cancer piece is growing quite substantially and is very, very different to the NIPT market. The NIPT market is under intense competition and also price and cost pressure. And the cancer market is one which is more exploratory and one which is emerging quite quickly and clearly as a different reimbursement setting as well.

So the market going forward will see volumes increase significantly, will see the volume growth driven to a much larger degree by cancer going forward and the price is very stable in cancer, very attractive in cancer for the foreseeable future, and NIPT will be a more cost competitive market. This franchise is a few tens of millions now for us, but it is one that is clearly one that we're investing in and as you see from the numbers, very, very strong leadership positions. And then we're fueling that with great new products that we have both organically and also inorganically added to the portfolio.

Isaac Ro, Goldman Sachs.

Hi, good morning. Thank you, guys. Question for you on sample prep technology, you guys gave a lot of color on the various end markets that you serve and you've obviously got a lot going on in next-gen sequencing. And I was curious, if you could maybe take a different cut at the numbers and specifically wondering with all the growth that we're seeing in next-gen sequencing, obviously your assembled prep gets used quite a bit. Can you give us a sense of how much year-to-date your sample type business tied to NGS has grown and sort of how you're thinking about that opportunity because you're clearly still in a very strong position of benefit from that volume growth?

Sure. Thanks, Isaac. So we once put out a number that, we think that about 85% of all samples that are processed for next-gen sequencing are process edtypically using a QIAGEN sample technology upfront. Where the confusion kicks in is that people talk about sample preparation for next-gen sequencing, which includes the library preparation steps, which is a multi-hundred million dollar business. When we talk about sample technologies, it means the processing of a drop of blood or a piece of tissue into purified isolated nucleic acid and in that area, what we call sample technologies, our market shares are very, very high. So you can almost -- and the challenges for mix and sequencing are very significant in terms of requiring good pure nucleic acid because very often the input volumes are very small. So you want to have a very clean and good sample going into these very cost intensive and expensive downstream assays. That said, next-gen sequencing is only a very, very small fraction of all the sample processing being done in research and diagnostics. Even though the market is a multi-billion dollar market and the cost of the assay is very often locks higher than what you would typically have with PCR or other molecular assays and hence the volumes are still immensely higher in the non-NGS areas compared to the NGS areas. So volume growth in this area is meaningful for us is dollar amount but as an overall revenue contributor it's one that will increase over time, but currently is still not the major driver within the academic or the clinical segments of our business.

Dan Arias, Citigroup.

Good morning. Thanks for the question, guys. On QIAsymphony rolling, I think you guys said that consumables' pull-through on the system was up 25% or so last year just wondering whether as boxes this year track in line with that 250 or so you placed last year, are you thinking the 2015 pull through will track in line at 25% as well and then can you just remind us what to look for in terms of new tests and timing for new products in the back half. Thanks.

Yes let me take the first part of question. Yes, I think we see actually similar trends in 2015 as well, so we are quite happy with our QIASymphony performance in general, I know from the outside there's always a lot of focus on placement and as you pointed out correctly it's even as important and fully more important for us to pull through on the instruments and there is clearly a number which is still going to be significantly double digit and I don't see any reason that is going to change, and menu expansion, Peer?—

Menu expansions ongoing with the focus currently on Europe so we have several new assays come onto the platform in Europe that are doing quite as you see also from the placements in that region. So we're well on track to make the 250 target for this year and that said we are very selective in the menu we're putting on to the system, because we're seeing great traction in particular also in the LDT sales and so having select markers to augment that differentiation has been a good value proposition for our customers in the US

Derik De Bruin, Merrill Lynch

Hi, good morning. Hey, I have one quick clean up question for Roland and then another one, the cleanup question is the FX impacts to EPS in Q3 and Q4 and then the bigger question is we've seen some companies in the next-gen sequencing space have to reduce guidance because they're not getting reimbursement. I guess can you talk a little bit about how you sort of see the reimbursement for the panels sort of playing out? What sort of milestones are you looking for in terms of getting increased volumes and just talk about you’re like the competitive dynamic in the panel space because there is a lot of vendors out there.

Let me go after, (inaudible) Derik. So FX impact on EPS and adjusted stat for the third quarter using June so it is probably around $0.02, for the fourth quarter is probably down to $0.01

And to the first part, you're absolutely right. And we've talked about this many times in the past, I think there is a general enthusiasm around next-gen sequencing but the realities are definitely starting to hit and the realities are visible in the slow adoption and reimbursement, but if you go deeper into why this is the case, you'll see that the validation of markers is in many cases just not sufficient to justify these broad panels and there have to be a lot of additional validation work or justification of use of the markers that last one to get reimbursement for it. This is one of the reasons why the QIAGEN clinical insights is such an important tool because we are giving laboratories at the push of a button a comprehensive justification for the markers that are being tested for around certain disease areas.

And this is, I think one thing that we've seen laboratories really like about this is that, it is helping them prepare the submission the reimbursement of test they perform. Ad going forward the panels will definitely want to rely on markers that are sufficiently validated and the question is, will this be 50 markers or be 15, this is still a little bit out there, it probably won't be 100 at least now for a few years, because the large number of these markers are just not validated yet sufficiently that would allow our full clinical reimbursement and that's the cost is still quite high.

You see the number of markers in the cost correlating to occur that puts them out of being reasonable at some point. So we think that these targeted panels likely for instance of the (inaudible) panels and they are doing very well, they are targeting very well-validated markers and in our one dozen to several dozen markers and hotspot panels might be over a 100, but the focus on the clinical validation is an action ability is going to become the focus going forward for laboratories and not just what can we read and how much can we read.

There's some interesting pieces coming out for many of you or you're saying it's not about the box, it's really about the utilities that the box generates and there we certainly see a mismatch, being at in cost, being at reimbursement, being the regulatory pathways and I think we as an industry need to be very prudent and how we push this forward to make sure that we also create something that the healthcare systems will be able to benefit from economically and also clinically.

Bill Quirk, Piper Jaffray.

Two quick questions from me. First, on the clinical instrument strength. Can you also think a little bit about the difference between say the strength in QIAsymphony for running molecular assays versus some of that say, the NGS base strength and things like QIAcube and other instruments?

So, it is interesting Bill is that the QIAsymphony is getting great uptake in NGS labs. In particular also due to its ability to process so many different sample types in a highly automated way especially for the labs that are doing larger batches and for instance also NIPT labs. So the QIAsymphony has -- we see surprising good uptake in the first wave. We always knew it would be very attractive position but as it was primarily perceived as a clinical instrument. This -- the adoption has been just very, very positive. The QIAcube is -- we have a double-digit thousand number of these same things out there. They're all over the place and they're like 200 protocols running or 250 protocols running on these things. So, most of the laboratory specially have a QIAsymphony and maybe even the QIAcube for very exotic applications as well in addition to the QIAsymphony in their laboratories. So it is a clinical instrument one side, but they are also sticking their NGS samples on to it as well.

Okay. With that, I'd like to close this conference call and thank all of you for your participation. If you have any questions or comments, please don't hesitate to send me an email or give me a call and get back to you about your question. Thank you very much.

Ladies and gentlemen, this concludes the conference call. Thank you for joining and have a pleasant day. Good bye.