Qiagen NV (QGEN) 2016 Q4 法說會逐字稿

Thank you, Patrick, and welcome to all of you, and we appreciate you taking the time to join us for this call today. Our speakers are Peer Schatz, the Chief Executive Officer of Qiagen, and Roland Sackers, the Chief Financial Officer. Also joining us is Dr. Sarah Fakih from our IR team.

On Slide 2, you will see the Safe Harbor statement explaining that the discussions and responses to your questions on this call reflect management's views as of today, February 2, 2017. We will be making statements and providing responses to your questions that state our intentions, beliefs, expectations, or predictions for the future and these constitute 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 US Securities and Exchange Commission.

Today we will also be referring to certain financial measures not prepared in accordance with Generally Accepted Accounting Principles. You can find a reconciliation of these figures to GAAP in the press release and also in the presentation for this call.

With that, I would like to now hand it over to Peer.

Thank you John, and I would like to welcome you all to this conference call. As you saw on the press release and in our presentation, our results for the fourth quarter and the full-year show an accelerating performance during 2016. Our transformation is building momentum and we move ahead on a new growth trajectory and we're seeing the benefits of strengthening our position as a global leader for molecular Sample to Insight solutions.

We're determined to build on this success and make significant progress in 2017. Let me go through our key messages.

First, we achieved our targets for the fourth quarter and for 2016. On a full-year basis, net sales rose 6% at constant exchange rates, which was in line with our guidance for 6% to 7% CER growth, and we are up 4% at actual rates due to the 2 percentage points of currency headwinds. Sales grew at a faster 8% CER rate when you exclude the declining sales of HPV tests in the US

In terms of adjusted diluted earnings per share at constant exchange rates, they were $0.90 for the year or $1.14 per share excluding the restructuring charge of $0.24 recorded in the fourth quarter to deliver efficiencies while sustaining our sales momentum. This was above our target for $1.10 to $1.11 per share at constant exchange rates.

For the fourth quarter, net sales were up 8% CER, but we faced 3 percentage points of currency headwinds giving the significant year-end shifts in rates. Adjusted diluted earnings per share excluding the restructuring charge were $0.41 at the constant exchange rates, and the adjusted operating income margin excluding the charge was 31%, which is among the best in our industry.

Second, Qiagen's transformation is building momentum across our Sample to Insight portfolio. The results for the fourth quarter and also the accelerating performance during the year were important steps towards achieving the new goals we had set for Qiagen to excel towards 2020, and that we announced at our Investor Day in November. These are for compound annual growth in net sales of about 7% to 9% CER from 2016 to 2020, and adjusted EPS growth of at least 12% CER during that same period. This positions Qiagen as among the fastest-growing companies in our sector.

During this transformation, we have placed priority on several areas of high growth and differentiation within our portfolio to address urgent customer needs. This includes the QuantiFERON latent TB test, a key growth driver. Our team has delivered worldwide growth above the 25% CER target for QuantiFERON and the fourth generation of this test was submitted for US approval.

We're also pleased to have reached our targets for 55 to 60 new placements of the GeneReader NGS system in the market segment for benchtop NGS systems primarily for oncology applications. In fact, we exceeded our goal for at least 10% of new placements in the segment. This is a great result for a system that is primarily used in clinical and clinical research settings which normally need long validation periods. We look forward to rolling out the comprehensive enhancements and new gene panels announced for 2017.

Related to our initiatives in next-generation sequencing and bioinformatics, in January we announced the acquisition of OmicSoft, a privately held company in the US that complements our industry-leading bioinformatics portfolio. OmicSoft markets a suite of tools that allow customers to analyze and manage very large NGS data sets in a research setting that increasingly benefits from the power of data sharing.

Third, we are committed to increasing returns and creating significant value. Our conviction about the power of this transformation was shown through our decision in 2016 to set a goal to return $300 million to shareholders by the end of 2017. The first tranche was completed in January with the return of about $245 million through the synthetic share repurchase, and we intend to return the balance of the $300 million through open market repurchases during the year.

Finally, we are reaffirming our guidance for 2017 that we shared with you in November. On a full-year basis we continue to expect about 6% to 7% CER sales growth, and this incorporates the modest incremental contributions from the OmicSoft acquisition. Our guidance for adjusted diluted earnings per share also remains at $1.25 to $1.27 per share at constant exchange rates. Excluding the anticipated $0.03 of restructuring costs for 2017.

As a last point, I would like to mention the leadership change mentioned in the quarterly report with the appointment of Thomas Schweins to be head of the life sciences business area. Thomas has been with Qiagen since 2004 and has been an integral part of our executive committee during this period. Thomas has extensive industry experience based on his prior role as head of Marketing and Strategy at Qiagen, where he was involved in managing our global life science business for many years, and also through his previous experience at BCG as well as Hoechst and Aventis.

Thomas is taking over from Brad Crutchfield, who unfortunately had to step down from his role for personal and family reasons and who is returning to California from his assignment at Qiagen based in Germany. So on behalf of my colleagues and all of our employees around the world, I would like to wish Brad all the best for his future.

On slide 5, I would like to now update you on some of the key developments in the fourth quarter. The QuantiFERON latent TB test reached an important milestone when the fourth generation of the test was submitted for pre-market approval by the US FDA in early January.

The recent guidelines from the World Health Organization and the US Preventive Services Taskforce provide an important tailwind for us, and very recently QuantiFERON was selected in a major government tender in South Korea as part of a national strategy to eliminate TB.

We're rolling out a comprehensive package of enhancements for the GeneReader NGS system, further streamlining workflow efficiency, enabling improved data output and shorter turnaround times, as well as significantly broadening our content offering, featuring a range of oncology panels and, most importantly, a channel for customized panel design. I would like to now walk you through each of the key highlight areas in more detail.

Now on slide 6, to give you an overview of the QuantiFERON latent TB test. QuantiFERON continues to be a very exciting opportunity for us and we saw growth accelerating to a new 25% CER pace for full-year 2016. And growing above this pace in the fourth quarter.

The submission of the fourth-generation test to the FDA is an important step in further driving the adoption of the test and its increased clinical benefits. This follows the successful 2016 launch of QuantiFERON TB Plus in more than 60 countries around Europe, the Middle East, Africa, Asia and Latin America. The fact that we submitted the fourth-generation test in the United States is also good indication that we were able to address the issues raised in an FDA warning letter we discussed with you last year, and we believe this issue is now fully resolved.

During 2017, we will continue to create more awareness around latent TB testing and to participate in new national initiatives to eliminate Tuberculosis, such as in South Korea. In the latest milestone, QuantiFERON TB has won a tender by the Republic of Korea Armed Forces for screening of about 340,000 recruits during this year. This is just one example of many such initiatives we're pursuing and working on around the world. We will also continue to strengthen our QuantiFERON sales team to further accelerate geographic expansion and to drive an even faster conversion of the market from skin tests to QuantiFERON TB.

Now on slide 7, to update you on recent developments with the GeneReader NGS system, our complete Sample to Insight next-generation sequencing workflow. The GeneReader system is really the first purpose-built NGS platform for clinical panel testing, and the reception in 2016 was extremely positive. We targeted to achieve about 10% of the clinical oncology benchtop sequencing market in the first year and we were very proud to announce that we exceeded that target. We have now set a substantially increased target for 2017.

GeneReader is the first fully integrated complete NGS clinical workflow with predictable costs, actionable insights, expertise, and services. It also provides great flexibility, and this allows even the lowest throughput customers to start NGS sequencing with great economics and also allows higher throughput labs to address their gene panel needs.

Our goal for 2017 is to further accelerate the positive commercialization momentum we reached in 2016 and to fully leverage the benefits of the new system enhancements and the vastly broadened menu capabilities.

On slide 8 you can now see a more detailed overview of the GeneReader enhancements we announced earlier this month. We're pleased to announce that the upgraded capabilities of GeneReader, which are spread across the new and vast content menu, exceed the competing solutions in terms of critical parameters that matter the most in this segment.

We introduced new panel variant types to now also include detection of copy number variations, large rearrangements, exon-skipping events, and gene fusions. With the introduction of our proprietary digital NGS technology, we have boosted accuracy of the GeneReader NGS system to Q60, meaning a 1,000-fold lower base call error rate than the current industry standard. In addition, we can now detect even the most complex mutations and do so with both formalin-fixed paraffin-embedded tissue and liquid biopsy samples using the same gene panels. This eliminates the need for a specialist panel and significantly reduces the validation effort for every lab.

More importantly, a customized channel will be offered for predesigned NGS sequencing assays and this will open up unlimited panel content to meet the needs of our customers. To support the integration of these self-designed panels within our Sample to Insight solutions, we will also make customization of our bioinformatics solutions available.

The comprehensive upgrade package also includes new sequencing chemistry that will become available during the first quarter of this year, higher data output [per flow cell] at 20% higher sample throughput capacity and higher batch efficiency. This is an important next step in the next successful rollout of the system one year after launch, keeping up-to-date with the evolution of the technology, and we are confident the market is beginning to really understand the value proposition of the GeneReader NGS system as the first complete and economical Sample to Insight NGS system.

On slide 9, I would now like to give you an overview of our personalized healthcare franchise. In 2016, we successfully surpassed the milestone of 20 master collaboration agreements for companion diagnostics with pharmaceutical companies, and on the left you can see a selection of our pharma partners who are running multiple programs with us.

In personalized healthcare, we are leveraging our know-how, experience, and development expertise to bring forward new solutions for patient stratifications to capture at least 50% of available molecular companion diagnostic deals. Our ambition going into 2017 is not just to further increase the share but also to expand our portfolio of tests beyond our current PCR and NGS focus. We intend to broaden indications as well, add platforms in our companion diagnostic deals, and expand our track record in oncology, infectious disease, and immune monitoring.

One example of how we are doing this is the recently announced partnership we signed with Singulex, a US-based next generation immunodiagnostic company, and this collaboration will leverage new multimodal diagnostic solutions and highly sensitive platform technologies for select pharma partners to support clinical trial investigations for a number of disease areas that they are interrogating with immuno-assay diagnostics, such as cardiovascular disease, immunology, and inflammation.

Now on slide 10, to update you on the QIAsymphony automation system. We exceeded our 2016 goal of 1,750 cumulative placements and have again achieved solid double-digit consumable growth. Our strategy takes a geographic focus. In the United States, we're primarily targeting areas such as transplantation testing, the needs of customers to automate laboratory-developed tests and higher volume sample processing with a wide installed base of many molecular detection methods, such as PCR and next-generation sequencing used downstream.

In Europe, we are leveraging our broad PCR test menu in addition to the opportunities for sample processing described before, and are adding new tests that will create greater value for customers. Our goal is to maintain a solid annual placement rate and reach more than 2,000 cumulative placements by the end of 2017.

Now on slide 11, to review highlights of our Sample to Insight portfolio of life science products and workflows that support innovation at cutting edge of research. Differentiated technologies refers to areas that we have identified in academia and other environments as core innovation areas that are building up critical mass in scientific research and have the potential to move into clinical use.

One example we talked about often is liquid biopsies. Today our market share in processing liquid biopsy samples is well above 80%. At the core of this technology is really a sample processing [challenge]. We have an extremely strong position in this area for blood, based on our workflows for unbiased DNA stabilization and purification with the PAXgene blood system, and this has been launched for full automation on the QIAsymphony platform.

We are now introducing new and highly specific QIAmp solutions for circulating free DNA that have incredible DNA capturing efficiencies. While our previous solutions already set a strong liquid biopsy gold-standard well ahead of the competition's, these new solutions exhibit, for example, a capturing efficiency at least three times higher than the performance of competing products in direct head-to-head comparisons.

Microbiome is another area in which we have built up capacities in 2016, in particular with the successful integration of MO BIO into our Sample to Insight portfolio. We have a market share here in sample processing well above 80%, and during 2016 we introduced dedicated assays and bioinformatics solutions to create seamless Sample to Insight workflows. A further initiative is in single cell research, where we launched QIAscout in 2016 as a single cell selector that integrates very nicely with our sample processing products as well as assays and bioinformatics solutions. This compact and very cost-efficient device enables a significant number of labs to get involved in this area, and that will further drive democratization of single cell technology. We are developing various technologies to add to this portfolio, and we will keep you updated.

On slide 12, I would like to introduce the latest addition to our bioinformatics franchise, OmicSoft, a small US-based company which we acquired in January 2017 and which further expands and complements our industry-leading portfolio of bioinformatics solutions. Bioinformatics represent a crucial asset and an integral part of our Sample to Insight portfolios in life sciences and molecular diagnostics, and is increasingly becoming a true competitive advantage.

The acquisition of OmicSoft further differentiates our capabilities for data management by adding a scalable and flexible software infrastructure that enables customers to effectively manage and share vast amounts of Omic's and NGS primary data sets, analyze and visualize these data sets, and compare them to large and highly curated publicly available multi-Omics data sets.

Data management of these large data sets is very important for all genomics customers, and in particular, in the clinical community. Data sharing is emerging as an incredibly important need in this new age of genomic testing. With that, I would like to hand over to Roland.

Thank you, Peer. Good afternoon to those of you in Europe and good morning to those of you in the US I would like to review our financial performance for the fourth quarter and full-year and also update you on our guidance for 2017.

We hit our goals for 2016 in terms of sales, adjusted earnings, and we are particularly pleased with the 22% increase in free cash flow to $267 million. We have been taking targeted actions to support future sales growth and deliver operating margin improvement after a period of investments, and these results are an important step in setting the new growth trajectory towards 2020. Above all, the support our top priority to increase shareholder returns and create value.

For the fourth quarter, net sales was 8% at constant exchange rates, and were up 5% at actual rates to $366.5 million due to an unexpectedly strong 3 percentage points of adverse currency movements. This happened later in the quarter with the surge in the dollar against the euro and also against the yen, the Turkish lira, and other currencies.

As expected, about 3 percentage points of growth came from the acquisitions of MO BIO and Exiqon while organic growth provided 5 percentage points. You also saw the headwinds fade in this quarter for US HPV test sales, which were done largely in line with our 2016 target to about $33 million compared to $46 million in 2015. To address the issue now, we expect about one percentage point of headwind in 2017. In any case, the sales expected to represent well below 2% of the total for QIAGEN in 2017.

Among the product categories, we saw solid growth during the fourth quarter and full year for consumables and related revenues. [Heavy source yet] was 8% constant exchange rate in the fourth quarter which was above the full year rate of 6% CER growth and providing about 87% of full year total sales.

Instrument sales also rose at a solid rate more than 6% CER in the fourth quarter and at a 5% CER growth rate for the full year and providing about 13% of full year sales. The stronger growth rate in the second half of the year, which led to full year sales rising 6% CER in line with our guidance reflects the impact of our transformation and the benefits of investments we made to step up commercialization of our growth drivers and expand into new geographic markets.

The organic growth rate for 2016 was actually right at 4.5 CER and had to absorb the US HPV sales headwind. So this provides a good foundation to move into 2017.

Moving down the income statement, for the fourth quarter, the adjusted gross margin excluding the pre-tax restructuring rose by about 50 basis points to 71.1% of sales thanks to better product mix towards consumables. Adjusted operating income was $44.5 million, but was $112.7 million excluding the charge. This means the underlying adjusted operating income margin for the fourth quarter was 31% of sales, and in line with the targets we had set, and this was due to overall significantly lower operating expenses as a percentage of sales.

As a reminder, the pre-tax restructuring charge was $79.1 million US, of which about $68 million was taken against adjusted operating income and about $11 million was taken against other expense lines as a nonoperating income charge.

For the full year, adjusted operating income excluding this charge rose 2% to $324.8 million and the adjusted operating income margin including the charge declined by about 50 basis points to 24.3% of sales from 24.8% in 2015. The main reason was the decline in adjusted gross margin which fell to 70.6% of sales from 71.2% in 2015.

Sales and marketing as well as G&A expenses were largely flat as a percentage of sales while R&D investments declined modestly.

Moving further down the income statement for the fourth quarter, adjusted diluted earnings per share excluding the charges was $0.39 at actual rates and $0.41 at constant exchange rates.

The adjusted tax rate excluding the charge was 15% of sales, which was slightly below our target of 17%. On a full-year basis, in fact we came in ahead of our guidance with $1.14 per share at CER excluding the charge and that was $1.11 at actual rates. Here again, we had an adjusted tax rate of 16% of sales and in line with our guidance for about 16% to 17%.

I would like to now provide you with an overview of the performance among the customer classes. As noted earlier, the acquisition of MO BIO and Exiqon supported the performance in all customer classes and the majority of these sales were in academia, pharma, and applied testing.

In molecular diagnostics, sales of products to these customers were up 11% CER in the fourth quarter and rising at a 12% CER rate when excluding the modest headwinds from US HPV sales in this period. These results show the power of our portfolio and led to full-year sales rising 7% CER in molecular diagnostics and advancing 10% CER excluding US HPV test sales.

Moving to the Life Science customer class, we saw robust 10% CER growth among applied testing customers in the fourth quarter, maintaining the double-digit CER growth trends from the second and third quarters of 2016. Sales for the year were up 7% CER, and as we have noted, these results can be volatile on a quarterly basis due to customer ordering patterns.

After an outstanding performance in the third quarter of 2016, sales to pharma customers maintained a solid mid-single-digit pace in the fourth quarter, rising 5% CER and achieving a full year rate of 7% CER growth. Here we are seeing solid consumers growth but weaker trends in instrument sales and have the modestly optimistic outlook going into 2017 given the expectations for increases in pharma R&D spending.

In academia, sales were up 3% CER in the fourth quarter thanks to higher consumable sales but weaker instrument sales and in particular, the soft trends in Europe. At the same time, sales for 2016 rose 4% CER and we see positive Company-specific factors supporting our growth prospect for 2017.

I would like to now review our performance across the regions with all regions delivering growth for the fourth quarter and full year. We are particularly pleased with the ongoing expansion in the top seven emerging markets, which rose 70% CER for the fourth quarter and provided 80% of sales and were up 90% CER for the year. China kept up a double-digit CER growth pace during the year along with important contributions from South Korea, Turkey, India, and Brazil. Emerging markets helped drive the Asia Pacific/Japan region to the fastest growth rate, with sales up 14% CER in the fourth quarter and 11% CER for the year. China, South Korea, and India were among the key contributors and we saw good expansion in Thailand following our entry.

The Americas region showed 5% CER growth for both the fourth quarter and for the year, moving beyond the US HPV test headwinds thanks to higher sales of the QuantiFERON TB tests and improved conditions among Life Science customers. Brazil also maintained a solid CER growth pace in the fourth quarter, while Mexico had growth for the year despite a drop in the fourth quarter due to the timing of national tenders.

Last point, the Europe-Middle East-Africa region delivered 10% CER growth in the fourth quarter, returning to a stronger pace after softer trends in the third quarter and resulting in sales for the full year rising 8% CER and providing about one-third of our total sales. In this region, we benefited from expansion in markets such as France, the United Kingdom, Turkey and the Middle East, where we opened a new hub in Dubai. This helped to more than offset the softer trends in Germany that we have seen during the second half of CER.

I would like to now give you an update on our balance sheet and cash flows and also on the progress to return $300 million of capital to shareholders by the end of 2017. We had a goal for about $350 million of operating cash flow for 2016, and we came close with $342 million. This compares to $380 million in 2015 and an achievement especially given the currency headwinds against the dollar. In fact, we had $100 million of operating cash flow the fourth quarter 2016, and this marks the first we have reached this quarterly level.

Our balance sheet benefits from the improving cash flow and our leverage ratios stood at 1.2 times net debt to adjusted EBITDA at the end of 2016, and this compares to 1.6 times at the end of 2015. We continue to pursue a disciplined capital allocation strategy to support internal business expansion while also making targeted acquisitions, as you saw with OmicSoft, and also increasing returns to shareholders.

We just completed the strategic share repurchase on January 24. This is a return of about $245 million. This reduced the total numbers of issued Qiagen shares by approximately 3.7% to [230.8 million] as of January 31, 2017 compared to [239.7 million] at the end of 2016. We intend to return the balance of the $300 million commitment through traditional open market purchases during the year.

Taking into account the OmicSoft acquisition and the capital return plans, the pro forma leverage would have been about 1.9 times net debt to adjusted EBITDA at the end of 2016. However, given our strong cash flow generation, we see this coming down quickly and we have a healthy balance sheet to take advantage of targeted strategic opportunities.

I would like to now review our guidance for 2017, and this remains unchanged from the initial perspectives we gave you in November 2016 at our investor event. We continue to expect about 6% to 7% CER sales growth for the full year and for underlying earnings of about $1.25 to $1.27 per share also at constant exchange rates.

In terms of sales growth, we will return to using adjusted net sales due to the OmicSoft acquisition, which is common for IT-related deals to show the full sales and profitability impact, and also what we did in the past with these types of deals. We are currently expecting about 5 to 6 percentage points of organic growth and about 1 percentage point in contributions from the acquisition of Exiqon, which was acquired in June 2016, and from OmicSoft, which was acquired in January.

For adjusted EPS, this target represents a significant increase from underlying $1.11 per share for 2016. This outlook includes about $0.03 of benefit from the planned $300 million return commitment and initial contributions from the efficiency initiatives. It also takes into account an anticipated 18% adjusted tax rate and excludes expected $0.03 of dilution from restructuring charges in 2017.

I would like to also provide some estimates about the anticipated adverse currency impact given the [swing scene] at the end of 2016. Based on rates as of January 31, we expect pressure of about 2 percentage points on the full-year CER sales growth target and about $0.02 per share on the full year adjusted EPS guidance at CER rates. You can find further information on anticipated currency impacts for 2017 based on rates as of January 31, 2017 in the Appendix of this presentation.

On slide 18, you see information on the details and assumptions for our outlook for the full year and also for the first quarter of 2017. In terms of net sales for the first quarter, we have set a target for about $0.04 to $0.05 CER sales growth in adjusted net earnings. As we noted earlier, we anticipate about 1 percentage point of headwinds from US HPV sales for the full year, and this includes about 2 percentage points in the first quarter.

We have set a target for adjusted diluted EPS of about $0.21 to $0.22 per share for the first quarter of 2017 at constant exchange rates, and this also excludes the restructuring charge. We anticipate about $0.02 to $0.03 per share of restructuring charges to be taken in the first quarter of 2017, and this is part of the full-year guidance for about $0.03 of charges.

For the currency impacts, based on currency rates as of January 31, 2017, we anticipate for the first quarter about 2 percentage points of headwind on sales at actual rates of up to $0.01 in adjusted diluted EPS. With that, I would like to hand back to Peer.

Yes, thank you Roland. I'm now on slide 19 for a summary before I move into Q&A. Let me review what we've announced.

First, in 2016 we achieved an inflection point for faster sales growth and took steps to increase operating leverage for 2017 and years to come. Second, our Sample to Insight transformation makes Qiagen a stronger, more differentiated leader with a momentum across a broad range of molecular testing. We've committed to higher returns and are delivering value creation to shareholders, as I think you can see from allocation of capital and actions to drive improvements in efficiency.

Finally, we have confirmed the 2017 guidance we provided in November 2016, and we're executing on actions to deliver higher sales and adjusted EPS with targets to excel through to 2020.

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

(Operator Instructions)

Jonathan Groberg, UBS.

Great, thanks a million and congratulations on the end of the year. So I just have just two quick ones. One for you Peer, and one for Roland. For Peer, I appreciated some of the additional specifications on GeneReader, which sound impressive. I'm wondering if you can give any more concrete expectations for 2017 financially that we might expect from that product?

Then Roland for you, we have historically not talked much about free cash flow. You had over 100% free cash flow conversion of your adjusted net income. I'm just curious, is that a one-time phenomenon or is that something we can now kind of expect going forward? Thanks.

Great, thanks, Jonathan. So first question: we announced the placements for 2016, we are just shy 60 placements for the year. For 2017, we expect a significant increase. It's not a 20%, 30% increase, this is a significant increase in placements, but we really want to focus on the market share.

We think there are about 500 to 600 systems that are placed every year in benchtop oncology. In 2016, we expect that segment to grow very rapidly over the next few years. And by the year 2020, we expect to have 20% overall market share in this market. So we are going from a percentage of new placements to an overall market share in that time period. So this is a substantial expansion of the footprint.

We are not really going to see a lot of benefit, we don't really see a lot of benefit of not giving a concrete placement number for 2017 because it is clearly something that is very important competitive information. We will, however, shed further light on how the rollout improves going forward. It is part of our plan for 2017, you shouldn't expect percentage points of contributions to the overall revenue growth, but it will for the first time be measurable. So this focus that we have is more now in the year 2020 to target a 20% market share.

The cash flow, I think, absolutely, I think the free cash flow of $267 million was clearly a [wealthier] 22% improvement compared to the year before. And I would say also looking forward, we feel -- I would say quite good about our cash flow generation opportunities. Because on the one side, we would say, we have a nice operation globally where we could still leverage opportunities, and therefore, no really significant need for larger general capital investments.

And therefore, the cash conversion rate should stay above 100%. And we gave out, I would say, a good commitment on operating cash flow for 2020 and we are working through that and that should also flow through to -- down to free cash flow as well.

Tycho Peterson, JPMorgan.

Thanks. Couple on QuantiFERON. Can you talk to the degree to which there are other major tenders out there like you saw in Korea? How penetrated is the US market, and what is the impact you think from the new guidelines? And are you still making channel investments there in terms of building out the sales force?

So, the answer to the first part of the question is yes, there are many countries around the world that are currently looking into segment-specific or even broad-based screening efforts. The reason why we announced this tender, it's 350,000 tested, say. Obviously a nice size. But wouldn't necessarily warrant a publication more from the fact was -- this was done because this was a highly visible and highly anticipated tender.

Korea is one of the countries that has a higher prevalence of latent TB and at the same time has a very high standard of development, clearly. So this has been watched very closely because there is a very efficient and large-scale initiative underway in Korea to battle latent TB.

But there are many other countries around the world, I could list at least a dozen, that are currently looking at larger things, and many more beyond that. And this was, therefore, important for us to announce because again there is a signaling effect. There's a signaling effect from this decision, we believe.

In terms of the penetration, the US market is still substantially underpenetrated. We believe that it's maybe 1/4 penetrated, in some of the higher-penetrated segments, but we continue to see new segments emerge that are still at very low penetration levels. So the hospital workers, healthcare workers, is the highest penetration, anywhere between 25% and 35%. But you still have even very advanced institutions still working on skin tests, and that is why we continue to invest in sales channels that educate the market and help continue and further accelerate this conversion. Roland?

So, I'm not sure if there was -- I didn't get a second question for me.

Okay. I misunderstood that. Okay. Next one.

Steve Beuchaw, Morgan Stanley.

Hi, good morning and good afternoon and thanks for the time here. I want to ask just an open-ended question about the outlook for organic growth for 2017. We've clearly seen a lot of improvement in the organic growth profile. I think that's in part product, in part execution. It seems like, based on the guidance for the second half of 2017, the implied guidance I should say, that there is quite a bit that you see in the funnel, maybe it's tender activity, that gives you confidence and is continuing improvement in terms of organic growth.

So I wonder if you can speak to beyond QuantiFERON, which we understand has a really strong trajectory, what else do see in the order funnel that gives you so much confidence in the acceleration on -- let's call it a basis that considers tougher comps in the second half of the year? Thanks so much.

Sure, thanks. I think the growth going forward is driven on multiple pillars. So it's a much more differentiated growth engine than it was a few years ago and that was one of our key goals in the transformation.

So QuantiFERON is certainly just because of the size and the high growth of this franchise a major contributor to the organic growth, but we also have other strong contributors. We mentioned GeneReader before, which if you just sum up the numbers and look at the pull-through in terms of consumables that we outlined last time, 150,000 to 200,000 in panel throughput per system even on more limited panels, that clearly gives you already a good contribution to the overall organic growth.

On top of that, we over the last few years have invested heavily in invigorating and targeting our Life Science franchise to higher growth segments. And that was actually a much more significant initiative than meets the eye, and also visible from some of the new product launches and the traction that they are getting. So there's a real exciting range of growth initiatives that are starting to generate significant momentum and contribution.

So those would be the three larger contributors that we would see for 2017. QIAsymphony just continues to be a star. And we are winning tenders around the world. Also in infectious disease. And just won a big HIV tender yesterday, and a big Hepatitis tender a couple of weeks ago. And so we have a very broad menu in Europe that we are marketing throughout all CE-relevant regions, and that is driving a lot of assay growth and consumables growth, and the new capabilities of QIAsymphony liquid biopsy, just as an example, is driving a lot of growth in the US.

So that focus that the targeting of these on higher growth initiatives was not only confined to these very high-profile areas, but really is a philosophy that we mirrored into the whole organization.

Scott Bardo, Berenberg.

Yes, thanks for taking my questions. First one just relates to QIAsymphony; obviously encouraging to see you doing good placements there, and you talking about double-digit consumable pull-through. I wonder if you could just give us an update actually as to what the absolute pull-through number is per box now? And really, specifically, if you could give us some sense of what the revenue base, what revenues per division roughly, is QIAsymphony? That would help us understand, or better understand that as a growth driver per the division. So if you could give us some more color around that, appreciated.

Bigger-picture question for Peer, and just with reference to data sharing and bioinformatics. Obviously this is a rapidly evolving field. You've seen Phillips now collaborate with Illumina, IBM Watson machine is aggressively moving into the space. So I wanted to understand was, do you as QIAGEN have enough, if you like, connectivity and data sharing capabilities to optimize this opportunity in population health and any other direction that this genomic information may take? Thank you.

Roland, do you want to take the QIAsymphony one?

Absolutely. For the pull-through, as we said in November, as well, QIAsymphony is $180,000 per machine and that is probably also as well as [the end, the average] for the full year at year-end. And clearly, I would say, if you look at the number of placements, most of them are in the 98s, or it's probably a little bit more than half.

The second area where we had over the few years a strong performance was clearly in the Life Science applied testing area, and then it really distributes general into the pharma part of the business as well. So I would say a fair share in all the areas, but more than half in molecular.

Scott, you're asking a very good question. The bioinformatics market, while it is still very small, is very, very fragmented. Different tools are very synergistic. So what larger diversified healthcare companies, you mentioned one with Phillips, are clearly trying to do, they are trying to create integrated software platforms where the various data-creating instruments or units can feed their data into to create a centralized data management. And basically also help guide diagnosis and improve outcomes.

This is much more comprehensive and not an area that we would go into. We are sticking to genomic analysis, and in genomic analysis this is -- primarily our capabilities are in interpretation. And in this area of interpretation, there are several different strategies you can take.

You can use literature, and we have seen that even the most advanced -- and we have a lot of work in this area, but most advanced artificial intelligence still does not come anywhere close to the curation by physicians and PhDs. And this is why we have an extremely elaborate creation process. We think it will take quite some time for that to get there and even more time to further establish and validate.

And so, the literature-based knowledge basis that we have, the algorithms that we've created, they can easily be translated to AI and we can upgrade them at some point in time in the future, but that is today an absolute go-to resource, and this is why we have these massive market shares, in particular in clinical interpretation, but also in the life sciences.

And the second is, then the data sharing capabilities, and to create these repositories and to be able to data mine, and OmicSoft surprisingly with a very small revenue base -- and size of a company -- has signed up the most prestigious institutions around the world to create these types of data repository and mining capabilities.

So our strategy is to be very, very focused and not venture out into areas that we think other companies in IT will be able to address, and stay very close to our molecular Sample to Insight core philosophy and capabilities. And in those areas, we have very high market shares. And that -- I think we see a lot of these things happening are actually quite good for our industry because they will allow us to further plug in to these -- this increasing momentum that everybody is building.

Daniel Wendorff, Commerzbank.

Thanks for taking my questions. Two small follow-ups, to be honest. One with regards to the QIAsymphony placement; you are targeting more than 2,000 total placements until the end of the year. I wonder if you could give us any idea of what the total amount might be you would be able to place? I think I recall from the past that you said something like 3,000, a bit more than 3,000, has this changed now? With NGS coming into play?

(Multiple speakers) and second question would be a follow-up question on the GeneReader. If you look at the numbers you placed in 2016, can you potentially quantify what were straight sales and what amount of machines you placed on the new PPI model? That would be helpful, thank you.

Right. The reason why I was struggling -- sorry for interjecting -- is because GeneReader continues just to be an extraordinary performer. And we had again -- once again -- a significant overperformance in QIAsymphony in 2016. And head-to-head competitive wins across all of the different disease areas in Europe. And Europe is a totally different market than the United States in terms of what wins and what doesn't.

And in the US, we have such an outstanding set of capabilities that we are continually also expanding and upgrading in terms of -- we have today, hundreds of protocols for QIAsymphony. I think on self-read DNA, we even have -- I think there are 180 different variants that we are offering customers because people have different downstream assays and different specifications.

It's just such a versatile and broad capabilities system that we currently, in our five-year projections, do not see that this will significantly taper off over the next years. And so what we get -- guided for was at least 200 systems on average per year over the next few years, and that I think was a conservative number that we were targeting through 2020 and thereafter I think this will continue. I wouldn't be surprised if QIAsymphony is around another 10 years. It's just very strong platform.

In terms of the GeneReader, just to -- the majority are, on price per insight -- that has been a very positively received model by our customers, and so that will start reflecting in our P&L once they start running the panels.

Also, on that question we had before, in terms of revenue impact in 2016 and 2017. (Inaudible) consumables story, you can see the actuation is clearly something what you will see driven by the consumables and over the course of 2016 and moving into 2018 and beyond.

Derik de Bruin, Bank of America Merrill Lynch.

Hi, good morning.

Good morning, Derik.

So a couple questions. One, can you quantify the OmicSoft revenues? And on the second point, what was the organic revenue growth number ex acquisitions in the academic market? Looks, by my calculation, looks like it was negative this quarter.

And I guess could you sort of talk about what's going on in the academic world right now from your perspective? Obviously there's a lot of moving parts in terms of government funding both in the US and abroad. Thanks.

So for OmicSoft, we put in the press release that it would add maybe 0.5 percentage point of revenue to 2017 because we bought it early in the year, that would be pretty much a full-year number. The reason why we are a little bit vague on it is because, as always, there are products within the portfolio that we might want to discontinue because the Company is very close to what we are doing and some of the products might be an overlap, and so this is something that we are currently evaluating if and how we should position that. But in general, it's not really material for the overall year, and with 0.5 percentage point it would already be very good number.

So in terms of the academic markets, indeed the academic markets, in particular in Europe but also partly the United States, were choppy. We had continued weakness in the European academia markets that we saw less so in the second and third quarter, more in the fourth quarter. But we attribute this more to temporary effects in Europe versus in the United States; there is definitely an uneasiness in the US academic markets.

Also, questioning what the long-term trajectory of funding will be in this area. So there is some nervousness in the US academic sector. Those two factors led to a softer Q4 in academia, but we don't see this as something that we would expect to have to continue into 2017.

Brian Weinstein, William Blair.

Hi, guys, thank you for taking the questions. One short-term and one longer-term question. On the short term, I just want to make sure I understand the Q1 guide being kind of 4% to 5% CER in the full year, higher than that. As I understand, HPV is a bigger impact in Q1 but is there anything else that we should be specifically considering as a headwind in the first quarter?

And then longer term, Roland, for you, you've done a nice job with cash flow, it's just around $350 million this year, but can you go over again how that bridges to the $600 million that you're expecting for 2020? Thank you.

Roland?

Yes. Let me start with the second one on the cash flow generation. As you said, I would say it's clearly a good story in terms of working capital improvements and with the single biggest [above] over the next few years will be clearly inventory management. As you know especially 2016 I would say we were still not there.

We would say an average year could be costs driven by transformations and in-sourcing of productions around QuantiFERON, so you work with a larger inventory store. You clearly had a year with a significant instrumentation introduction, that also typically something what you want to increases inventory levels. So I believe over time, our inventory levels from around 160 right now, days can go down to 100, 110 days, and therefore, I would say that's one single quite significant contributor first of all.

Second one is clearly general cash conversion. Those take very positive, as you have seen the results an overall 12% CAGR on the EPS line until the end of [2012] and into 2020. And if you just more or less take that as a basis, you can see and expect a very reasonable CapEx spending. What we're having right now, 1% to 4%. That would be getting there without any larger stretch, and therefore I would say that is something where again we have seen not only last year, especially in the fourth quarter, but also in the quarters before that the cash conversion ratio is very positive.

And of course, have in mind that of course I would say in the first two quarters this year we will see some payouts from the restructuring, they were cooled last year, cash payouts a bit this year. But besides that impact, I would say we are continuing to see it directly going forward as well. And your first question was on?

First quarter.

First quarter, again, just let me remind you in general is we see a similar pattern as we have seen last year. We anticipate having about $0.47 -- 47% of total sales in H1, whereas 53% in the second part of the year and that is trends you have seen last year, also in the last two years. So I would say very well aligned on that.

And with the explanation Peer has given before, there is clearly a lot of growth coming, not only on QuantiFERON and GeneReader but also the new production implementations within life science. We actually feel quite confident in moving into the year, and I would say it's a little bit too early to increase that kind of before we are even through the first quarter, but I would say the confidence level is good.

Daniel Arias, Citi.

Morning guys, thanks. Peer, just a follow-up on the answer -- the answer to the question on QIAsymphony. Do you feel like the next tranche of placements this year kind of has the same geographic mix as what you've done to date, or are you expecting the US proportion to be larger, or I guess maybe smaller given the EU momentum? Just some curiosity on the regional expectations there.

And then if I could ask a follow up, it sounds like you're feeling pretty good about the comparative metrics on the GeneReader, do you feel like this is a year where it will start to see some published or presented data, either on performance or cost relative to the other platforms, that kind of to your point drives home the message on the advantages of the platform? Thanks.

Thanks. So first, question on QIAsymphony. The mix, I'd have to go back to the exact numbers, but it's pretty much 40-40-20. 40% US, 40% Europe and 20% rest of the world. There is obviously volatility in that depending on larger orders and tenders and intra-year trends. But the -- so the placements of QIAsymphony are pretty even across the world.

In Europe, however, it's used as a fully integrated molecular diagnostic platform, where people are running QIAGEN HIV tests, QIAGEN Hepatitis tests, and QIAGEN hospital-acquired infections, and so on. And the United States is primarily running sample technologies. So upfront to PCR, upfront to NGS, upfront to arrays. And so the use is very different.

In Asia, it's a targeted menu of approved test as well, less broad than in Europe. So the actual placements of the QIAsymphony SP front-end system is going to be pretty comparable I guess. The consumables churn is more weighted to Europe because we're adding, in addition to the sample technology, also the tests.

In terms of the GeneReader, yes, you've already seen in the fourth quarter first papers come out demonstrating the performance, so there were presentations and posters, about a handful. And there are several conferences coming up now in the first quarter, and in 2016, what we did was an enormously targeted launch only with one panel. With a very targeted customer group, tightly controlling the message, and many of them have been generating data. And this is what you will start seeing coming out.

Just maybe for the broader audience here, QIAsymphony targets a segment of next-generation sequencing, but does this segment an extremely good job. It is not a whole genome or whole exome platform or more for exploratory sequencing. It is a purpose-built clinical panel sequencer and in this area it really excels.

So I think the number on the accuracy that I just noted -- and some of you might have noted that we are now routinely demonstrating Q60 accuracies, which is really a substantial improvement, and this is a combination of the sequence of the panel technology, the informatics, everything. So the true power of the fully integrated Sample to Insight solution come into play.

Jack Meehan, Barclays.

Hi, thanks for squeezing me in. Peer, could you discuss some of the trends you're seeing in the assay revenues within personalized medicine and any update of views you have on the reimbursement environment? And then for Roland, just any changes to the plan for headcount within the sales organization investment there for the year? Thank you.

So you're right to point out that is an area that is very murky at the moment. Difficult to interpret, and we've actually seen that as a positive because our well-validated FDA-approved CE-marked highly validated tests where we actually had cost effectiveness studies have very solid reimbursement in most countries around the world, the Therascreen PCR test, they're actually very solidly performing, and we're adding new tests to the portfolio.

We for instance launched a new Cal-R test, which is used in the area of blood cancers, where we have a very strong franchise in Europe and the rest of the world, also in the United States. And this is going to continue. So I think that religion war, will it be PCR assays or NGS assays, the two will be used concurrently, and we're actually seeing customers run both of our families of products in parallel and just basically optimizing the use of both.

I wouldn't expect a significant change for 2017 in this area. And the fact that we actually had the LTD guidance get removed is possibly something that payers will have to deal with at some point. And so, we see that the payers will probably prefer more validated tests going forward if FDA is not going to regulate some of these tests.

So we don't see a negative for the existing franchise. We actually see a positive for some of our GeneReader assays where a lot of these platforms are used in combination with LDTs.

On the sales expenses, we clearly are -- will of course make dedicated and focused investments in areas we expect incremental growth. And as we said during the call, QuantiFERON is clearly one area where we expect it for quite a long time. At the same time, it's quite obvious that we have other areas where we now will see, especially with efforts we've done over the last few weeks and months, contributions going forward as well.

And therefore, I would say that relatively the costs are going to improve, and therefore you won't really notice some of the offset any investments. You will rather see numbers stays quite fixed on the same absolute level over the next few quarters, but within that, of course, there is an ongoing allocation into areas where we expect incremental growth going forward.

With that, I'd like to close the call. As a last point, I'd like to mention that QIAGEN will be at the Association for Molecular Pathology meeting in Berlin from April 3 through April 5. There's going to be an important medical genomics conference in Berlin, and I look forward to any of you who are able to attend that conference and chance to meet in person in Germany. With that, I would like to close this call and thank all of you for your participation.

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