Qiagen NV (QGEN) 2017 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. My name is Emma, your Chorus Call operator. Welcome, and thank you for joining QIAGEN's conference call to discuss the Q4 full year 2017 results. (Operator Instructions) Please be advised that this call is being recorded at QIAGEN's request and will be made available on their Internet site. (Operator Instructions)

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

Thank you, Emma, and welcome to our conference call today. The 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 discussion and responses to your questions on this call reflect management's views as of today, Thursday, February 1, 2018. We will be making statements and providing responses to your questions that state our intentions, beliefs, expectations or predictions of the future. These constitute forward-looking statements for the purpose of the safe harbor provisions. 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, we will 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 the presentation for this call.

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

Thank you, John. And also I would like to welcome you to this conference call. As you saw in the press release, QIAGEN again had a solid performance in the fourth quarter of 2017. This helped us achieve our full year ambitions for market share gains, adjusted net sales growth and a double-digit increase in adjusted earnings per share. Most importantly, 2017 was a year in which we were able to record many achievements, which built a strong foundation for 2018 and the years to come, giving further support to our ability to meet or exceed the medium-term targets we set in late 2016 and reconfirmed also on our last quarterly conference call. We want to build on this success in 2018 and have set new goals for further growth in sales and adjusted earnings. We see the new year as very exciting for QIAGEN.

I have these key messages for you today. First, the results of the fourth quarter and full year 2017 were in line with our targets. For the full year, adjusted net sales rose 7% at constant exchange rates when excluding sales affected by the business portfolio changes, and this was in line with our outlook as well. Adjusted diluted earnings were $1.27 per share, at the high end of our guidance for $1.25 to $1.27 per share. For the fourth quarter of 2017, adjusted net sales rose 6% on a CER basis, excluding the business portfolio change that we announced last year, and this was in line with our outlook. Adjusted earnings per share were $0.43 per share and ahead of the guidance for about $0.40 to $0.42. The adjusted earnings results excluded significant charges taken in the fourth quarter of 2017, in particular as a result of the new U.S. tax legislation and to resolve the U.S. patent litigation related to QuantiFERON. Roland will come back to these topics during the presentation, and details are available in the press release and presentation.

Second, our Sample to Insight portfolio is building momentum. The QuantiFERON-TB test grew roughly in line with our goal and achieved 24% growth for the year. We began commercialization of the fourth-generation QFT Gold Plus version in the United States during the fourth quarter and look forward to launching this version in Japan in 2018 after receiving clearance, which is expected shortly.

As another highlight, we had the strongest year ever in 2018 (sic) [2017] in terms of placements for the QIAsymphony automation system. We easily broke through 2,000 cumulative placements and have set a goal to end 2018 with more than 2,300 cumulative placements and for this to be complemented by double-digit CER growth in related consumables for this gold standard system. As you know, we are shaping our Sample to Insight portfolio, and this will involve divesting certain smaller activity deemed to no longer be core. We announced in November 2017 plans to boost investments in China into high-growth areas while also deciding to streamline our portfolio. This also included the discontinuation of some non-core assets involving certain diagnostic PCR tests. In our Q3 conference call, we also announced that we had decided to divest the R&D and commercialization of our HPV test in China, along with the related employees and infrastructure, to a local company in which we now have a minority stake. Earlier this year, we announced that this transaction had been completed. The sales affected by the portfolio changes were about $36 million in 2016 and about $25 million in 2017. For 2018, we expect about $7 million of sales from HPV components to the newly founded company.

Third, we have announced an exciting acquisition with STAT-Dx and plan to launch of QIAstat-Dx in the second half of 2018. This marks our entry into the fastest growing and exciting PCR-based multiplex syndromic testing market. STAT-Dx has been a long-standing collaboration partner of QIAGEN and offers significant market and technology synergies with our presence at, for example, in infectious diseases and oncology. QIAstat-Dx represents the next generation of systems for syndromic testing, providing customers with a new dimension of flexibility in terms of assay design, performance and cost efficiency. These features are intended to address the challenges of laboratories in today's reimbursement landscape while also offering customers a new level of accurate diagnosis, with quantifiable results designed to better support outcomes for patients and healthcare systems. The system already has CE-IVD marking, and we intend to launch it with 2 extensive respiratory and gastrointestinal panels later this year. Our teams are energized by this acquisition and the opportunity to drive the dissemination of molecular testing. We also see this transaction as having significant value-creation opportunity.

Fourth, we are announcing our guidance for 2018. We are expecting about 6% to 7% CER net sales growth. This is based on about 6% to 7% organic growth in adjusted net sales and accelerating from 5% CER in 2017. This outlook even assumes about 1.5 percentage points of headwind from reduced U.S. HPV test sales, which are expected to decline from about $28 million in 2017 to about $10 million in 2018. So this means the underlying growth that also excludes these last U.S. HPV headwinds is about 7% to 8% organic, and this is well within our 2020 midterm growth corridor.

In terms of adjusted EPS, the underlying guidance is about $1.38 to $1.40 per share, which represents a 9% to 10% increase from $1.27 per share in 2017. However, this is reduced to about $1.31 to $1.33 per share due to the impact of 3 factors: a, a higher adjusted tax rate due to U.S. tax reform; b, the dilution of about $0.05 for the U.S. -- for the STAT-Dx acquisition; and c, the positive effect from our new $200 million share repurchase program.

As a further item, I would like to mention 2 new additions to the QIAGEN Executive Committee that we announced in the press release. First, Dr. Annette Koch has joined QIAGEN as Chief Human Resources Officer and a member of the Executive Committee. She joins from Eppendorf AG, where she has been Vice President of Human Resources since 2013. Prior to that, she worked at Boehringer Ingelheim and the Boston Consulting Group. Dr. Koch takes over this role from Dr. Thomas Schweins, who will now focus on his role as Head of our Life Sciences Business Area.

Second, Jonathan Sheldon, Ph. D. has joined QIAGEN as Senior Vice President, Head of the Bioinformatics Business Area and a member of the Executive Committee. He joins QIAGEN from Oracle's Health Sciences Global Business Unit, which includes solutions for precision medicine, population health and the convergence with life sciences, and previously at Roche. He replaces Laura Furmanski, who, as you know, left QIAGEN at the end of 2017.

So as a quick summary, we are pleased with the performance in 2017 and are delivering on goals to drive the global expansion of our Sample to Insight portfolio. We're looking to deliver another year of strong results with accelerating organic growth in 2018 and are on track to achieve our 2020 midterm targets.

I would now 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 U.S. I will now review our financial performance for the fourth quarter and full year and later, provide some perspectives on the guidance for 2018.

We achieved our goals for 2017 in terms of adjusted sales and adjusted earnings. Our results for free cash flow showed a good underlying performance but were reduced by cash restructuring payments and litigation settlements. These results are an important step toward achieving our midterm targets and increasing returns and creating value.

For the fourth quarter, adjusted net sales, excluding the China portfolio change, was 6% CER and were up 9% at actual rates due to the tailwinds created by the weakening of the U.S. dollar against various currencies, and in particular, the euro. Our growth was based on 5 percentage points of organic growth, excluding the business portfolio changes, plus 1 percentage point from the OmicSoft acquisition in January 2017. On a full year basis, adjusted net sales, excluding the business portfolio changes, were up 7% CER, and this was comprised of 5% organic growth plus 2 percentage points of additional growth from the acquisition of Exiqon, which was completed in June 2016, and OmicSoft, which was acquired in January of 2017 and is now considered organic. This, again, was in line with our full year target.

Moving down the income statement. For the fourth quarter of 2017, the adjusted cost margin declined modestly to 70.6% of adjusted sales from 71.2% in the year-ago quarter. This was due mainly to higher instrument sales and the significant increase in the lower-margin revenues from pharma co-development partnerships, which was 62% to USD 80 million compared to the fourth quarter of 2016. For the full year, the adjusted gross margin rose about 10 basis points, of 70.7% of adjusted net sales, and this was due to a higher gross margin for the QuantiFERON latent TB test and overall higher consumables sales. As you know, we have insourced a lot of the production for our QuantiFERON to our Maryland site from third-party companies, and this raised the gross margin into the 70s percentage range and above the QIAGEN average.

Adjusted operating income, excluding restructuring charges, rose 8% to USD 121.7 million in the fourth quarter of 2017, and the adjusted operating income margin was steady at 31% of adjusted sales compared to the same period in 2016. For the full year, adjusted operating income rose 14% to USD 371.5 million, and this was excluding the restructuring charge of $19.8 million taken for the efficiency program started in late 2016. The adjusted operating income margin rose about 220 basis points on a constant exchange rate basis, which was ahead of our outlook for about 200 basis points of improvement and rose to 26.2% of adjusted sales in 2017 compared to 24.3% in 2016, at actual rates.

We are clearly seeing the positive impact from the efficiency programs in areas such as the digitization of sales channels, which generated 38% of total sales in 2017. We are also streamlining our back-office and service activities into centers of excellence and creating greater scale with centers in Poland and the Philippines.

Moving down the income statement. Adjusted diluted earnings for the fourth quarter of 2017 were $0.43 at both actual and constant exchange rates. Reported results showed a net loss of $0.18 per share, and this was due to the significant onetime charge that we had previously announced. The main factor was about $0.41 per share for the write-off related primarily to the new U.S. tax reform, of which $0.32 per share involved noncash items. Another factor was the settlement of litigations matters, such as the U.S. lawsuit involving a competitor of the QuantiFERON-TB test. The adjusted tax rate was 17% for the fourth quarter, which was in line with our guidance. For the full year, adjusted diluted EPS was $1.27 at both constant exchange rates and actual rates, which was a significant 14% increase from $1.11 per share in 2016.

I would like to now review our results among the product categories and our 4 customer classes. These figures are not adjusted for the business portfolio changes. Among the portfolio categories, consumables and related revenues rose 6% CER in the fourth quarter and delivered full year growth of 7% CER thanks to the solid business expansion across our portfolio. These sales represent 88% of adjusted sales for the year.

Instruments had a very strong performance in the fourth quarter of 2017, rising 6% CER compared to more sluggish trends earlier in the year. This supported the instrument sales rising 1% CER for the full year and representing 12% of adjusted sales. Here, we saw good placement of the QIAsymphony and GeneReader systems, and this should support future consumable trends.

On a full year basis, the M&A contributions from Exiqon and OmicSoft were about 2 percentage points and supported underlying growth in all customer classes.

In Molecular Diagnostics, sales for the fourth quarter of 2017 rose 4% CER but were up 6% CER excluding the business portfolio changes. These results also included about 1 percentage point of headwinds from lower U.S. HPV test sales, which was less than our expectations, but still means underlying Molecular Diagnostics growth of 7% CER for the 2017 quarter. For the full year, Molecular Diagnostics sales rose 6% and represented 48% of adjusted sales and were up 8% excluding the business portfolio changes.

The Life Science customer classes grew 7% CER in the fourth quarter of 2017, led by Applied Testing and Pharma, both growing at 9% CER growth rates. In Applied Testing, which was up 14% CER for the full year and represented 10% of adjusted net sales, demand remained strong for our human ID and forensics solutions.

Pharma sales were supported by robust double-digit CER growth in consumables and related revenues, including solid growth in bioinformatics that more than compensated for weaker instrument sales. For the full year, Pharma sales rose 7% CER and provided 19% of sales adjusted.

Academia sales were up 5% CER in the fourth quarter. And here, we saw double-digit CER gains in instruments and single-digit CER growth for consumables. We have seen improving customer sentiment in the U.S. and Europe during the year and remain cautiously optimistic for 2018. At the same time, political uncertainty in both the U.S. and Europe is not helpful. For 2017, Academia sales rose 4% CER and were 23% of adjusted sales.

I would like to now review the performance among the 3 geographic regions. The Americas regions had the strongest growth in the fourth quarter of 2017, rising 7% constant exchange rates as solid results in the U.S. and Brazil offset a double-digit CER decline in Mexico due to the expected expiry of HPV tenders during the second half of this year. For the full year, sales in the Americas rose 4% CER and were up 6% CER, excluding U.S. HPV test sales, and represented 46% of sales.

In the Europe, Middle East, Africa region, sales were up 6% CER in the fourth quarter and rose at a faster 9% CER pace for the full year and provided about 1/3 of total sales.

In the Asia-Pacific and Japan region, sales rose 1% CER for the fourth quarter but were up 5% CER excluding the China portfolio changes. On a full year basis, sales were up 7% CER but at a faster 12% CER rate excluding the change, based on much faster underlying growth in China. Among other countries, South Korea and India supported the underlying strong performance and partially offset the lower sales in Japan.

I would like to now provide an update on our financial position. QIAGEN ended 2017 with a very healthy balance sheet. With some major financing needs in 2018 and leverage, we anticipate being able to fund the acquisition of STAT-Dx and the new share repurchase program while still being able to end this year with a healthy balance sheet and similar leverage to where we ended 2017, at about 1.5x net debt to EBITDA.

Cash flow for 2017 was affected by the cash restructuring payments related to the efficiency initiatives launched at the end of 2016 and also the settlement costs for various litigations. For the full year, free cash flow declined to $196.7 million compared to $267.1 million in 2016. This included appropriately $48 million of cash restructuring payments and about $41 million for litigation settlements. One of these was the payment for the U.S. patent litigations involving QuantiFERON-TB.

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

Yes. Thank you, Roland. I would like to give you an overview of key developments in our Sample to Insight portfolio and to highlight areas that involve our offering of universal next-generation sequencing solutions for any lab as well as the GeneReader NGS system; the QuantiFERON franchise of pre-molecular tests and led by our latent TB test; the QIAsymphony automation platform with more than 2,000 cumulative placements; our Personalized Healthcare franchise, which includes our industry-leading 25 master collaboration agreements; and differentiated technologies, which encompasses franchises like liquid biopsy and microbiome that are hot research areas.

And now let me review the progress on our growth drivers in further detail. I'm now on Slide 10 to review progress made on QuantiFERON-TB, the modern gold standard for latent tuberculosis detection. We are moving ahead to penetrate this $1 billion market opportunity and have even stronger conviction in achieving our 2020 goal for $300 million of sales. Driven by the significant clinical benefits, we have maintained a strong conversion rate against a 120-year-old tuberculin skin test to our modern blood-based tests and estimate global conversion is still only about 15% to 20% of the total addressable market of, conservatively estimated, about 65 million tests a year. As for milestones, the U.S. commercialization of the fourth-generation test was started in the fourth quarter of 2017, and we will also soon launch this version in Japan, the world's second-largest market for TB testing.

Another important milestone in our new partnership with DiaSorin that provides a full state-of-the-art automation option for QuantiFERON-TB Plus on the more than 7,000 LIAISON platforms worldwide. The EU launch is planned for later this year. Our decision to embed the QuantiFERON-TB test into the Qia LIAISON system with a versatile readout kit and to be followed by other QuantiFERON tests in the future was due to DiaSorin having a broad and highly synergistic assay menu. This option will be a significant automation improvement for our customers and strengthen our competitive advantages. We consider this a win-win situation for both companies based on the high target customer correlation and see it as an elegant and strategic partnership that removes any possible uncertainty about QuantiFERON automation and menu options in the future.

I would now like to update you on key developments in our NGS portfolio, which are designed to serve clinical research customers with our Sample to Insight GeneReader NGS system as well as all NGS customers with our comprehensive universal NGS portfolio. We signed an important joint venture in China with Maccura in 2017 that expands our global reach for the GeneReader NGS system and accelerates local adoption in the Chinese market more forcefully than we could have done by ourselves. We built up good momentum in 2017 for the GeneReader NGS system as well as our platform-agnostic universal NGS solutions. We also announced recently that we exceeded $150 million of NGS sales in 2017 with double-digit CER growth. And for 2018, we are targeting more than $140 million in NGS-related sales. We're adding a range of new products and service enhancements to our NGS portfolio for universal solutions as well as for the GeneReader NGS system. In particular, we have created a new unit, Enterprise Genomic Services, to leverage synergies in our offering of customized and validated panel options to customers along a contiuum from basic research to clinical healthcare. This removes significant hurdles for customers in the adoption of next-generation sequencing. We also expect a strong growth trend for GeneReader in terms of placements in reagent pull-through and performance enhancements from new chemistries and menu expansion over the course of 2018, and we are reaffirming our midterm target for more than 20% share of the oncology benchtop sequencing market.

We would like to now give you an update on our Personalized Healthcare activities. We have now more than 25 master collaboration agreements in place with leading pharmaceutical and biotech companies. In 2017, we reached a groundbreaking partnership with Bristol-Myers Squibb to develop the first NGS-based companion diagnostics for their immuno-oncology therapies, and we are now working with several other pharma companies on this topic as well. We see 2018 continuing to be an exciting year. And in particular, we expect up to 5 U.S. FDA submissions and/or clearances for companion diagnostic tests. Already this year, we have announced new FDA clearances for our JAK2 test for use in blood disorders and an FDA approval for the expansion of our EGFR kit for use in non-small lung cell -- non-small cell lung cancer.

Now I would like to review the progress of the QIAsymphony automation system, our flagship instrument that has become a gold standard for molecular sample processing as well as delivering complete Sample to Insight workflows in labs around the world. We announced in November 2017 that we had exceeded our 2017 target for more than 2,000 cumulative placements. In fact, we ended the year well above that level, and we had the strongest year of annual placements. We have applied a very successful regionalization strategy based on a broader U.S. focus on lab-developed tests and targeted assays and a higher demand for application variety in Europe, where we offer one of the largest regulated test menus available. For 2018, our goal is to reach more than 2,300 cumulative total placements, which is based on our latest forecast and an increase from the 2,250 placement goal we announced earlier this month.

I would like to now update you on the progress of our portfolio of differentiated technologies, which are a collection of Sample to Insight solutions for customers in the life sciences. And this is on Slide 14. These differentiated technologies represented about 4% of total sales in 2017, and they grew at a double-digit CER rate. In 2017, we identified new opportunities in highly promising areas, including new applications in liquid biopsy and microbiome, where we already have strong market shares. Just as one example, we estimate today that QIAGEN has an over 80% market share in microbiome sample technologies, and this is due to our powerful solutions designed to get DNA and RNA out of complex microbiome samples. We are convinced there is a lot more to come in these exciting areas, especially as we integrate new bioinformatic solutions into these workflows.

Moving to Slide 15 now. As I mentioned at the start, the acquisition of STAT-Dx marks our entry into a very attractive, fast-growing market for syndromic testing with a system that represents the next generation of molecular multiplex testing. This market has seen several first-generation entries, but markets and, in particular, reimbursement and clinical needs, have evolved significantly. This has changed the required specifications and created new customer needs. We believe QIAstat-Dx represents a very unique answer to these new needs and target specifications and that it represents the next generation of solutions to address this market segment. We plan to launch QIAstat-Dx in Europe in the second half of 2018 and in the U.S. in 2019 with 2 extensive panels covering difficult-to-diagnose respiratory infections and gastrointestinal syndromes. But this is really only the beginning in infectious diseases, and we plan to develop a range of very differentiated and high-value panels for additional areas such as immune response monitoring, oncology and companion diagnostics. The QIAstat system has powerful advantages as a cost-effective, flexible approach to diagnosing common syndromes, so we expect to see a very rapid uptake. We have set a sales goal for about $7 million in 2018 and for at least $30 million in 2019, if not more.

We did a lot of due diligence over the years in this sector and looked at all the players and felt that QIAstat-Dx represented the best solution to create the next generation of multiplex testing platforms. We see the following key advantages. First, this system offers powerful technology capabilities since it is based on our QIAGEN sample and assay technologies. QIAstat-Dx can offer true Sample to Insight processing of even the most challenging samples, and this opens up opportunities in areas previously not possible with current systems. QIAstat-Dx can process even tissue samples from pathology, liquid samples or difficult-to-handle sputum samples with the direct onboard swab processing. Furthermore, we are offering a flexible approach to customization. The proprietary workflow design enables labs to take a tailored approach to the selective analysis and reporting of tested molecular targets. We're offering a flexible design instead of the rigid, one-size-fits-all approach offered by competitors. QIAstat-Dx makes responding to the new needs of reimbursement significantly easier.

As a third point, this is a highly efficient system, and we have significantly lower manufacturing costs compared to other systems. This should allow for even broader utilization and is a significant benefit in the dynamically changing reimbursement landscape. Another advantage is that QIAstat-Dx is the only system of its kind that is based on real-time PCR technology that can also process up to 48 targets simultaneously. It is also being designed with the additional capability to process immunoassays. In all, this means we have a system with features that can create unmatched target and application versatility as well as a new dimension of cost efficiency and disease management options.

In many ways, on Slide 16 now, the QIAstat-Dx system and the cartridges based on QIAGEN consumables fit perfectly into the paradigm of what our customers want and need. We heard from many customers in this segment about their dissatisfaction with the current range of consumable forms, including the needs for handling pouches. Simplicity is a key characteristic with a one-step Sample to Insight process that requires only about a minute of hands-on time and delivers detailed answers under an hour. We are launching with 2 assays for very common syndromes, and we will expand the panels to give customers a platform with increasing value and versatility. Another important point is connectivity. QIAstat-Dx has a bidirectional interface into hospital and laboratory information systems, which is essential for efficiency and critical for getting patient tests done as fast as possible and the results to physicians. QIAstat-Dx is a very strategic addition to our full portfolio of core molecular platforms. This include QIAsymphony PCR, GeneReader NGS and now QIAstat-Dx. Together, they represent our core molecular platforms, and all have a great runway in front of them.

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

Thank you, Peer. I would like to review our outlook for 2018, starting with our plans for adjusted net sales growth of about 6% to 7% CER. This is based on an increase in organic growth to for about 6% to 7% CER for 2018 compared to 5% CER in 2017, and this excluded changes in the business portfolio for both years as well as the acquisition of STAT-Dx.

As you can see in the tables, the change in the business portfolio sales between 2017 and 2018 is largely offset by the first-time contributions from the STAT-Dx acquisition. A reconciliation for the business change sales for 2016 and 2017 can be found in the appendix to this presentation.

For adjusted EPS, our underlying assumption is for about $1.38 to $1.40. This is reduced, however, by the combination of the adverse impact of the higher tax rate as a result of the U.S. tax reform and dilution of about $0.05 from the STAT-Dx acquisition but includes benefits of about $0.01 from the new share repurchase. So this leads to our guidance for $1.31 to $1.33 of adjusted EPS for 2018 at constant exchange rates. For the currencies, based on rates as of January 30, 2018, we expect a positive impact of about 3 to 4 percentage points on full year sales growth and for a positive impact of about $0.02 on full year adjusted EPS. For the first quarter, we are expecting adjusted net sales growth of about $0.05 CER, and this is also the targeted organic growth rate since there are no contributions from acquisitions. Adjusted EPS is expected to be $0.23 to $0.24 per share, also at constant exchange rates.

I would like to now provide some detailed information on our outlook for the full year and for the first quarter. We expect charges in operating income for the amortization of purchased intangibles to decline to about $100 million in 2018 from $112 million in 2017. We also expect restructuring-related items to be considerably lower at about $9 million as we have completed the efficiency program started in late 2016. Business integration costs are expected to be about $16 million, and this is a result of the STAT-Dx acquisition.

For the adjusted tax rate, you saw that we announced in December after the U.S. tax reform was passed that we anticipated a tax rate of about 20% to 21% for 2018, and that is our outlook. This compares to the midterm guidance we gave at our Investor Day in 2016 for an adjusted tax rate of about $0.19 to $0.20 from 2018 to 2020. We are looking into mitigation actions on how to reduce the rate.

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

Yes. Thank you, Roland. Here's a quick summary before we move into Q&A.

Let me review what we just announced. First, we achieved our targets for the full year and fourth quarter of 2017, with solid adjusted net sales growth and adjusted earnings at the high end of our guidance and growing 14%. Second, our Sample to Insight portfolio is building momentum and enables us to achieve our midterm goals we have set out for 2020. Third, we are very excited about entering into the growing market for syndromic testing with the launch of our first 2 QIAstat-Dx panels in mid-2018. Fourth, we will continue to focus on increasing returns for shareholders and have announced a new $200 million repurchase program. And our outlook for 2018 reflects continued confidence in the growth trends for sales and adjusted earnings.

And with that, I'd like to hand back to John and the operator for the Q&A session. Thank you.

(Operator Instructions) First question comes from the line of Tycho Peterson with JPMorgan.

Peer, I want to start with STAT-Dx, not surprisingly. As you noted, it's not an uncontested field. There are obviously a number of first-generation systems out there that have got some momentum. I guess as we think about why this is a differentiated asset, you highlighted real-time PCR and quantitative. But I'm curious, is the strategy here really to compete on price? And can you comment at all on thoughts and timing around CLIA waiver? And reimbursement, as well. I mean, respiratory and gastric are 2 areas where Palmetto is going after fairly aggressively. So I'm just curious as to your thoughts there. And then on a follow-up on QuantiFERON. I'm just trying to understand the rationale for the DiaSorin partnership given that you're touching a lot of the same customers anyways. So what's the rationale for doing that agreement?

Sure, and thanks, Tycho. So first, we're excited about QIAstat-Dx. It opens up an opportunity for QIAGEN to enter a market which is fast approaching $1 billion in size and growing quite dynamically. There is an increasing demand for syndromic testing, which means that multiple different -- multiple targets are tested at the same time. And QIAstat offers a number of different features, of which -- which include the ones you mentioned. But primarily, I would say that the benefit of having this very powerful sample processing allows samples such as dry swabs up to FFPEs to be processed on one platform. This is very difficult to do on most platforms, to achieve that type of breadth. They're even -- they're sometimes designed for FFPE, or they're designed for infectious diseases, but the breadth that we can cover is truly unique, also the fact that you can stick in a swab and therefore have a true pathway to CLIA waiving also for dry swab capability. So it's the breadth of the applications that is truly unique and powered by strong sample processing capabilities. On top of that, it is the scalability. What we're increasingly seeing is that these very rigid assay designs are difficult to tailor to regional reimbursement needs. So in some reimbursement settings, it would be preferential to only have a 5-plex versus -- or a 10-plex versus a 25-plex. And in other settings, you might want to go higher than that. And so the ability to flexibly tailor that is given by the cartridge design. If you look at the cartridge, it is an injection molded, very, very sleek microfluidic technology that was implemented there, and that allows a very low cost, yet at the same time, scalable and adaptable design of the panels. The ability to include real-time PCR allows us to leverage a vast portfolio of real-time PCR technology that we have here internally and now combine it into highly multiplex panels, and this is also a further uniqueness. So there's a range of capabilities that you might see available on one feature on this platform, another feature on that platform. But we've been looking at this market for many years, and this is the first time we see this combined into a setting like this. And so coupled with the low manufacturing cost allows us to scale very rapidly and also have the ability to enter into more market segments than the rest of the market. This is a very large market, Tycho. It just started to get penetrated over the years and really just emerged 3, 4 years ago. And we now have the opportunity to represent the next generation of entrants and at an early phase of market penetration. The second question was around the DiaSorin partnership. Tycho, this is an extremely strategic partnership for us. And there are 3 things that are required in diagnostics to be successful. One is a clinically valuable assay. The second is a good automation solution. And number three is a menu availability that allows the platforms to be amortized rapidly and to provide highest customer utility. With QuantiFERON, we have a phenomenal test, which is run in the tube in which the blood sample is collected. So the detection of the assay is a very generic readout kit that laboratories are currently performing on open systems, and the process is FDA-approved. And they validate them on their own readout systems. Having now the ability to include that readout kit on a state-of-the-art, random access, continuous load platform that is, at the same time, also offering a wide range, in Europe about 130 tests, about 1/3 of that in the U.S., but very, very relevant content on the LIAISON, transplant, women's health, very related content, and with placements in a high overlap with our target markets, allows us to offer all 3 legs of the stool, namely the best-in-class assay, best-in-class automation and a very powerful menu, for highest customer value creation. And this is -- we could have done it ourselves. It's a very crowded market. Now that's a crowded market in the immunoassay area, and there's a very successful player that has carved out a niche and is growing very dynamically, and that's DiaSorin. And we decided to partner with them on that detection kit. We will continue to sell the QuantiFERON assay, which is the collection device, the tube, the blood collection tube. That will -- that's a core QIAGEN product, and that will be -- and continue to be available through QIAGEN. It's the detection kit, which is, by the way, generic for all QuantiFERON assays. Also, the other ones available in Europe and coming to the U.S. They will all be able to leverage off that readout kit.

The next question comes from the line of Scott Bardo with Berenberg.

Actually similar nature questions. So just on the collaboration with DiaSorin for QuantiFERON, I think you mentioned historically that part of the reason for the demise of U.S. HPV was the concentration risk, if you like, or the additional price power that large reference laboratories had. So I just wondered if you could share some thoughts as to increasing the automation capabilities with the LIAISON, is it still very much your strategy not to sell QuantiFERON in reference laboratories? Or has that changed? And a follow-up question, please, just on STAT-Dx. I just wanted to get -- become clear. Do you expect price cuts related to the Palmetto draft? Or does the fact that you deployed capital here signal that you're pretty relaxed about this and you don't expect any price cuts? If you could just be specific there, I would appreciate it.

Sure. On the first question, Scott. The question we sometimes get from investors is are there any parallels between what we saw with HPV and QuantiFERON. And there are 1,000 reasons why the assay is very different. It's a very fragmented market and all these differences compared to HPV, and I won't go into that. But the -- one of the key issues that we had is that, in 2011, we decided to pull the plug on a next-generation platform because we saw prices not allowing us to make any money on a very expensive market entry with a new-generation automation solution and then broaden the menu in these test areas that are seeing significant cost compression. Therefore, if you look at what we had between 2011 and 2017, or today, we basically have a great assay, which, to date, is still showing clinical superiority over any new entrant into this market. But at the same time, our automation had workflow disadvantages due to liquid cytology processing, and we didn't have a menu on the platform. So going back to the 3 conditions that have to be met for a successful franchise, great assay, automation and menu, 2 of these were missing. And this is one of the reasons why the pricing pressure of the new entrants was something that we were exposed to over this time, and we are definitely also selling to reference laboratories. The availability of the QuantiFERON assay on the LIAISON is definitely an opportunity for us to have a much stronger value proposition in partnership with great automation and menu to any type of customer going forward. The second question is on QIAstat. Well, as the reimbursement system, there's a, as we all know, world outside the United States. And reimbursement outside the United States has been very, very challenging in certain areas, and in particular, was difficult to penetrate because of the high cost of some of the alternative technologies that are looking at syndromic testing. And we have a very attractive answer to that and can scale and tailor to these different types of reimbursement settings. Now there is rumbling in the United States, what should be done, what shouldn't be done. I think these syndromic tests provide value at the level they're being reimbursed today, but we've all experienced significant changes in the past that were not expected. But we are prepared for it. And this is something, I think, very good to know as a new entrant, we have an interesting new option that will allow customers to have a strong value proposition, allow us to continue to invest, even in a changing reimbursement environment.

The next question comes from the line of Steve Beuchaw with Morgan Stanley.

One for Peer, and one for Roland. First, for Peer, on QIAsymphony, it seems like in the last several months, a material step-up in your enthusiasm with regard to the placements trend there. Can you give us some color on what's behind that, where is it, what's new, how should we think about sustainability of that trend? And then for Roland. There are 2 important revenue drivers that you've called out for 2018 in sequencing and in Personalized Healthcare, where we have some of the CDx deals. And particularly, in the CDx deals, these payments can be lumpy. And on the sequencing side, I know we have a ramp-up going on with regard to consumables. So I wonder if you could help us understand the progression over the course of the year in terms of how those contribute to organic growth that might help us understand the progression of overall organic growth through the course of the year.

Great. Thanks, Steve. I'll take the first one. If you recall, in the first half of the year, we had mentioned in at least one call that we are spending a lot of time in looking at instrumentation pipeline management and have created some targeted actions around that. And what you are starting to see, not only with QIAsymphony, but also with some of the other automation initiatives, Roland mentioned we have very strong growth in automation sales, also, for instance, the Life Sciences in Q4. We're starting to see pretty good traction on some of these initiatives, and that, I think the answer to your question is a certain degree of focus and a dedicated team actually managing that pipeline in a very disciplined way. Roland, do you want to take the second one?

Yes, sure. Steve, I think overall, actually, 2018 in terms of allocation will not be very much different than what we have seen in 2017. And you can see that also there's some more detailed guidance we have given on Q1. So I think it's really driven by, I would say, an overall and very strong underlying acceleration of organic growth rate. And as I said, that is happening more or less on the same kind of quarterly split-up that we have seen before. Clearly, the one thing which is not fully under our control, is that the Personalized Healthcare business, again, has always certain milestone components which can move from a quarter to another quarter. Nevertheless, I don't think on a yearly basis, as we have seen in the past, it should make too much of a difference. But as you also know, we break that out very detailed in the press release as well as in the documents and the PowerPoint, so that should be easy also to follow on what is, in brackets, the underlying consumable instrumentation growth rate and how much is driven by Personalized Healthcare as well.

The next question comes from the line of Brian Weinstein with William Blair.

A couple on STAT-Dx. First, it's CE marked now. So just curious why that hasn't been launched by them yet or why you're going to be more in the second half of the year? Are you just validating manufacturing scale-up, or is there something else? And then on the data, can you talk about what data you've seen there on respiratory, G.I. and oncology? I haven't seen any of that data yet, and I'm just curious what you've seen. And then on the U.S. launch timing, is that going to be, do you think, ahead of the respiratory season?

Yes. Thanks, Brian. So first is the reason why a lot of this data has not been out there is also a result of a long-standing relationship that we have. Again, the QIAstat cartridge already today includes a lot of QIAGEN chemistry and our enzymes and assay technologies and sample technologies, and so we were clearly impressed with the progress and have been contributing some of this technology. And we -- now there was a CE mark, but that CE mark was done as a standalone company. And we are now transferring this into our quality systems, and we'll then redo the CE mark in the QIAGEN format. And that is time we want to take to make sure that it complies also with all our highest internal standards. So that -- in terms of data, we will probably release data. There is indeed -- there have been quite some studies done, and we will be releasing that closer to launch, which there are several meetings coming up, and they will provide, I think, a great platform for dissemination of that. There's indeed very limited information out there. We obviously had access to it, and we were very excited about what we saw.

Next question comes from the line of Patrick Donnelly with Goldman Sachs.

Maybe one more on the STAT-Dx front. Can you just talk through how comfortable you are with the U.S. approval process given that you already got through the CE mark at least? And then the timing of the clearance your revenue estimates bake in, how much of that $30 million in revs next year is tied to U.S. approval?

So we feel comfortable with the system. There are a few milestones that still have to be achieved that represent the final closing conditions that can be waived on our side, but we feel very comfortable with the progress that we've seen so far. The ability to move into the respective regulatory process for the U.S. is seen as a very high likelihood. We are not sure if we're going to -- the -- what the timing of that submission will be. That is something we will announce in -- at probably around the launch in Europe, but we definitely see the launch in 2019. And the likelihood of that moving forward is seen as very high by us. Again, we've had the opportunity to do extensive due diligence over the years and also help prepare for this event.

Next question comes from the line of Doug Schenkel with Cowen.

Starting with 2 things on STAT-Dx. First, what commercial structure do you have in place? And what do you need to build up to support both the EU and U.S. launch? I guess what I'm trying to get at very specifically is what you need to do in the U.S. to support the 2019 launch? And then the second on STAT-Dx is keeping in mind you provided multiyear revenue targets, do you expect any revenue from your 2019 and 2020 STAT-Dx products to come from transitioning legacy QIAGEN products from your current infectious disease and transplant assays, particularly in Europe, where you've had more success with them? And then I guess beyond STAT-Dx, on companion diagnostics, you expect more than 5 FDA submissions or U.S. launches in 2018. Will each of these have an accompanying milestone payment? And if so, is that reflected in guidance?

Yes. Thanks, Doug. So first question is the multiplex syndromic testing systems of the first generation, they are very often standing very close to the QIAsymphony and other platforms that we have in the midrange area. There's clearly also more disseminated use of that technology. But the high throughput segments are very often in very close proximity to our core Molecular Diagnostic franchises. On top of that, we have a strong hospital franchise. Remember the QuantiFERON portfolio actually is, to a significant degree, placed in hospitals. So there is a strong franchise commercial channel already in place. What we have included in the ramp is a specialization team. We will have a specialized group focusing on QIAstat during the first years of launch and giving it a maximum boost in coming out of the box. So it's basically a specialization ramp-up, but these are customers where we typically already today already have reach into. And so a molecular testing system with the QIAGEN label on it, I think, is a very natural addition in the eyes of the customers and something that we look forward also to bringing to them. The second is revenue cannibalization. The answer is no. So we have very limited exposure to the infectious disease testing markets. And while we have ideas in transplantation, this is a market where we have a better market share. But also here, the multiplex testing market would be a different segment. So minimal cannibalization, if at all. And third is the PHC milestones. Roland, do you want to take that one?

In terms of overall? I'm not sure of that.

So the question was are the submissions that we are seeing or the approvals in 2018, the answer is yes, Doug. The milestones that would be related to that are baked into the guidance. But I think we have quite a good experience in assessing that. It's always risk-adjusted. We're running 25 partnerships right now. I think that's 5x more than anybody else. I don't know if it's even 10x more. We have a -- within every one of these partnerships, several programs running, and so there's a pretty good statistic to be able to average out the likelihood of these milestones coming in. And so that's something I think we feel quite comfortable including into the guidance in a risk-adjusted way.

The next question comes from the line of Ross Muken with Evercore.

So just thinking about sort of the STAT-Dx deal, which seems pretty intriguing in the context of kind of the long-term plans. If I think about sort of the CER acceleration this year and then the rolling off eventually of the HPV headwinds and then I add in sort of the implied organic we'll get from STAT-Dx, it seems like that, in and of itself, could get you well within your 2020 range. I mean, I guess as we think about this, and even what you're doing on the NGS side, do you feel like now with where the portfolio is that the sort of goal you've set out there is quite readily sort of achievable? It's just now a matter of executing against kind of the time frame?

Yes, Ross. I think we feel quite good about those midterm targets. We reiterated them again, and as we -- when we gave them a couple of years ago or 15 months ago, they were -- we defined them as being organic. So obviously now, a rocket-like QIAstat-Dx, which we hope turns out to be a very strong growth driver, would be a very nice upside to that. But even without that, you see the organic growth rate also this year already well within the corridor of that 7% to 9% and moving up here by almost 200 basis points this year. So we -- 15 months ago, there was a feeling that this was a stretch. I'd say the year 2017 and also now the outlook we have for '18 and the underlying growth makes us feel pretty good about this, and something like QIAstat-Dx is just a further boost to the upside.

The next question comes from the line of Derik De Bruin with Bank of America Merrill Lynch.

A couple of questions. I guess the first one being can you just sort of -- and this is sort of more of a math question, like, can you sort of break out what, in terms of the China business, what is actually being divested versus being what is discontinued? Because obviously, those can be treated differently in terms of how we build the organic revenue growth on a model. That's one. And then the follow-up question on that would be just any commentary on sort of like assay pricing and cost of goods for the cartridges for STAT-Dx would be appreciated.

Roland, do you want to take the first one? I'll take the second.

Yes. Derik, I think -- first of all, I think -- I'm not sure if you've seen this, we gave actually the detailed numbers on the business changes at the end of the day in the appendix for actually all 3 years, for 2016, 2017 and 2018. So you can do your modeling in terms of impact to organic growth rate. And the way we calculated it, of course we adjusted it in all 3 years at the end of a day because it is the only way that you can come to an apple-to-apple comparison. Just to be more precise on your question, as we said before, there was a couple of components in it. And the number of products we discontinued were probably a couple of millions on a quarterly basis, were lower 7-digit numbers on a quarterly basis, the remaining part is HPV.

So Derik, the first question on the manufacturing cost. The -- if you look at the cartridge, it's a simple injection molded system. So there's not a significant complexity, and the detection units are actually reusable. So you have a significantly lower cost of the cartridges and actually can leverage some of the existing infrastructure that we have for manufacturing of assays. And we manufacture millions and millions of assays a year, and that can layer on top of that. So there is synergy, but also the design is a very slick and smart design. I'm happy to show it to you at some point. The way the fluidics are done, it's a very simple, but at the same time very elegant way of designing fluidics. And that's what really excited us about this is that we all know that diagnostics pricing typically goes one direction, unfortunately, but that's how it is. It goes down over time. And so the ability to have a system that can benefit from a very, very long lifetime by starting out with a very attractive cost profile and a design to cost, that is a big benefit. And so this is one we expect to be around for a very long time.

The next question comes from the line of Dan Arias with Citi.

Peer or Roland, on bioinformatics. First of all, congrats on the hire there. Just wondering what kind of growth you're looking for out of that business this year. And then on TB, can you just touch on the quarter? Obviously 24% growth for the year is pretty close to 25%. But if I just go back and look at some of your 3Q comments, it sounds like you were actually thinking about something north of 30% at one point. So maybe just the way that 4Q unfolded and finished. And then on the outlook there, what's the right growth range to think about for this year? I think something like 20% gets you to $300 million by 2020. So I'm just kind of curious on how you're thinking about a trajectory there.

Right. The first question was, once again, Daniel...

Bioinformatics. I can...

Okay. Yes. Let me just quickly start. The bioinformatics team did a remarkable job last year, and they exceeded their targets. The OmicSoft acquisition, small. Was very, very well received by our customers, primarily in pharma, now increasingly in clinical. So we're -- there's a lot coming together, and I'm very excited to be working with Jonathan. He's well known in the industry, and -- but there's a lot of things that we want to do and that comes on a foundation which is very stable and one that we can now take forward aggressively. Roland, do you want to add the numbers?

Yes. Bioinformatics is still continuing on a very good growth path. I think the reason why we don't break it out anymore is, as what Peer said before, it's much more the way we sell it is now in the Sample to Insight approach. So it is, in many cases, an integrated approach the way, what we sell as a package to our customers. Nevertheless, if you just look on the standalone deals, which we're doing as well, it's still a very significant double-digit growth rate. And of course, the one thing that we are also enjoying is it's also coming with a very nice and high gross margin. In terms of TB, I think, in general, I think there is also, as you said, was a very strong development over the course of the year. The one thing which you should have in mind, of course, is that we had, in the fourth quarter of 2016, a base effect with some of the still larger tenders coming in. I think that is going to wash out already quite soon here within the first quarter in the start of 2018. So I think growth rates probably are going to be still very attractive for us and continue to be one of the single highest growth drivers for QIAGEN in '18 and beyond.

Next question comes from the line of Hugo Solvet with Bryan Garnier.

Just on the respiratory panel. ArcelorMittal might be willing to buy the system at the very beginning of the second half of the year. Would you be able to roll out the system earlier compared to your launch more in the H2, which is the timing you point out to? And could you give us an indication of the footprint of the QIAstat-Dx compared to what you see at your competitors? And last question would be that following the acquisition of STAT-Dx, do you anticipate to accelerate the review of your portfolio and potentially divest additional non-core assets in regions outside of Asia Pacific to maybe further focus on your growth driver and benefit from their respective growth?

I probably can kick off with the second part of the question. I think...

Yes. If you could take the third, yes.

Yes. I think that is clearly something where, again, we feel very comfortable with our portfolio. I think we made it very clear that what we have seen here and what we have done in China was something that we believed is in the best interest as we see even increased opportunities for us in China to bring the growth rate even closer to the 20% kind of growth rate. So I think we are not really seeing any larger needs for other areas. If opportunity is coming up, that might be a different story. But right now, we feel, I would say, very comfortable with all the portfolio of growth drivers we have in hand and being focusing -- and being able to focus on them.

The first question was on timing. It's an interesting question, what you're driving at. We will certainly announce further details on availability probably in the next quarterly conference call or then shortly thereafter, where we feel pretty good with the launch date, and there's still a few things to do. But we feel pretty good about the timing. The question was before will we be able to get the U.S. flu season. It depends on when we submit. And that's obviously, as you know, the timing has not really been baked into the forecast, however, to take -- or into the guidance that we need the U.S. flu season next year. So if we get it, it would be a nice upside. If we don't, that is a more conservative case. In terms of the footprint, it is slightly smaller in terms of the footprint than the existing systems and has a more unique scalability. As you probably saw in some of the pictures, the individual modules can be stacked. And so you can stack 8 of these modules onto a master module. And that can, therefore, fit into the different types of environments and throughput needs.

Last question comes from the line of Romain Zana with Exane BNP.

Yes. Sorry if I missed some questions. The first one, I would be interested to have more granularity on the organic growth on the MDx division, once excluding the QuantiFERON contribution. If my math are correct, I mean, it should be 2% to 3%, and I was curious about the most challenging segments. The second question would be a follow-up question on the midterm target plan. If my math are correct, again, the 7% to 9% annual growth targeted over -- till 2020 already implies something around 10% in '19 and '20. So should we see upside with link to the acquisition of STAT-Dx and the untrained multiplexing? And more generally, that this plan includes further bolt-on acquisition, or rather, requires strategic move to support the growth guided? And a very quick one for Roland, if you can give me an idea of the adjusted EBIT margin for '18.

Sure. Let me start from the back and Peer probably is going for the first questions. I think, as we've said before, we have seen now in 2017 a 220-basis points constant exchange rate margin improvements are a significant step forward in terms of improving margins and getting even more efficiency into the company. We also expect to continue the trend in 2018. So if you do the math and look at our EPS guidance, you'll probably come to the conclusion that our ex currency or constant currency growth rate in -- margin on the adjusted side is improving by 100 basis points. So also here, again, a quite significant margin improvement expected for 2018 as well. In terms of your other question, in terms of midterm expectations, our CAGR was from 2016 to 2020. And as I said, we -- I think we made quite significant progress with now 2017 -- 2018 guidance out. For us, it's clearly something where we believe an acceleration is coming in. We talked about strong underlying trends. Again, you should have in mind that our organic growth rate is improving from 5% to 6% to 7%, including 150 basis points of U.S. headwinds, which is clearly fading away. With costs, we're going down from USD 28 million to USD 9 million in 2018. So there really a nice push coming in, it's putting in STAT-Dx for second, other side, so there is clearly a nice driver. And I think with the portfolio of different growth driver we're having, this QuantiFERON, this companion diagnostic with -- we talked about bioinformatics, this Applied Testing is still being a nice double-digit growth driver. I think there is a lot of opportunities for us within that as well where we feel quite comfortable. And if you look on 2017 on MDx, I think actually MDx had a very strong year. If you -- I think if you adjust for -- I would say, obviously, you have to look -- adjust for both, but you have to take out, if you want, on the one hand side, the QuantiFERON within MDx, but also on the other side, the HPV business, which, as we all know, is a challenging environment for us, it is still delivering a high single-digit growth rate also for 2017. And that is probably what we feel quite comfortable with.

Yes. Roland, just to close off, the guidance that we gave for the medium-term outlook that we gave in 2016 and reiterated several times over the last year, that was based on organic growth. And so the organic growth in '17 is now -- in '18 is now well within the corridor already. And with additional growth coming from other activities that we layer on top of that, we're definitely moving into a very attractive growth profile with a lot of legs to it. All of these growth engines that Roland just referred to, they're in early stages of the cycle and are growth engines that should accompany us for many years in a very diversified but quite powerful way.

Okay. And with that, I'd like to end the conference call and thank all of you for your participation. If you have any questions or comments, please don't hesitate to contact the QIAGEN Investor Relations team.

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