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Edited Transcript of QGEN earnings conference call or presentation 31-Oct-19 1:00pm GMT

Q3 2019 Qiagen NV Earnings Call

Amsterdam Nov 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Qiagen NV earnings conference call or presentation Thursday, October 31, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John Gilardi

QIAGEN N.V. - VP of Corporate Communications & IR

* Roland Sackers

QIAGEN N.V. - CFO, MD & Member of Management Board

* Thierry Bernard

QIAGEN N.V. - Interim CEO, Senior VP & Head of Molecular Diagnostics Business Area

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Conference Call Participants

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* Daniel Wendorff

Commerzbank AG, Research Division - Team Head of Healthcare & Chemicals

* Daniel Gregory Brennan

UBS Investment Bank, Research Division - Senior Equity Research Analyst of Healthcare Life Sciences

* Jack Meehan

Barclays Bank PLC, Research Division - VP & Senior Research Analyst

* Luke England Sergott

Evercore ISI Institutional Equities, Research Division - Associate

* Scott Bardo

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Stephen Christopher Beuchaw

Wolfe Research, LLC - Director of Equity Research

* Tycho W. Peterson

JP Morgan Chase & Co, Research Division - Senior Analyst

* William Robert Quirk

Piper Jaffray Companies, Research Division - MD and Senior Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. I am Audrey, your PGi call operator. Welcome, and thank you for joining QIAGEN's Q3 2019 Earnings Conference Call Webcast. (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'd like to introduce your host, John Gilardi, Vice President of Corporate Communications and Investor Relations at QIAGEN. Please go ahead, sir.

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John Gilardi, QIAGEN N.V. - VP of Corporate Communications & IR [2]

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Thank you, and welcome to our conference call today. The speakers are Thierry Bernard, the Interim CEO of QIAGEN; and Roland Sackers, the Chief Financial Officer. Also joining us today is Phoebe Loh from our IR team.

Please note that this call is being webcast live and will be archived on the Investor Relations section of our website at qiagen.com. A copy of the press release is also available in the same section.

Before we begin, let me cover our safe harbor statement. The discussions and responses to your questions on this call reflect management's view as of today, Thursday, October 31st, 2019. 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.

We will also be referring to certain financial measures not prepared in accordance with generally accepted accounting principles. You can find the reconciliation of these figures to GAAP in the press release and the presentation for this call.

I would like to now turn the call over to Thierry.

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Thierry Bernard, QIAGEN N.V. - Interim CEO, Senior VP & Head of Molecular Diagnostics Business Area [3]

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Thank you, John. Let me begin by welcoming you to our conference call. It's a real pleasure for me to be talking to you all. As you know, we announced earlier this month that Peer Schatz decided to step down as CEO and Chairman of the Management Board after 27 years at QIAGEN.

On behalf of my colleagues in the Executive Committee and all of our employees, I would like to thank Peer for his exceptional contribution and impact on QIAGEN. He has played a key role in creating a true success story in the Life Sciences and Diagnostics. QIAGEN is a company that has enabled great advances in science and health care, and I wish Peer all the best in his future endeavors.

On this call today, Roland and I would like to review our performance for the third quarter, our outlook for the rest of this year and provide some perspective on this period of changes at QIAGEN. We have a committed team taking actions to ensure growth and create value at QIAGEN. We are focusing on the most attractive areas of our portfolio.

As a first point, net sales for the third quarter of 2019 were $382.7 million and rose 3% at constant exchange rates, CER. This was below our outlook for about 4% to 5% CER growth due to weaker-than-expected sales in China. This decline went beyond the discontinuation of the GeneReader NGS System joint venture that we announced in July. Another factor weighing on growth was the decline in companion diagnostic revenues, which were down 37% CER in the quarter. At the same time, adjusting (sic) [adjusted] earnings per share were $0.30 at CER as well on a reported basis, and this was at the high end of our outlook.

Second, we continue to make good progress with our Sample to Insight portfolio. As an example, sales to life science customers rose 7% CER in the third quarter, led by a 10 Pharma -- 10% CER Pharma increase. The Academia and Applied Testing customer class also showed improving trends compared to earlier in '19 and were up 6% CER against the third quarter of 2018. Molecular Diagnostics sales declined 2% CER, due primarily to the challenges in China and also the decline in companion diagnostic revenues. Excluding those 2 factors, Molecular Diagnostics sales were up 6% CER.

The QuantiFERON-TB test grew 18% CER and was 13% CER on a year-to-year basis. We have a very strong comparison to 29% CER growth in the fourth quarter of '18 for QuantiFERON, but we still anticipate a healthy double digit CER growth rate for 2019. And as you saw in our release this week, we have expanded the market for QuantiFERON Plus to help developing countries in the fight against TB. QuantiFERON Plus was just added to the catalog of the Global Drug Facility, GDF, a global supply initiative from Stop TB that is the largest provider to the public sector of WHO-recommended TB medicines diagnostic and laboratory supplies.

The GDF makes the test available in low-resource regions with support from centralized labs. This listing opens a new channel to reach countries with a high TB prevalence, in particular, areas where QIAGEN has no direct commercial presence.

And notably, as you have seen, we announced on October 7, a 15-year of strategic partnership with Illumina in NGS clinical decision-making. Joining forces with Illumina will enable us together to broaden the use of NGS in the clinical laboratories. At the same time, we have decided to discontinue our NGS instrument development programs. This is a very concrete translation of our commitment to make strong portfolio decision and invest where QIAGEN makes a real difference.

I want here to note that we will continue to sell the GeneReader NGS System, which is designed for small, targeted gene panels, and continue to support customers around the world.

We also want to continue driving the growth of our universal NGS solutions, including the QIAseq line of products and our bioinformatics solutions that are, today, the vast majority of our NGS sales. As part of this reorientation of our NGS strategy, we announced in early October a pretax charge in the third quarter of 2019. The charge was $276.8 million in operating results, more than 70% involved noncash items and was $0.89 per share after taxes.

And as a last point, we have updated our outlook for full year '19. Based on the research for the third quarter and for the first 9 months of the year, we now expect net sales growth of about 4% CER for the full year, and this compares to the prior outlook for 5% to 6% growth.

We also revised our outlook for adjusted EPS to about $1.43 to $1.44 per share at CER again compared to our prior outlook for about $1.42 to $1.44 at CER.

Going to the fourth quarter, we expect net sales growth of about 3% CER and adjusted EPS of about $0.45 to $0.46. This takes into account that we are now expecting lower revenues from companion diagnostic co-development project in the fourth quarter of '19.

Given that we have stopped our NGS instrument development programs, we know -- we now have to stop our NGS-based companion diagnostics activities. But we are going to progressively transition these programs to Illumina sequentials, and there will be a timing effect.

At this time, remember that our NGS -- our companion diagnostic activities are made of 2 main activities: PCR-based, which are remaining extremely strong; and NGS that we are going to now progressively transfer to our Illumina partnership.

Another factor for the outlook is our decision to take a more cautious view on the planned sales ramp-up for the QIAstat diagnostic syndromic testing system for '19, ahead of the upcoming flu season in the U.S. The very positive point is that we have now reached 800 cumulative placements for QIAstat diagnostic. We had $11 million of sales for the first 9 months of '19 against our target for about $15 million for this period.

What I would like to highlight here is that this more cautious approach is also driven by the fact that we are delaying the launch of our meningitis panel in Europe and the gastrointestinal panel in the U.S. to the first half of 2020.

Initially, those 2 panels were due to come in the last quarter of '19. We are now delaying them. And this has an impact on some customer placement. Still, our achievement of 800 placements ideally positions QIAGEN for the coming years, and we remain convinced about the differentiation and customer value offered by QIAstat diagnostic.

With this, I would like now to hand over to Roland. Thank you.

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Roland Sackers, QIAGEN N.V. - CFO, MD & Member of Management Board [4]

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Thank you, Thierry. Good afternoon, to those of you in Europe, and good morning to those of you in the U.S. I would like to now review our financials for the third quarter and first 9 months of the year.

Net sales for the third quarter 2019 were $382.7 million, and this was a 3% increase at constant exchange rates. Sales growth on a reported basis was 1%, and this was due to adverse currency headwinds of about 2 percentage points that were in line with our outlook. The acquisition of N-of-One, which was completed in January 2019, provided about $1 million of sales in the quarter.

For the first 9 months of 2019, net sales were USD 1.11 billion, an increase of 4% at constant exchange rates over the same period in 2018. On a reported basis, sales growth was 1% due to 3 percentage points of currency headwinds.

Moving down the income statement. The adjusted gross margin was 71.6% of sales in the third quarter of 2019, which was about the same as in the year ago quarter and supported by the good performance of our higher margin consumables business. The trend for the first 9 months of the year showed an adjusted gross margin at 70.7% in the first 9 months of 2019 compared to 71.1% in 2018, which remains at a strong level, especially as we are supporting multiple new product launches. Adjusted operating income in the third quarter was 1% to USD 106.2 million, showing improvement compared to the same period in 2018, while still absorbing investment for the development, production ramp-up and commercialization of new products. The adjusted operating income margin was 27.8% compared to 27.9% in the prior year period.

For the first 9 months of 2019, adjusted operating income was largely unchanged at USD 283.2 million compared to $283.9 million in the same period in 2018. This resulted in an adjusted operating income margin of 25.4% for the first 3 quarters of 2019 compared to 25.8% in the same period in 2018.

Adjusted earnings per share in the third quarter were $0.36 per share at constant exchange rates as well as the actual rates, meaning we were at the high end of our outlook for $0.35 to $0.36 at CER. For the first 9 months of 2019, adjusted earnings per share were at $0.98 at CER, and the adverse currency headwinds reduced this by $0.02 to $0.96 on a reported basis.

In terms of cash flow, we saw a decline in operating cash flow for the first 9 months of 2019 to $221.4 million compared to $249 million for the same period in 2018. Among the key factors were cash payments for higher tax payments, in part, to settle tax audits for prior years, which were accrued for in the past.

Investments in property, plant and equipment were also higher in the first 9 months of 2019, rising to $86.4 million from $72.3 million in the same period in 2018. This was mainly due to the investments in building up our manufacturing capacity to support new product launches. As a result, free cash flow was $135 million for the first 9 months of 2019 compared to $176.7 million in the year ago period.

Moving on to the balance sheet. At the end of the first 9 months of 2019, our leverage ratio stood at 1.7x net-debt-to-EBITDA and was slightly higher than in the same period of 2018. We saw a decline in group liquidity to $799 million from $921 million in the prior year period. At the same time, net debt increased to $963 million from $848 million in the same period of 2018. This primarily reflects the inflow of cash from the business as well as proceeds from the issuance of $500 million of new cash [sale] convertible notes against an outflow of about $430 million for repayment of the 2019 cash sale convertible notes in the first quarter of this year as well as investments in the building and about $74 million for the share repurchase program.

I would like to provide some more details on the restructuring charges that are being taken primarily in the third quarter. Along with our new partnership with Illumina to drive clinical use of NGS, we decided to discontinue development of new NGS instruments. Also, in October, we announced plans to shift our production organizations into a regional structure and also a decision to expand the scope of activities at our QIAGEN business services centers in Poland and The Philippines. These sites have become increasingly essential in providing scalable professional services to support the company and our customers.

As a result of these initiatives, we have taken a pretax restructuring charge of $276.8 million in operating results for the third quarter of 2019. The majority of these charges was 73%, involved noncash items related to the decision to discontinue NGS instrument development.

We currently anticipate an additional pretax restructuring charge of about $12 million to $17 million or about $0.04 or $0.05 per share after taxes to be taken in the fourth quarter of 2019 related to these measures and for a charge in the single-digit million dollar range in 2020. We intend to allocate freed-up resources to grow opportunities.

I would like to now review sales results based on our 2 product categories and also our customers in the Life Science and Molecular Diagnostics. Sales of consumables and related revenues was 5% CER to $342 million in the third quarter and represented 89% of sales. This was in line with the trend for the first 9 months of 2019, with sales up 5% CER to $990 million and also representing 89% of sales. Instrument sales, on the other hand, faced a challenging comparison in the third quarter of 2018 and were down 11% CER to $41 million to represent 11% of total sales.

These sales declined at a double digit CER pace in Molecular Diagnostics, where higher sales of QIAsymphony and QIAstat-Dx were more than offset by a double digit CER decline in instruments revenues that included a tough comparison to the third-party of 2018, when we had 11% CER growth in instrument sales.

We also continue to see encouraging placements of Sonora NeuMoDx system in Europe. We now have 10 assays on this fully integrated PCR systems, and we will decide, as per our agreement, on the full acquisitions by mid-2020.

As another point, we have also seen a stabilization in our third-party revenues for instrument services after the headwind over the last few quarters. Instrument sales in Life Science declined at a modest single-digit CER rate but were supported by over 430 cumulative placements of the new version of the QIAcube Connect sample processing instrument that we launched earlier this year. For the first 9 months of 2019, instrument sales were down 1% CER to $123 million and represented 11% of total sales, while underlying sales excluding third-party service revenues were up 2% CER.

In the Molecular Diagnostics customer class, sales declined 2% CER to $183 million in the third quarter of 2019 and represented 48% of total sales. Here, we saw low single-digit CER gains in consumables and related revenues but also the double-digit CER drop in instrument sales. As we mentioned earlier, sales of the QuantiFERON-TB test grew 18% CER and were up 13% CER for the first 9 months of the year. However, we saw a 37% CER decline for the quarter in companion diagnostic co-development revenues, which were also down 14% CER to $33 million for the first 9 months of this year.

We have noted before that these sales are volatile and face a challenging comparison in 2019 to the dynamic 34% CER growth in 2018. As an additional point, we had ongoing solid placements of the QIAsymphony system and double-digit CER growth in related consumables and are on track to reach our goal for more than 2,500 cumulative placements at the end of 2019 compared to 2,300 at the end of 2018. For the first 9 months of 2019, Molecular Diagnostics sales were up 4% CER and represented 48% of total sales.

In the Life Sciences, we saw an acceleration in the performance compared to the first half of 2019, with sales rising 7% CER in the third quarter of 2019 to $199 million compared to the same period in 2018 and representing 52% of total sales. This came from high single-digit CER growth in consumables and related revenues, which more than offset a modest single-digit CER decline in instrument sales.

For the first 9 months of 2019, Life Science sales were up 5% CER and represented as well 52% of total sales. Within the Life Sciences, sales to Pharma customers was 10% CER on dynamic double-digit CER growth contributions from consumables and related revenues as well as good sales gains for sample preparation instruments. We saw higher contributions, in particular, in Europe and the growth markets like Turkey, Italy and Spain. This customer class also benefited from higher sales from our Enzymatics product line.

Sales in the Academia/Applied Testing customer class were up 6% CER, led by high single-digit CER growth in consumables that more than offset the single-digit CER decline in instrument sales. Across the Life Science customer classes, we saw ongoing low single-digit CER growth in our sample technology portfolio, while sales of our asset technologies for use in PCR testing showed improving trends after weakness in the first half of 2019.

I would like to now review the performance in our 3 geographic regions. The Europe, Middle East and Africa region led the performance, rising 7% CER to $114 million in the third quarter and represented 30% of total sales. We saw improving trends in a number of Western European countries, in particular, France, Italy and the United Kingdom, and also solid trends in Turkey. However, we saw another quarter of declining mid-single-digit CER sales in Germany, which we believe are tied to weaker customer sentiment about funding. For the first 9 months of 2019, sales in this region were up 5% CER to $341 million and were 31% of total sales.

Sales in the Americas regions were up 4% CER to $192 million in the third quarter and represented 50% of sales. The U.S. delivered growth in line with the region, and the results were supported by mid-single-digit CER gains in Brazil and Canada. For the first 9 months of 2019, the Americas grew at the same 4% CER pace, reaching $542 million of sales and providing 49% of total sales.

The slowdown in China was a key factor in the Asia-Pacific Japan regional sales declining 5% CER to $76 million that represented 20% of total QIAGEN sales. China more than offset mid-single-digit CER growth in Japan and Australia and double-digit CER sales gains in India and South Korea. For the first 9 months of 2019, growth in the Asia-Pacific/Japan regions slowed to 4% CER, reaching $227 million and representing 20% of sales.

I would like to now hand back to Thierry.

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Thierry Bernard, QIAGEN N.V. - Interim CEO, Senior VP & Head of Molecular Diagnostics Business Area [5]

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Thank you, Roland. I would like to give you some more details on our performance in China. There is no doubt that, at QIAGEN, we are clearly disappointed by the third quarter in China but, at the same time, we believe that, that market remains a key source of growth and potential growth for our company. As we have mentioned, sales in this country declined 24% CER to $26 million in the third quarter of 2019, from $35 million in the same period of 2018.

Let me try to explain what happened in China. As we mentioned in our preannouncement earlier this month, we saw weaker-than-expected trends in China from some distributors. As you'll remember, a significant part of our sales in China are covered from commercial partners. We estimate that this created a headwind of about 20 percentage points on the results for this quarter. The slowdown in ordering pattern from some of our distributors came as they were seeing a slowdown in payments coming in from their own customers, the hospitals and the laboratories.

We also faced a headwind of about 11 percentage points in results for the third quarter of '19 as a result of roughly $4 million sales in '18 from the discontinued China NGS joint venture.

At the same time, we saw about 8% growth from the rest of our portfolio in China, which is weighted to about 2/3 Molecular Diagnostics and about 1/3 Life Science customers. As I said before, we believe the fundamentals in this market are good, but we are seeing a modest slowdown in demand and have accordingly adjusted supply capacity with our distributors.

As some of you know, I was, myself, in China recently, and I've been working for some years in this country as well. And we are now decided to implement growing measures of distributors control and distributors monitoring in this market. We see this slowdown as a temporary issue, and it came after more than 20% CER growth in the first half of this year. Our current expectation for the fourth quarter is an improvement in China.

And now let me discuss the new orientation of our next-generation sequencing strategy in light of the new strategic partnership with Illumina. First of all, in NGS, our sales are a key growth driver for QIAGEN, and we are reaffirming our goal for more than $180 million for a full year 2019.

We now have 4 key components of this portfolio. First, the majority of sales come from our universal NGS solution, which include pre-analytical consumable and gene panels that can be used with any kind of sequencer. This combines very nicely with the second large component, which involves our bioinformatics solution for use with the vast amounts of data being generated. This, as you'll remember, include the CLC portfolio for secondary analysis and our expanding suite of solution for tertiary analysis under the QIAGEN Clinical Insights brand. It also includes the OmicSoft portfolio that provides a multi-omics data management solution and N-of-One, which QIAGEN acquired at the start of '19, to strengthen the capabilities in molecular oncology decision support. And as you remember, we said that N-of-One amounted for roughly $1 million of sales.

The third component now involves the partnership with Illumina. And as a last component, we will, as said before, continue to commercialize the GeneReader NGS System for targeted smaller panels and see this as a complementary to the Illumina partnership.

And now a few words on this exciting strategic partnership with Illumina. I strongly believe that this is one of the few example when 2 key leaders on the market come together on a very growing market, the NGS for clinical application. We want to leverage our deep expertise in companion diagnostic development and our top position in sample processing and bioinformatics. This will be combined with Illumina's excellence in NGS platform technology, their growing installed base of platform around the world and sequencing development firepower. As for the specifics, we have gained the rights to develop and globally commercialize companion diagnostic and IVD kits on Illumina's MiSeq diagnostic and NextSeq diagnostic systems. For the future, we will also have rights to use their future diagnostic sequences.

We are also exploring opportunities to develop and market companion diagnostic based on Illumina's TruSight Oncology assays. And this, as you know, will be key, obviously, for the immuno-oncology market. We will seek regulatory approvals for our own panels on the Illumina system and then combine those assays with our pre-analytical solution and bioinformatics.

The initial focus will be on solution for oncology, including companion diagnostics. But as you have seen, we have secured rights to explore IVD kits for other areas such as infectious diseases or to immune diseases, cardiology, hereditary diseases and inflammatory issues.

Now on to Slide 12. We show clearly on how those 2 companies' portfolios are coming in a very nice synergistic way. In terms of revenue streams, we want to increase the number of co-development deals for companion diagnostics based on NGS. QIAGEN will receive milestone and other payments for this work from our pharmaceutical and biotech partners. Illumina also is eligible to receive milestone payment from those projects. We are also planning to generate sales for the IVD kits, for which we gained the regulatory approvals in Europe, the U.S. and other markets worldwide. QIAGEN will book those sales. Illumina, in turn, will be eligible for a standard single-digit percentage royalty payment. And as a last point, we have made a modest, onetime [upfront] technology access payment to this company.

We will continue to book sales for our sample technologies, including instruments, and from our bioinformatics solutions for those customers just like we are currently doing with our universal NGS solution.

And now back to Roland.

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Roland Sackers, QIAGEN N.V. - CFO, MD & Member of Management Board [6]

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Thank you, Thierry. I would like to now review our outlook for 2019. As noted earlier, we have updated our outlook for total net sales growth of approximately 4% CER. We have updated our outlook for adjusted diluted EPS to $1.43 to $1.44 per share, also at constant exchange rates. This is at the higher end of the previous range of $1.42 to $1.44. As for currencies, based on the rates as of October 30, 2019, in terms of net sales, we expect a currency headwind of about 3 percentage points on results at actual rates. For adjusted EPS for the full year, we expect a currency headwind of about $0.03 to $0.04 per share.

For the fourth quarter, our outlook is for the total net sales growth of about 3% CER. This includes lower revenues from companion diagnostic co-development projects and to create a headwind of about 2 to 3 percentage points. Adjusted diluted EPS is expected to be about $0.45 to $0.46 per share and at constant exchange rates. In terms of currency impact for the fourth quarter, based on rates as of October 30, 2019, we expect headwinds of about 2 percentage points on net sales growth and about $0.01 on adjusted EPS.

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

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Thierry Bernard, QIAGEN N.V. - Interim CEO, Senior VP & Head of Molecular Diagnostics Business Area [7]

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Thank you, Roland, once again, and thanks, all, for your attention. Before we move to the question-and-answer session, I'd like to summarize what we just described with Roland. First of all, the weaker-than-expected sales results in the third quarter of '19 were due to reduced sales in China and volatility in our companion diagnostics. Those challenges overshadowed better trends in the Life Science and other areas of our portfolio. But I would like to highlight again that our adjusted earnings per shares were at the high end of our outlook, which, to me, proves again the way we clearly manage our financials.

Second, we have a committed leadership team in place that is focusing resources on the most attractive areas of our portfolio. I remain convinced that QIAGEN has attractive fundamental growth opportunities, and we are all, at QIAGEN, determined to emerge as a stronger and more differentiated leader.

Third, the strategic partnership with Illumina is a signal of our conviction about our NGS portfolio as we expand our presence in this key growth market. But as I said before, it's also a concrete example of our commitment to reallocate portfolio where we can clearly be and become leaders.

And as a last point, we have updated our full year '19 outlook based on the reserve for the third quarter for the net sales growth of 4% CER and adjusted EPS of $1.43 to $1.44 per share at CER again. This also include our outlook for net sales growth of 3% CER and adjusted EPS of $0.45 to $0.46 CER for the fourth quarter. I believe that this is a very realistic ambition for the fourth quarter and for the year.

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

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John Gilardi, QIAGEN N.V. - VP of Corporate Communications & IR [8]

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Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll go first to Steve Beuchaw at Wolfe Research.

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Stephen Christopher Beuchaw, Wolfe Research, LLC - Director of Equity Research [2]

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I have 2 topics that I'd like to raise. One is just a little bit of bridging, if you don't mind. Roland, I wonder if you could just isolate the impact of the revised companion diagnostics outlook and the termination of the NGS development efforts and talk about what those mean in the aggregate at the EBITDA line, respectively. Should they impact, said another way, should those, in total, change the way we think about the LRP for the EBITDA line?

And then one for Thierry. I wonder if you could talk about your views and to the extent it might be different from what we've seen historically on investments in new technology. The company has historically been -- or at least over the last few years, somewhat acquisitive of new technologies in diagnostics. NeuMoDx was sort of next.

So can you talk a little bit about how you think about investing in new technologies? Is the hurdle rate of the bar there going higher? And how should we think about prospectively investing in commercialization on those technologies? Is the ramp on spend there any different than it might have been historically?

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Operator [3]

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At this time, we are not hearing anything from our speakers.

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Roland Sackers, QIAGEN N.V. - CFO, MD & Member of Management Board [4]

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Sorry. I was on mute. I was talking so nicely to you, Steve. I'll do it again. Again, I think it's very fair to say that we have seen and expecting a nice margin development in the third quarter but also for the fourth quarter. And also, we were expected for 2020. And that is clearly partially driven by the factors you were alluding to, Steve. Companion diagnostics, particularly on the NGS side, is, at the end of the day, was a lower-margin business. On the PCR side, it's actually a good margin-driven business for us. So if we do the calculations in terms of our guidance for the fourth quarter backwards, you clearly can see that EBIT margin for the third quarter -- for the fourth quarter on an adjusted basis has to be nicely above the 30% growth -- 30 percentage rate. And also, looking onto 2020, we expect here a nice expansion going forward. So the mix is clearly shifting somewhat profitable for us. And I think that is good news for us.

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Thierry Bernard, QIAGEN N.V. - Interim CEO, Senior VP & Head of Molecular Diagnostics Business Area [5]

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Thank you, Roland. And Steve, to your second question on new investment, if I got the question, because it was a bit noisy, on new investment, in new technologies for the future, I really believe that, at this point, with the significant investment that we have done over the last 2 to 3 years, we have ideally positioned QIAGEN to be extremely competitive. For me, it's very clear. We are a mid-cap company. And when we are a mid-cap, we need to focus on where we can take between #1 and #3 position on the market. It's not about mimicking what the others are doing.

And so if you look at the recent investment, as Roland said before, NeuMoDx, which is ramping up quite nicely; QIAstat, the same; and the Illumina partnership just for the Molecular Diagnostics portfolio. If you consider the coming launch in the second half of 2020 of our digital PCR in Life Science, we have everything in hand at this moment to compete and to be successful. And to me, now, it's a matter of execution.

And so in terms of reallocation of resources, we see much more resources dedicated to, first, in development, fueling those platform with the appropriate menu. In sales and marketing, obviously making sure that we have the feet on the ground to push those solutions on the market. And on this, we will execute on those promising investments. It's focused on what we have.

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Operator [6]

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We'll go next to Tycho Peterson at JPMorgan.

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Tycho W. Peterson, JP Morgan Chase & Co, Research Division - Senior Analyst [7]

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Apologies, I'll ask a couple here. But first, I was wondering if you can comment on the CEO search, just criteria, where you are in the process, time lines.

Second, on China, I'm wondering if you can elaborate on the distributor order slowdown. None of your peers have called out anything around Chinese hospitals, so how long do you expect the dynamics to last? I know you talked about the some recovery in the fourth quarter.

Third, on Illumina, they're doing a lot of content deals. You seem to be the only ones paying them upfront. So I'm curious why this is the right strategy and also when you made that decision.

And then lastly, on guidance. 4Q guidance, revenue is below consensus, EPS is in line. Is that all driven by the reorganization cost-outs? And are you reaffirming long-term guidance?

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Thierry Bernard, QIAGEN N.V. - Interim CEO, Senior VP & Head of Molecular Diagnostics Business Area [8]

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Okay. Thanks. I hope that I won't forget any of your points, but I think I took notes. So the search of the CEO, first of all, I don't want to speak on behalf of our Chairman and of our Board. But as we said that the company is looking for a permanent CEO, which means that, obviously, internal and external candidates will be very welcome to apply. I expect this process, but, again, this is a Board matter for me to last probably around 6 months.

At the same time, at the moment, there is a CEO in the company. There is an executive team. There is a very good synergistic tandem between Thierry, myself, and Roland. And we are here to steer the company for the coming months and moving it into 2020.

China, what is happening or what we have seen is that hospitals have probably increased them -- their terms of payment to our commercial distributors. And basically, we have been impacted by this because as a kind of spillover effect, then faced with those longer terms of payments, distributors have reduced their orders to QIAGEN. So this is what happened.

I immediately went to China, immediately challenged the team locally to take stronger commercial actions in the monitoring of our commercial partners. And I visited also some hospitals, which are telling me that, that situation should not last for very much longer. It's rather a kind of a hiccup. However, to be fully transparent, I believe that the Molecular Diagnostics market, which was probably said to be growing above 20% in China in the last year, has probably now slowed down between 10% to 15%. That is a reasonable expectation for this market. And this is why I insist that, for me, China is still key for QIAGEN because market of that size, I remember -- I remind everybody that the size of the market, China is probably around $2 billion for diagnostic. Market of that size, that are still growing at a healthy double digit, are still very obviously interesting.

Illumina, I'm not sure that I completely got your question. So if I'm not clear in my answer, please come back to me. Yes, there are a lot of other kind of partnerships with -- by Illumina with other companies. But what I find really interesting is that remember, that QIAGEN has that vision for NGS of Sample to Insight. We believe in the value of offering a full workflow from pre-analytical to data analysis and data interpretation. And this is why I think that this partnership is very specific. QIAGEN specialty, QIAGEN leadership is made on sample prep, is made on [library] trade, is made of chemistry and data analysis, bioinformatics. And Illumina's strength is made of instruments, both for life science and for diagnostic. So I hope that, that answers your question. But, again, please come back to me here. And for the last question, I'm going to hand over to Roland.

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Roland Sackers, QIAGEN N.V. - CFO, MD & Member of Management Board [9]

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Tycho, in terms of guide, I would clearly say that for the fourth quarter, the guidance is as we said, and we clearly also have to deal with the changes in our setup around clinical NGS and therefore, the impact on the companion diagnostic side. But I think as Thierry just alluded to, we see that rather as a change in dealing with our pharma partners here as well as the timing impact because it's quite obvious that we had to stop certain developments on the co-development side. Nevertheless, I think it's very reasonable to believe that we will be able to sign more agreements. And again, that's going to add also, in 2020, revenues for us. So it's clearly something what is going to happen over time as well.

On the other side, profitability, I think it's actually quite strong. We shouldn't, again, to -- be too negative on that topic as well. We see a nice spike and expect here a nice spike also in the fourth quarter in terms of gross margin, in terms of EBIT margin. And at the end of the [day], if things go well for us in the fourth quarter, we actually will end this year with a profitability, which is probably actually in line with the EPS guidance we even have given earlier this year. So I would say that is something that we should put in perspective as well.

For 2020, as, I guess, we're alluding before as well, I think we see a couple of trends. I also do believe that we had a reason to do our -- restructuring of our clinical efforts around NGS because we believe that an Illumina partnership is probably a stronger solution, bringing the strength of both company together. And I would be, again, not surprised if that should be, on a midterm, not even a positive direction for us.

Nevertheless, I want to be also very clear on that as Thierry said, we clearly have now 2 quarters in a row where we, unfortunately, missed our guidance as well. And you should expect that we take here a cautious view going forward as well. And that, I think, is something what is important for us.

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Thierry Bernard, QIAGEN N.V. - Interim CEO, Senior VP & Head of Molecular Diagnostics Business Area [10]

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Thank you, Roland. And I think, Tycho, that I didn't really catch your question initially. So if I understand better, so first of all, when that deal was signed, I mean, we worked on that deal during the summer, and we are -- basically closed the deal and signed that deal. At the end of the quarter, very early October, this is when we announced the deal. To your question, when we had a kind of access fee, I think the beauty of that deal is that we have a complete access to all existing and future diagnostic platform. And for this, we paid a very modest amount to gain access to the installed base. So basically, what I like in that deal is to each one, each specialty, we are very strong from sample prep to chemistry to data interpretation. They are very strong in instrumentation. We bring both together, and we have a winning solution for the clinical market.

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Operator [11]

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We'll move next to Luke Sergott at Evercore ISI.

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Luke England Sergott, Evercore ISI Institutional Equities, Research Division - Associate [12]

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A couple here, one on TB, and then one on the guide. So I guess, first, on TB, when you think about the mid-teens full year guidance, if that's still intact. And if so, was the DFG catalog contract baked into that guidance and coming into the 4Q because you guys have a pretty big step-up there?

And then for Roland, can you kind of bridge us for that 4Q's 3% guide? If you look at it, you have, basically, a 2% to 3% headwind from CDx. You get a -- and if the TB guide is correct and my math, you're getting about 4% benefit from that. And then QIAstat, assuming 50 to 100 basis points from there, that implies the rest of the business is only growing about a percentage point. Just kind of bridge the gap there to the full year in the 4Q guide.

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Thierry Bernard, QIAGEN N.V. - Interim CEO, Senior VP & Head of Molecular Diagnostics Business Area [13]

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So on the TB question, before Roland takes it, yes, it does factor the different -- for example, you referred to the DRG catalog but also, the factors, we believe that 15%, basically, mid-teens growth is perfectly our target for QuantiFERON. This factors many things. This factors price pressure in some countries. It's factoring also the arrival of some competitors. It's factoring also the strength of our portfolio. You know that we have that very strong partnership with DiaSorin for automation. I think we are the first company on this IGRA market to automate the offer from pre-analytical to back-end solutions. So this factors all those data. 15% growth rate for the coming years is perfectly what we need to have in mind.

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Roland Sackers, QIAGEN N.V. - CFO, MD & Member of Management Board [14]

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Luke, on Q4, I think, first of all, and just in addition to what Thierry just said, have in mind that, of course, the fourth quarter also last year was a very strong TB business growth rate. I think we had last -- fourth quarter last year was a 29% growth rate. So we clearly have here probably a certain baseline affect.

Nevertheless, I think if you look on the overall franchise, you should have in mind not only the companion diagnostic impact on the NGS side is a headwind for us in the fourth quarter. We also clearly said that China, on the one the hand side, is improving, but we -- I think we were also very straightforward in saying that is not something what is going to clear out in one quarter. It probably takes a few quarters more.

Given that -- and growth rate, again, 3% in total, 2% to 3% headwinds from the companion diagnostic, not a strong overall China improvement, puts us for the Rest of the World, in a very reasonable, we'll see, 5%, 6% coverage rate. And I think that is probably the way to look at it. And we take it from here.

There is no reason for us to be, right now, overambitious in terms of guiding. We would rather being overambitious on delivering. And again, quarter-for-quarter, we want to right in the -- move in the right direction.

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Operator [15]

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We'll go next to Scott Bardo at Berenberg Bank.

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Scott Bardo, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [16]

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Yes. So firstly, I wonder if you could just highlight, please, why the development panels for the QIAstat have been delayed and also, perhaps, give us some discussion as to the progress of the NeuMoDx menu in the U.S., which I think is quite central to your purchasing decision there. So if you could talk about those, please.

And more broadly, I think 5 months ago, at the Capital Markets Day, the company outlined 8%, 9% top line growth, double digit earnings growth. And I think the basis of my understanding was that QIAGEN, as is currently the structure of portfolio, is a 6% growth company. And if you deliver some of these new drivers well, it takes you into that higher single-digit category with some leverage. Now I appreciate there's a lot of moving parts, some delays in menu, termination of GeneReader, new collaborations and so forth. But what I would like to understand is, is the broad framework of that expectation still your expectation today, that you can be if you execute well a high-single-digit growth company? Or has something fundamentally changed in the last 4 or 5 months?

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Thierry Bernard, QIAGEN N.V. - Interim CEO, Senior VP & Head of Molecular Diagnostics Business Area [17]

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So thanks for the question. So going first to QIAstat and NeuMoDx. So I mean, as you know, I think I spent a significant number of years in diagnostic, and development activities in diagnostic are not always completely easy to forecast. As you probably imagine, we are living on -- we are working on living organisms. And obviously, sometimes, we have hiccups in the development. Those hiccups could be contamination issues or could be some organism are showing either some false negative, also false positive. So this explains basically that, traditionally, I always try to put a buffer on development timing. But let's be clear. A typical development timing in IVD, in-vitro diagnostics, takes around 3 years for a new assay. That's always what I try to factor. And the closer you get to the market launch, sometimes -- the more surprising, sometimes, some very last results.

So this is under control in Barcelona, in our Barcelona site for QIAstat, but this is why we prefer to say first half of 2020 for those 2 assays. It's nothing that is questioning the quality of the QIAstat technology. I'd qualify that as normal delays. I regret them, obviously. I would like to live in a world where there is no development delays, but here we have a means of roughly, let's say, 3 to 4 months for those 2 assays.

We are already on good track because, just to give you an example, we are currently starting to evaluate some research-use-only format of our meningitis for Europe. So that shows you that we are very much at the end of the development.

Moving to NeuMoDx, the first thing that I would like to highlight is what Roland said, from 7 assays to now 10, moving on to more assays in '20. So it's growing rather well. Let's not forget that NeuMoDx is still not a very large company, so I think the performance of bringing to the market 10 CE-cleared assays is quite remarkable.

In the U.S, because, obviously, we had to work out or they had to work out on European clearance, plus some claim extension for Europe, they are slightly late. But let's not forget that, one, they already have an FDA assay approved. Second, they are moving to more approval into 2020, first and second half, especially what we call the 510(k) assays approval. And last but not least, it's one of the few systems that combine not only regulated assays, but also LDT. And NeuMoDx has a very rich LDT laboratory developed test menu.

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Roland Sackers, QIAGEN N.V. - CFO, MD & Member of Management Board [18]

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Scott, on your very general question on long-term trends for the company, I think I always prefer to answer a little bit more in detail and rather give some insight into the framework you just laid out.

If you just review what happened over the last few weeks, I think it's very clear to see that we changed our strategy of our NGS with the partnership of Illumina. And that clearly has a short-term impact to our revenue growth rate. But as I said and indicated before, it should be rather a mid- to long-term positive for us because you're bringing the strength of 2 companies together who are both a clear market leader into that area -- in that specific area.

If you now look on the other growth drivers, I just can't see that too many things have changed short term, which should have a change into midterm.

TB, we had a very strong quarter. We have a very good year-to-date performance. And have in mind that our midterm CAGR for that business under 2023, percent is a 10% number and clearly factoring in also probably upcoming events around competition over that time period.

Same is true for QIAstat. You can clearly see that the number of placements we had is now, in total, 800 and at the end of the year, now probably 200 placement, 100 per quarter is good. Yes.

Would we love to have certain panels few weeks earlier than later? There is no question around that. But do we have any doubt that we will not see many expansion, not only next year's, but also the time behind? I don't think so. So yes, I would say on the midterm period to 2023, QIAstat should be on its way as well.

Same as NeuMoDx, I don't have to repeat what Thierry just said. There is clearly, I would say, a good placement strategy in Europe going on, menu expansion. So I would say it's moving in the right direction.

But last but not least, please recall that our sequencing strategy was mainly driven also over the last couple of actually quarters and probably the last 2, 3 years by a very successful universal solution part of the business. That clearly is also the reason why we are going to confirm the $180 million target for this year for sequencing in general because it is a good business for us. And I don't see any reason to believe that an incremental partnership with Illumina should be a negative for us with that.

So we are not going to change, confirm or deny our midterm guidance as of today because we are working here from quarter-to-quarter. I'll give you 2020 guidance again end of January, early February. And again, that is the basis for our long-term guidance, but I think the trends really hasn't changed. And we feel that the overall market in general, particularly, in Europe and in U.S. are stable.

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Operator [19]

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We'll move next to Bill Quirk at Piper Jaffray.

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William Robert Quirk, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [20]

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Couple of questions. Thierry, first a bigger picture question, and then secondly an operational one. So first, philosophically, can you expand on some of your comments about priorities at QIAGEN? Certainly, we appreciate the increased attention on R&D, but does it also include a portfolio review?

And then secondly, can you speak to the pharma and academic strength in the quarter, perhaps calling out some trends in particular? And also just how sustainable are you thinking about that franchise?

And then, Roland, in terms of the Illumina partnership, how should we think about the internal investments netting against the expected GeneReader spend? Will it require additional investment more or less than you were budgeting for the ongoing investment in new iterations of GeneReader?

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Thierry Bernard, QIAGEN N.V. - Interim CEO, Senior VP & Head of Molecular Diagnostics Business Area [21]

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So Bill, thanks for the question. I'm not sure that I caught the second part for me, but -- so the first part is on the portfolio. I mean, again, I repeat, like any company, we have to constantly review our portfolio allocation. But as I said before, I really believe that if we combine the core activities of QIAGEN plus the newer investment of other recent years' starts, NeuMoDx, N-of-One, GPCR for life science, we have everything in hand now for the coming years.

But obviously, we continuously monitor to make sure that we really invest, and I insist on that. We will invest where we really can take leadership position. This is key for me. We cannot be everywhere. We cannot invest everywhere. We cannot dilute our activities into too many activities. We have a solid portfolio from Life Science to MDx to bioinformatics. This is what we have to execute.

I think the second part of your question, but come back to me, Bill, if I did not understand it, was around the strength in the Pharma business, especially for Life Science. It's basically driven -- as Roland described, it's basically driven by some very good growth, interesting growth, from the fast-growing countries in the south of Europe, especially Italy, Spain, and Turkey. We have, and we continue to have, good results with our QIAsymphony systems. So all these contribute to that solid number.

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Roland Sackers, QIAGEN N.V. - CFO, MD & Member of Management Board [22]

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Going to the second part of your question on to the Illumina partnership, I think it's clearly a partnership we are going to invest into. But at the same time, of course, we all know that we had significant investments into our next-generation sequencing platform, which we discontinued. And therefore, I wouldn't expect that there is any increase on the operational expense side for 2020 related to that. I would rather believe that, again, also a lot of investments, as Thierry said, is probably going now into areas with not only a higher but probably also a faster return rate. That is something that should help us to maintain and probably improve our profitability next year on a relative level quite nicely.

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Operator [23]

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We'll move next to Daniel Wendorff at Commerzbank.

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Daniel Wendorff, Commerzbank AG, Research Division - Team Head of Healthcare & Chemicals [24]

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Yes. Two, if I may. And one is related to QIAstat-Dx again. Very nice that you gave us the number of placements of 800 so far. Yet, still, you only achieved EUR 11 million -- $11 million in sales versus the $15 million expected.

Can you potentially explain where the difference is versus the original expectation? Is it just the delay in the launch of the new panels? Any more colors you can provide there would be helpful. And then, obviously, what this means for your full year number for QIAstat-Dx. I think the original expectation was for $30 million.

And second question is on the companion diagnostics, the drop in revenues. Can you please explain the background of that 37% drop again in Q3 and why that is so weak in Q4? And how should we think about this going into the first half of 2020?

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Thierry Bernard, QIAGEN N.V. - Interim CEO, Senior VP & Head of Molecular Diagnostics Business Area [25]

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Thanks for the questions. So yes, you are perfectly right. We are below our expectation on QIAstat. However, as we highlighted, we are extremely pleased with the instrument sales. I mean, if we compare our sales with the instrument sales performance of the leader on the market, which is probably putting something like 200 new system per quarter, we are exactly at the same pace now. So for a company that has less menu, I think it's a good performance.

Why are we later on consumable? That's a very, very significant topic of attention for me. First of all, there has been some delays. We were slightly delayed in our respiratory clearance -- FDA clearance in the U.S. So to that extent, we missed the flu season of last year because if you remember, we came in Q2 of 2019 first.

Second, because as I said before, we were expecting to our G.I. panel for the U.S. cleared by Q4. So this is not going to happen.

And second, to be very honest with you, as I said, I prefer to be, call it, optimistically cautious or realistically ambitious, but we are coming now with QIAstat in the U.S. to our first flu season. And I want to make sure that we are delivering and executing before taking a stronger assumption. We are learning as we go to a certain extent. So this is why I believe that, yes, we will be below our $30 million original expectation for the year. I believe to be around $14 million to $15 million that I think is achievable compared to where we are now.

For the companion diagnostic, and, again, I don't want to make it too complicated, but what we have to keep in mind is that this is clearly an activity where QIAGEN has a leadership position in the world, probably the largest number of pharma partnership among all the other companies. And it's made or it was made primarily for many years of PCR-based deals. But as you all know, over the last, especially 4 to 5 years, pharma companies have been also eager to work on NGS-based technologies for those companion diagnostics. And we were having, last year, revenues coming from -- development coming from our own NGS platform with Pharma that are not going to happen now as we stop those development. We expect to progressively transfer those development, NGS-based, to the Illumina partnership. But obviously, we need to be very clear. This is going to take a bit of time because we need to develop the kits and we need, obviously, to agree on those kits with our pharma partners. So you will see a progressive ramp-up, not in the first half of the year, progressively much more towards the end of 2020. But I speak -- I insist, again, the PCR base of our companion diagnostic is still very healthy. That's the core base that we want to continue to defend.

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Roland Sackers, QIAGEN N.V. - CFO, MD & Member of Management Board [26]

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And Daniel, just to fill you up here with some numbers because I clearly hear that this companion topic is an important one to you. Have in mind, and I know that you have that somewhere in your docs, that 2018 was clearly a very strong companion year for us. We ended the year with a $58 million business, which was growing for 2018 at a 34% growth rate. And I think we were always very clear to say that this is a volatile business on the one hand side, and that is clearly a growth rate you shouldn't take forward as well.

Now if you look on the third and fourth quarter, you see actually a couple of impacts here coming together. The third quarter, I think we just said there is a -- and we talked about it in the summer, there's a $4 million negative impact from -- or on company diagnostics all of the cancellation of the joint venture with Next Gen (sic) [NGS].

For the fourth quarter, we also have -- all of the same reason, we have also roundabout $3 million to $4 million impact to the negative out of this joint venture cancellation. But incrementally, in total, we have about probably somewhere between USD 8 million and USD 10 million of impact. It did include the NGS contracts I think Thierry just described in detail.

So it's clearly a headwind, which is keeping us busy. And I think these numbers should help you to get your modeling straight.

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Operator [27]

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We'll go next to Dan Brennan at UBS.

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Daniel Gregory Brennan, UBS Investment Bank, Research Division - Senior Equity Research Analyst of Healthcare Life Sciences [28]

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Great. I had a, maybe, a bit of a different question. QIAGEN doesn't break out the growth for your core DNA kit business. It rather flows through all your different segment lines. That said, I mean, this business could arguably be one of the most potentially attractive products within QIAGEN. So I'm just wondering is this something that you can provide some color on about what that kit business has grown out over the last few years? We calculate the growth could be pretty modest, what the outlook and the competitive dynamics are and whether or not that business is receiving the adequate R&D and general support?

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Roland Sackers, QIAGEN N.V. - CFO, MD & Member of Management Board [29]

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Yes. I would say the underlying base business for sample prep is probably somewhere around 3-plus percent on a constant exchange rate. It's a solid business. Right now, of course, we see also here, I would say, a rather modest positive trend to mid- and long-term because what is being helpful is clearly the QIAsymphony placements. And that has clearly used more and more also as a sub-prep machine in front of many different solutions.

Of course, it is very important for us and close to the CFO heart because it is a high-margin business for us, and I think that is something where we feel very good about. And again, every quarter, I see a QIAsymphony placement number, I think, is a nice continuation of an important business for us.

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Thierry Bernard, QIAGEN N.V. - Interim CEO, Senior VP & Head of Molecular Diagnostics Business Area [30]

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I would like to insist and highlight what Roland is saying is that those placements of QIAsymphony are moving very well. And some time, you might see an evolution in revenue recognition because we place more systems that we sell sometimes because this is what the market is willing to accept. But what is important is to have those systems at customer sites and generating revenues as soon as possible because, as Roland said, it's a very healthy margin for the company.

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Operator [31]

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We'll move next to Jack Meehan of Barclays.

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Jack Meehan, Barclays Bank PLC, Research Division - VP & Senior Research Analyst [32]

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I had 2 questions on -- one on GeneReader and one on digital PCR. For GeneReader, I was wondering if you could just quantify for us, within the $180 million target, how much is related to GeneReader instruments and consumables?

And I was wondering if you could just give me some color on what the customer reaction has been to the decision to not invest in new instruments. How do you think the GeneReader revenue contribution is going to trend from here?

And then on digital PCR, just curious, can you give us some updates in terms of the time line there, in terms of when you plan to introduce the new integrated box?

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Thierry Bernard, QIAGEN N.V. - Interim CEO, Senior VP & Head of Molecular Diagnostics Business Area [33]

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Very good. Thanks for the question. GeneReader, overall, is out of the numbers that we disclosed for NGS. It's roughly around 5% of the total revenues. So customers' reaction have been quite positive because they see again the strength and the interest of the partnership between those 2 leaders. For them, also, it means also probably a full access to not only, obviously, the Illumina platform, but the full set of solution, the full integrated workflow.

But honestly, I believe that the GeneReader sales will progressively decrease over time. There is also a market evolution for this. The market is asking for more and more -- for larger and larger panels rather than targeted panels. So as we said, we maintain. We continue to service and to serve those install GeneReader customers, but I expect them to progressively wind down over 2020 and '21. But we continue to service them.

D-PCR, as I said before, you see -- I mean, forecasting a development time is always tricky, but we expect this system to be launched in the second half of 2020. And so far, we are on track to expect that commitment.

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Operator [34]

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And that concludes the question-and-answer session. Please continue with any other points you wish to raise.

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John Gilardi, QIAGEN N.V. - VP of Corporate Communications & IR [35]

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Yes. Thank you, operator. It's John Gilardi, and thank you to all of you for your participation. If you have any questions or comments, please don't hesitate to give us a call. Bye-bye.

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Operator [36]

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