John Gilardi - Vice President of Corporate Communications & Investor Relations Peer M. Schatz - Chairman of Management Board, Chief Executive Officer and Managing Director Roland Sackers - Chief Financial Officer, Managing Director and Member of Management Board.

Daniel L. Leonard - Leerink Swann LLC, Research Division Tycho W.

Peterson - JP Morgan Chase & Co, Research Division Jack Meehan - Barclays Capital, Research Division Scott Bardo - Berenberg, Research Division Vijay Kumar - Evercore ISI, Research Division Brian Weinstein - William Blair & Company L.L.C., Research Division Derik De Bruin - BofA Merrill Lynch, Research Division Zarak Khurshid - Wedbush Securities Inc., Research Division Daniel Anthony Arias - Citigroup Inc, Research Division Daniel Wendorff - Commerzbank AG, Research Division Douglas Schenkel - Cowen and Company, LLC, Research Division Jeffrey T.

Elliott - Robert W. Baird & Co. Incorporated, Research Division.

Ladies and gentlemen, thank you for starting by. I'm Patrick Wright, your Chorus Call operator. Welcome, and thank you for joining QIAGEN's conference call to discuss results for the fourth quarter and full year 2014.

[Operator Instructions] Please be advised that this call is being recorded at QIAGEN's request and will be made available on the 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..

Thank you very much. Hello. Welcome to our conference call today in which we like to prepare -- have some prepared remarks as well as time for Q&A session. Our speakers today are Peer Schatz, the CEO of QIAGEN; and Roland Sackers, our Chief Financial Officer.

On Slide 2, you will see the customary disclaimer explaining that the discussion and responses to your questions on this call reflect management's view as of today, January 29, 2015. We will be making statements and providing responses to your questions that state our intentions, beliefs, expectations and predictions for the future.

And these constitute forward-looking statements for the purpose of the safe harbor provisions. These statements involve risks and uncertainties that could cause actual results to differ materially from those projected. QIAGEN disclaims any intention or obligation to revise any forward-looking statements.

For more information, please refer to our filings with the Securities and Exchange Commission. I would like to now hand over to Peer..

Thank you, John. Hello, and welcome to our call today to discuss results for 2014 and the fourth quarter and also to provide our perspectives and goals for 2015. I have a few messages for you as an overview. The first, we delivered solid results for 2014, driven by the continued strong performance of our growth drivers.

Our teams made important progress on the transformation of QIAGEN. As for 2015, we're determined to build momentum behind our core portfolio, especially the growth drivers that are now providing about 30% of our sales as we work through the final year of significant U.S. HPV headwinds.

In terms of the results, they were in line with our preannouncement on January 11. As you saw in the press release on Wednesday, adjusted net sales rose 4% at constant exchange rates in the fourth quarter of 2014. That was the same rate for the full year and both were in line with our communicated targets.

Most important, sales rose 9% for the year when excluding U.S. HPV products and now providing about 95% of total sales. In terms of earnings, adjusted EPS was $1 per share for the year. This included $0.08 of mainly noncash restructuring charges for technology-related impairments. And so that means to achieve our guidance $1.08 before the charges.

When looking at the adjusted EPS trends in recent years, keep in mind that we changed our adjustment policy as of the first quarter of 2014, so a year ago, involving share-based compensation and restructuring charges, and on a like-for-like basis, we have seen a solid increase.

We also had strong free cash flow of $201 million for the year, which was up 15% from 2013. Second, we are moving ahead on initiatives to accelerate innovation and growth from our core portfolio, creating a foundation for sustainable and long-term expansion that we believe should become more visible later in 2015 and certainly in 2016.

Third, we are committed to disciplined capital allocation. You saw this with our announcement that we acquired the Enzymatics reagents portfolio, which added a unique group of differentiated enzymology product that have played a critical role in enabling greater use of next-generation sequencing.

We also announced earlier this month plans to remove about 10 million shares of risk from our diluted share count through the repurchase of the 2024 convertible notes. We currently expect this to cost about $250 million and the process is moving along towards completion in spring 2015.

And as a last point, we have set goals for another year of higher sales and adjusted earnings in 2015 based on current exchange rates. Like many other companies, we will also face some currency headwinds based on the current rates, and Roland will discuss this topic.

So in summary, we are pleased with the performance in 2014 and preparing for further innovation and growth in 2015. I'm now on Slide 5 and want to share some perspectives on the sales development in 2014. As you know, we are working through the last phases of pressure on our U.S. HPV franchise, which has primarily come from intense price pressure.

Looking at the graph on the right side, you can see that we actually had a 5 percentage point of headwind in 2014, which was above our expectations for about 4 points. At the same time, we generated 9% in constant exchange rate growth from the rest of our portfolio, and we see this as one of the fastest growth rates in our industry.

We saw an even stronger dynamic in the fourth quarter, which you see on the left side of this chart with 6 points of headwind in the quarter, but the rest of the portfolio, more than compensating for that with 10% constant exchange rate growth.

These results show we achieved our 2014 goals to deliver above-market sales growth from our core portfolio, which matters the most for our future growth ambitions against the decline in the U.S. HPV sales. Moving to Slide 6.

We have broken out some detail on growth rates and sales to underscore the transformation we have been making during the last few years. As you look at the growth rates and sales contributions, you see how the headwinds from U.S.

HPV product sales were more than offset by the underlying solid performance and in particular, the growing share coming from our 5 growth drivers, which is now at about 30% of the total sales base.

In this way, QIAGEN has delivered above-market growth in recent years, and this will become more apparent in 2015 and beyond as the HPV headwinds dissipate. We will provide some perspectives on these trends for 2015 and beyond later in the presentation. I'm now on Slide 7 to provide an overview of results for our 4 customer classes.

Molecular Diagnostics represents about half of our sales and delivered 4% constant exchange rate gains for the year and a similar 3% constant exchange rate pace for the fourth quarter. As I mentioned earlier, the U.S.

HPV headwinds were more than offset by the underlying solid performance, with 16% constant exchange rate growth in the rest of the MDx portfolio. The gains in Molecular Diagnostics are coming across our portfolio and in particular, from the growth drivers.

The QIAsymphony system, a portfolio of profiling assays that are used for disease detection and monitoring, showed ongoing double-digit constant exchange rate growth.

Our QuantiFERON latent TB test exceeded $100 million of sales for the first time in 2014 although contributions in the fourth quarter showed a slower-growth pace, in part due to the start of transitioning to the new fourth-generation CE-IVD mark version in some markets.

Our Personalized Healthcare portfolio also achieved more than $100 million of sales on growth in kit sales as well as significant increase in pharma codevelopment payments, in particular, in the fourth quarter of 2014.

The improvements you see for the full year and the fourth quarter were further supported by our industry-leading bioinformatics portfolio, which was created through the acquisitions of Ingenuity, CLC and BIOBASE and integration with our own activities.

The acquisition of Enzymatics was completed in December so it did not have an impact on these results. In the Life Sciences, we saw improving trends in the fourth quarter in Applied Testing, which had a very strong second half of the year and grew in line with our high single-digit constant exchange rate target for the full year.

Pharma experienced improving demand in the Americas during 2014 but slower trends in other markets. In Academia, we saw improving demand in the fourth quarter, particularly in the United States, with mid-single digit constant exchange rate growth in both instruments and consumables.

For 2015, we expect sentiment to be equal to or better than the trends in 2014, but we're taking an overall cautious view since funding levels are still below levels seen a few years ago. We're also watching the current macroeconomic trends in Europe and other markets. With that, I would like to hand over to Roland..

Thank you, Peer. Good afternoon to everyone in Europe, and good morning to those joining from the U.S. I'm now on Slide 8 and would like to review the results in more detail.

In terms of adjusted net sales, we delivered 4% growth at constant exchange rates for both the fourth quarter and the full year, but we saw diverging trends in terms of the currency impact.

For the full year, we had an adverse impact of about 1 percentage point, but this became much more pronounced in the fourth quarter with an impact of about 4 percentage points as the dollar strengthened considerably against a number of currencies compared to the fourth quarter of 2013.

Sales growth for the year was evenly split between contributions from the bioinformatics acquisitions and the rest of the business. For the fourth quarter, this split was 1 point from acquisitions and 3 from the rest of our portfolio. The Enzymatics acquisition was completed in December so very little for 2014.

As you saw in our preannouncement following the Enzymatics acquisition, we decided to take $22 million of business integration acquisition-related charges in the fourth quarter of 2014 and of which about $18 million were noncash charges. These charges included closing our Gaithersburg, Maryland site as we build up activities in the Boston area.

And in line with our policy, these charges were excluded from adjusted results. At the same time, we also decided to take a restructuring charge of USD 25.5 million, of which about $20 million were noncash items. These charges mainly involve the impairment of technology-related assets.

In line with our new policy, these restructuring charges were not excluded from adjusted results. As a result, adjusted operating income declined 2% for the year and adjusted operating income margin declined to 23.2% of sales from 24.4% in 2013.

When you exclude the restructuring charge from the full year 2014 results, the adjusted operating income was up about 60 basis points to 25.1% of sales, and this was even above absorbing -- this was even after absorbing about 100 basis points of dilution from investments into bioinformatics.

For the fourth quarter of 2014, the adjusted operating margin, excluding the restructuring charge, was 26.9% of sales, and the adjusted gross margin was 72.1%, so this show the solid underlying performance.

As for the distribution of the restructuring charges, about $16 million were in gross margin, while about $4 million were in marketing, about $2 million in sales and about $3 million in admin. I want to remind you that about $20 million of these charges were noncash.

In terms of the full year margin trends, we had higher R&D expenses in 2014 and those were about 12% of sales. These investments made to support various Molecular Diagnostics clinical development projects and also the GeneReader NGS workflow.

However, we generated margin gain in sales, marketing and administration, and here, we are seeing the benefits of our recent efficiency programs.

Moving down the income statement, adjusted net income for the full year was also down slightly and adjusted EPS was $1 per share when including the $0.08 from the restructuring charge, and $1.01 at constant exchange rates. I'm now on Slide 9 to review our adjusted sales in the fourth quarter by region and product category.

In terms of the region, the Europe/Middle East/Africa region led the performance in 2014, delivering 9% growth at constant exchange rates and contributing about 1/3 of sales of solid growth in Germany, France, the United Kingdom and Turkey, along with expansions in the Nordic countries.

Molecular Diagnostics sales grew at a double-digit pace and Applied Testing added to the gains, but Pharma and Academia results were slightly lower. The Americas showed largely unchanged 2014 sales compared to 2013, but grew 11% when excluding the U.S. HPV headwinds, thanks to underlying growth in the U.S.

and Brazil, while Mexico declined due to the timing of tenders compared to 2013. The Asia-Pacific/Japan region had solid results in the second half after modest gains in the first half. And full year sales rose 8% at constant exchange rates.

China was a key driver, growing the largest region, along with double-digit constant exchange rate gains in Korea and improving growth trends in Japan. The top 7 emerging markets generated 5% constant exchange rate growth for the year, providing about 40% of total sales.

This was below the double-digit constant exchange rate growth rates seen in the past, and the reason was a sharp full year sales decline in Russia. On the positive side, we saw solid double-digit incremental growth in Turkey, Korea and Brazil. On this slide, you also see results for our product categories.

Sales of consumables and other revenues, which includes bioinformatics sales, maintained growth at a low to mid-single digit constant exchange rate pace during 2014 and were up 4% constant exchange rate for the year.

Instrument sales advanced at the strongest quarterly pace in more than 2 years in the fourth quarter, delivering 18% growth at constant exchange rates and underpinning the 8% constant exchange rate increase for the full year. These gains include rising contributions from QIAsymphony placements as well as instrument service revenues.

Moving to Slide 10. Here you have an update on our balance sheet and cash flow position. On the right side of the slide, you'll see the improving trend in free cash flow during the course of 2014, leading to a 15% increase over 2013.

These results show we are generating an increased level of cash from the business and starting to see more benefits from our efficiency programs. Even in light of the share repurchase program and targeted acquisitions, we continue to have good liquidity and a manageable net debt position.

Leverage increased slightly to 1.3x net debt-to-adjusted EBITDA at the end of 2014 compared to 1.1x at the end of 2013. These figures do not include the anticipated cash out of about $250 million to complete the repurchase of the 2024 convertible notes.

All of the outstanding notes have been tendered and canceled, and we expect to complete the overall process in the spring. If you were to include this in our year-end balance sheet, leverage would have been about 1.5x net debt-to-adjusted EBITDA.

In terms of adjusted EPS, we see this purchase also being relatively neutral for 2015 since we have a negative tax rate impact and reduced interest income against a lower share count and reduced interest expenses. Also, the [indiscernible]million share repurchase program is still underway with about $50 million remaining in this tranche.

I would like to now hand back to Peer..

Yes. Thank you, Roland. I'm now on Slide 11 to review the progress of our growth drivers in 2014 and some of the goals we have set for 2015.

On the QIAsymphony automation platform, we have delivered more than 250 new placements in 2014, which put us well over the 1,250 cumulative placements at the end of the year, making one of the most widely placed systems for medium-throughput molecular processing.

A key driver is the expanding menu, with the addition of 8 tests in 2014 in the United States and/or Europe on the Rotor-Gene Q, the PCR component of this workflow. We've set a new goal to exceed 1,500 cumulative placements at the end of 2015 as well.

On Personalized Healthcare, which generated more than $100 million of sales, we had big achievements in expanding our portfolio of partnerships as well as expanding our portfolio to span PCR next-generation sequencing and Modaplex technologies and also in the area of liquid biopsies.

Earlier this month, we announced the first-ever regulated CE-IVD for a liquid biopsy companion diagnostic in lung cancer, and this was with AstraZeneca and their targeted therapy, IRESSA. We also completed a U.S. submission for a companion diagnostic paired with IRESSA in 2014.

Our status as the preferred partner for these codevelopment agreements was solidified with the announcement in November of a new agreement with Novartis, which marks the ninth of these master collaboration agreements and comes after the Astellas agreement earlier in 2014.

We're working on a number of potential commissions for 2015, but these depend upon the Pharma partner pipelines. Moving to QuantiFERON, this product exceeded $100 million of sales for the first time in 2014.

We are maintaining our target for 20% constant exchange rate growth in 2015, and the recent launch of the CE-IVD version of the fourth generation assay, known as QuantiFERON-TB Gold Plus, gives us an additional clinical and workflow benefit portfolio to drive share conversion in this $1 billion market opportunity.

In bioinformatics and next-generation sequencing, we made a lot of progress during 2014 to bring together our bioinformatics businesses and then to begin integrating this offering with our universal next-generation sequencing solutions.

A key milestone was the integration of our GeneRead DNAseq V2 gene panels for use in cancer and translational research applications with our Ingenuity Variant Analysis bioinformatics solution.

A key milestone in 2015 will be the commercialization of Ingenuity Clinical, which is the name we are using for this decision support solution during development.

This fully integrated web-based workflow has performed well in early access testing and further demonstrating its unique ability to scale the interpretation of sequencing data from next-generation sequencing molecular test service offerings. You'll be hearing more about this product and other advances in this business area during the year.

And on the GeneReader, we are moving on track for commercialization in the second half of 2015 and remain convinced that this solution will have a unique opportunity to help to drive the adoption of next-generation sequencing in healthcare and the clinical research setting by addressing the need for a complete workflow with powerful analysis and interpretation solutions from sample to insight.

I'm now on Slide 12 to update you on an example of the expansion of our transplantation portfolio, which we see as having a huge potential and a differentiated profile against the competition.

This portfolio is also great example how synergistic the unique and novel premolecular QuantiFERON technology is with our leading molecular technology such as PCR and next-generation sequencing.

This week, we announced the commercialization of QuantiFERON Monitor, which is based on the same technology platform as our TB detection test and will provide clinicians with information on a transplant patient's net immune status.

Physicians can use this assay to determine if their patients are over or under immunosuppressed and can better tailor patient care by taking the results into consideration with all other clinical factors.

The demand for such a diagnostic has been intense since studies have shown that about 40% to 70% of all post transplant mortality is attributed to immunosuppression or immunosuppressants. And keep in mind, there are about 115,000 organ transplants performed each year.

Early data was published late last year in the journal -- Journal of Transplantation and the authors concluded that QuantiFERON Monitor can distinguish between immunosuppressed populations, healthy controls and may provide an important advance in the management of patients after transplantation.

Clinical studies are now underway in heart, lung and kidney organ transplant patients, along with pharmacokinetic and health economic assessments.

This assay is also being investigated for use in other types of patients where immune status could be relevant, including hematopoietic stem cell transplantation, those who are HIV-positive or being treated with immuno oncology drugs.

The QuantiFERON portfolio is a natural match to our artus portfolio of assays for use on the QIAsymphony family of automation platforms. This provides laboratories and their customers with the broadest range of diagnostic solutions for use in transplant patients and we're working on a number of assays to expand the menu further.

I'm now on Slide 13 and will discuss the acquisition of the Enzyme Solutions Unit of Enzymatics, which has provided access to the premier supplier of enzymes used in next-generation sequencing and other genetic analysis technologies.

The unique technology and capability portfolio that the Enzymatics transaction brings to QIAGEN is that the products from Enzymatics have been essential in driving the wider dissemination of next-generation sequencing and are estimated to be used to more than 80% of all next-generation sequencing reactions globally.

Also, the power of their technology is so advanced and robust that they not only excel in performance in the most advanced labs, but even are cost leaders in the market, for instance in China.

These enzyme solutions are a perfect fit with our expanding offering of universal next-generation sequencing products and will also support our strategy to develop integrated workflows that will help drive the adoption of next-generation sequencing in clinical health care.

We are now creating a center of excellence for enzymology at the Enzymatics site in the Boston area, and about 50 of these employees, including cofounder, Chris Benoit, joined QIAGEN.

Enzymatics will continue to offer an OEM business model for customers and where we have a lot of experience, but we will also consider other sales channels as well, including direct sales through QIAGEN.

Another interesting aspect of this deal is that we have gained rights to next-generation sequencing products based on the ArcherDX AMP chemistry, which is considered a highly promising way to enable the detection of gene fusions and other targets that are critical for personalized healthcare and oncology.

The collaboration with the new ArcherDX, which is formed after the spin out of the Enzymatics Solutions product portfolio, we will be working together to develop this technology for use on various sequencers, including the QIAGEN GeneReader and leveraging the benefits of our bioinformatics portfolio. Moving to Slide 14.

Today, we're also announcing the appointments of 2 dynamic leaders to QIAGEN. First, Dr. James, or Jay Bradner, has been selected to join the Supervisory Board as a new member in January. Jay is a visionary, key opinion leader, who has played a key role in redefining drug discovery and development.

He brings a wealth of experience in drug discovery and development, translational medicine and also the commercialization of innovative therapies as a founder of various biotechnology companies.

He currently serves as the Associate Director of the Center of the Science and -- of Therapeutics at the Broad Institute and is also an Attending Physician at the Dana-Farber Cancer Institute and an Associate Professor at Harvard Medical School.

We're proud to have Jay joining our board since he offers a truly unique combination of being a physician, a scientist and an entrepreneur, and all this with an extremely successful track record. Moving to Slide 15.

In the second leadership change, we have -- we are announcing that Thierry Bernard has joined QIAGEN to lead our Molecular Diagnostics business area and expand our global presence in health care. Many of you already know Thierry.

He brings a broad portfolio of highly relevant experience to QIAGEN, along with a great passion for our vision as well as the experience of living and working in the United States, Europe and Asia.

Thierry joins us from bioMérieux, where he was most recently a Corporate Vice President and responsible for global commercial operations, investor relations and also their China operations. We see this as another signal of the interest among international executives wanting to contribute to our success.

Thierry succeeds Helga Lubenow, who has decided to take parental leave. I would like to thank Helga for her contributions so far during her career at QIAGEN and wish her all the best during this parental leave. With that, I would like to hand back to Roland..

Thank you, Peer. I'm now on Slide 16 to provide some comments on our guidance for 2015 and also for the first quarter. As we mentioned on the call for our third quarter results in October, we're expecting sales growth in 2015 of about 4% at constant exchange rates.

This is based on generating about 7 to 8 percentage points of constant exchange rate growth from our core portfolio, which represented about 95% of sales in 2014, against the final year of significant headwinds from our U.S. HPV products.

We have taken a conservative view with our expectations for about 3 to 4 percentage points of headwinds for the year. For adjusted EPS, we are expecting about $1.16 to $1.18 per share on a full year basis at constant exchange rates.

These expectations take into account that we announced earlier in January about Enzymatics acquisitions, and that is for about $20 million of incremental sales in 2015. The adjusted EPS guidance also takes a largely neutral view on the 2024 notes repurchase impact since there are some onetime tax charges, but accretion benefits are expected in 2016.

Moving to Slide 17. Here, you see an overview of our guidance for the full year and the first quarter. As I just mentioned, our guidance is for adjusted net sales to rise about 4% at constant exchange rates for the year. And this takes into account our views on the final year of U.S.

HPV headwinds, which will be more pronounced in the first half of 2015 than in the second half. For the first quarter, our guidance is for about 2% constant exchange rate growth and this takes into account about 7 to 8 percentage points of constant exchange rate growth from our portfolio against about 5 to 6 percentage points of U.S. HPV headwind.

In terms of adjusted EPS, our guidance is for $0.22 to $0.23 per share, also at constant exchange rates. In terms of the currency impact, as you have heard from other companies, the headwinds have increased quite substantially since we last spoke with you in October, and based on current rates, we expect this to create headwinds in 2015.

To give you an idea of the potential impact on results for the first quarter, and I want to stress this is based on if rates were to remain where they are today, our sales growth rate would decrease by about 7 percentage points.

So given our guidance for about 2% total constant exchange rate growth in the quarter, that would mean a reported 5% decline. As for the current related -- currency-related impact on adjusted EPS, we see this at about $0.01 for the first quarter.

The currency impact goes far beyond the dollar-euro rate, through a constellation of currency movements, and in particular, among currencies where we have growing sales but relatively low cost basis.

As we said before, these currencies are the Swiss franc, Nordic region currencies, the British pound, the Japanese yen, the Canadian dollar, the Brazilian real and the Turkish lira.

We are not providing more details on the cost basis in these currencies, but we have said before that we have a cost overhang in euros, meaning that the weakening of the euro against the dollar and other currencies delivers benefits on the cost side.

This slide also contains the adjustment assumptions for the year and the first quarter, and they are similar to levels you saw in 2014. With that, I would like to hand back to Peer..

Yes, thank you, Roland. I'm now on Slide 18 for a quick summary before we move into Q&A. So let me review what we have announced. First, we delivered a solid performance in 2014, moving ahead on initiatives to accelerate innovation and growth with adjusted net sales of 9% on a constant exchange rate basis when excluding headwinds from the U.S.

HPV franchise. Adjusted EPS was impacted by the restructuring charge, which was mainly noncash, while we had a nice increase in free cash flow. Second, we made a lot of progress in 2014 towards transforming on the QIAGEN portfolio.

The benefits of these efforts will become more apparent through the course of 2015 as -- also, as we work through the final year of U.S. HPV headwinds and deliver above-market growth from the core portfolio. Third, our guidance is for higher adjusted net sales and EPS at constant exchange rates.

And as a last point, we will continue our approach to disciplined capital allocation with a combination of targeted acquisitions that strengthen our portfolio and share repurchases. With that, I'd like to hand back to the operator to open the Q&A session. Thank you..

[Operator Instructions] And our first question comes from the line of that Dan Leonard of Leerink..

Question for Roland. Roland, I know there's a lot of moving pieces in 2015 with foreign currency. But I'm trying to determine what is your underlying EBIT expansion assumption in the 2015 guidance.

And what are the sources of the expansion?.

Excellent question. So for -- also for 2015, we feel quite comfortable that we're able to expand our overall adjusted EBIT margin by roughly 100 basis points, excluding currency.

We do believe that, as you just said, currency gives us at least a certain headwind so that might be somewhere, again using more or less today's rate, 30 to 40 basis points headwind. So it still leaves us still with a quite significant net improvement potential here. And again, it's our assumption, what we have delivered in 2014.

So we feel quite comfortable, as clearly, the efficiency programs we finalized over the course of '13 and '14 are gaining traction. So most of the impact comes out of SG&A, to a certain extent on the R&D side, as some of the larger programs we are able -- we will be able to finalize over the course of '15.

So all in, I guess, that gives us, as I said, net 60 to 70 basis points for adjusted EBIT..

And our next question comes from the line of Tycho Peterson of JPMorgan..

Wondering, maybe Peer, if you can put some parameters around kind of the market opportunity and your view around – to the growth drivers, in particular. Liquid biopsy, obviously, you had progress with ERISA out of the gate, but talk to how big you think this market opportunity is and what may be that could contribute in '15.

And then similarly, with the QuantiFERON Monitor, you talked about $100 million market but obviously potential to expand that.

What's the time frame to move beyond the initial focus on transplant?.

Tycho, the first, the -- well, start with the second one first. The QuantiFERON Monitor is going to first be positioned in the transplant market, which is a big market that we're already very well-positioned in, and that is also shown on this -- on the slide that we showed.

We have a very strong franchise in transplantation testing, which was further reaffirmed by the 510(k) we got in HSV, which in addition to CMV which has a PMA and HSV now added as a 510(k), we have the other assays as ASRs available or moving to the pipeline.

And with QuantiFERON Monitor, the QuantiFERON CMV assay, which is already available in Europe and QuantiFERON TB, which is also used in transplantation, we have a very, very interesting portfolio there. So we think that transplantation market, which overall is maybe $100 million in size, is a very good starting point for QuantiFERON Monitor.

But as we now are further validating in some programs, also together with pharma companies, things like the use of this QuantiFERON Monitor assay as a companion diagnostic with immuno oncology drugs, PD-1, PD-L1 portfolio, there's a really interesting opportunity there because we can assess appropriate dosage of these drugs, which is obviously extremely important in immuno oncology and other areas.

But this still is in validation mode so we wouldn't want to put a timing behind it at this point. But over the course of '15, you'll definitely get a lot more news flow in that regard. In terms of the liquid biopsy portfolio, there are a number of different terms floating around in the market what this actually is. There 2 ways of describing it.

One is the use of liquid biopsy as a sample, the sample technologies. And this is an area that we've been in since 10 years ago. If you read the first papers that were done by the pioneers in this area, they were all -- already applying our technology to process the samples.

And if you read and hear about all of these new approaches to liquid biopsy, and everybody's kind of diving into this area at the moment, there -- almost all of them applying our front-end sample technologies because this allows access to this very rare amount of new circulating nucleic acid that can be assayed.

The assays are the majority part of the market in terms of size, however, and they obviously are now opening up new potentials in terms of testing because we can do more routine monitoring. The nice thing about liquid biopsy is that we can access sample types that were previously not accessible, and we can do, thereby also monitoring.

So therapeutic monitoring, recurrence monitoring and potentially even screening. And this is still at a very early stage. So we are present in almost all of these programs. We, ourselves, are looking at primarily now companion diagnostics, both in PCR and next-gen sequencing.

Just to remind you, the next-gen sequencing panels we have, they're already all liquid biopsy-ready, meaning that other than with other panel technologies, we can process FFPE and liquid biopsy in the same workflow, and this makes it extremely easy to use, as sometimes biopsies are used -- sometimes liquid biopsies are used.

And we see this as the beginning of a very important trend, but it's not going to open up immediately..

Our next question comes from the line of Jack Meehan of Barclays..

I just wanted to get your latest thoughts on guidelines relating to TB testing with the World Health Organization. And then whether you had any reason to believe that the blood-based test could take more meaningful share from the skin test, if you saw greater adoption there..

Absolutely there -- the guidelines are changing around the world, and we definitely saw a number of new guideline changes in a number of different segments also in the United States, all calling for a more stringent, more structured latent TB testing process.

And there, our product really excels because one of the biggest issues with latent TB is that the old skin test requires multiple visits and has a lot of false positives, especially also due to vaccinated populations being picked up as positives.

And so the simplicity of our product and the lowering of the administration cost leads to very substantial savings to the health care system and also to systems like the correctional facilities, immigration and others.

So we see that the benefits that we've been able to create with the latent TB product, the QuantiFERON Gold product, have been right on spot in terms of now everything the guidelines are calling for.

And we think that the new products, and this is actually a very substantial new product that we launched, the TB Gold Plus product, has the ability to also now differentiate between risk of progression to active TB. And this is still in validation mode, but we're working very actively on it.

So there are a lot of new features in this new product that up and beyond the current usage could provide new applications as well. We remain enthusiastic about the opportunity, and all of the guideline changes are moving in the right direction for us.

I'd just also like to highlight the WHO guidelines for use of these -- of latent TB testing in even higher-prevalence countries and risk populations. And this is just massive in terms of increasing the total available market. We always talk about 50 million to 60 million tests.

We believe that alone added a double-digit million dollar of total available market in terms of tests to that. And we're obviously working very hard to be able to translate that into numbers. So growth trajectory for many years to come, we see very positive on this product portfolio..

Our next question comes from the line of Scott Bardo of Berenberg Bank..

I have a few financial questions, please. Mainly just focusing initially on cash flow development. I think a couple of years ago at your Capital Markets Day, you outlined an ambition to double your operating cash flow in the midterm.

And really, the question just relates to why operating cash flow hasn't grown as rapidly as your reported net income, given actually last year, you had a lot of cash restructuring cost, lesser than this year. So just a little bit of clarification around that. And if possible, a operating cash flow guidance for 2015 would be very helpful..

Yes, Scott. In terms for 2015, we clearly do believe that we should be able to increase both of the -- compared to, both meaning free cash flow as well as operating cash flow faster than the net income, driven by the benefits out of our efficiency programs.

And if you look into 2014, again, you could see that we were able to raise free cash flow to actually a record USD 201 million for the full year. This also includes, as we just said as well, certain payouts from restructuring accruals. So again, there are clearly certain things in which shouldn't be in, especially in '15 and beyond.

Probably more important also, there is a certain swing now actually more from the fourth quarter in 2014 into the first quarter 2015, driven by certain hedging in derivatives we did. So again, I would say that Q4 cash flow is actually underrepresented, where probably Q1 2015 cash flow will be slightly overrepresented.

At the end of the day, we feel on track with being able to, as we said before, doubling our operating cash flow in the course of 3 to 4 years. The 15% we have seen in '15 gives us here actually a good jump start..

And our next question comes from the line of Vijay Kumar of Evercore ISI..

Peer, maybe I had a different take on your instrument versus consumables.

Fairly strong uptake in your instrument placements, double-digits, right? And I guess my question is what percentage of those are incremental new placements versus replacing existing systems? I guess because the read-through is at some point, that has to translate into a stronger consumable growth.

And so I guess how should we sort of model our consumable growth, just given the strong instrument placements that you had this year?.

So indeed, the instrument placements are leading to very strong growth in consumables, high double-digit growth in consumables in accounts where we place a system. The -- by far, the majority of these placements are with new accounts. We only have few of the systems that are replacing older systems.

Remember, the QIAsymphony is basically a clinical sample to insight solution and integrates with real-time PCR next-generation sequencing. A big chunk is actually doing next-gen sequencing also on the downstream as well. So we're really placing into a lot of virgin territory and are not seeing a lot of replacement demand.

It's tough to estimate this because the systems are rarely retired at this stage. They're very long lifespans that they can work on. Some of our instruments have been running for 20 years or so. But I would estimate that at least 85% are new placements and 15% are recurring.

The installed base is clearly moving up on the Symphony side, but also products like QIAcube, where we have more than double-digit thousand systems out there, and we have very large -- these are products that by far the most of them are currently being sold as new placements or additional placements and rarely retiring old systems.

So we're still in an early phase of the instrument rollout, as we said. And in the U.S., it really just started because the menu has been starting to come together, and I showed you transplant is really, since January now, we have the critical mass together, and we can rollout a very interesting portfolio into that attractive market..

And our next question comes from the line of Brian Weinstein of William Blair..

Peer, maybe we can just continue in the kind of theme there on the QIAsymphony a little. Can you update us on utilization and where that stands now that you've launched a number of assays in the U.S.? So can you give us kind of where things stand in the U.S.

but also in the kind of an update on utilization o U.S.?.

Right. Sure, so 2014 was definitely a year of migration where we had the C. diff assay, which is obviously a very low-hanging fruit assay, pushed the whole system through an FDA clearance about 9 months ago. The portfolio obviously is not complete with one assay.

And we have other assays in the pipeline, the whole HAI portfolio and the Women's Health portfolio as well -- the transplant portfolio, I mean. So there's -- the transplant portfolio has now been coming together. We got the PMA on CMV. We got the 510(k) on HSV, and those are the bigger volume assays and the rest we have available as ASRs.

And the -- so there, we're starting to see now the portfolio come together nicely. The 2015 submissions will include the QuantiFERON Monitor, which we think is truly novel and a completely new message to transplantation experts and potentially also the CMV monitor assay, which we think is very novel but a smaller opportunity.

So the transplant were coming together nicely, which means that we can move into this $100 million market quite aggressively. On HAI, we are in the process of working through these submissions and the clin trials, and so we'll see a string of announcements in '15 around that.

For each of these -- once we have the critical mass in the menu, the markets open up, and this is just now starting to happen..

And our next question comes from the line of Derik De Bruin of Bank of America Merrill Lynch..

So, Peer, can you just give us -- I jumped on the call late, so my apologies if you addressed this already, but your Informatics business, how big is that sort of exiting 2014? And could you just give us some idea on what is sort of embedded into your growth expectations on that business for '15? And I guess my question is like what is sort of additional things you're doing to sort of expand that? And I've got a follow-up to that..

Sure. So our bioinformatics franchise is uniquely focused on everything that is extremely close to the biology. So we would not enter into markets that we think are potentially better served by large IT companies or others.

But this biology proximity is an area that is growing quite rapidly, and we have today a revenue base, which is 3%, 4% of our sales base. We have a very strong double-digit growth expectation in that area for '15, '16. The trajectory is certainly attractive on the stand-alone basis, but it's obviously a smaller part of our business.

The key thing is that we are seeing everything that we do across the company having some sort of a smart angle, as we see the industry is moving from selling cell phones to smart phones where we are trying to integrate this intelligence into even the most standard products that we sell and trying to link them up to the intelligence that we can help create through the bioinformatics franchises that we have.

So you're going to see a lot of that become a lot more evident over the course of 2015. So the business itself is a very good trajectory. It's been a very attractive value creative for us going forward, but at the same time, it has an impact across our organization..

Our next question comes from the line of Barak Khurshid (sic) [Zarak Khurshid] of Wedbush Securities..

So I guess first, for the codevelopment payments, how should we be thinking about the pacing of those and the magnitude and call it organic growth, say '15 and beyond?.

Sure. So if you look at our Personalized Healthcare franchise, which we scoped at a little bit over $100 million in sales or over $100 million in sales, the codevelopment payments, they're a fluctuating percentage, but the more important part of the value that we generate here comes from kit sales, and that is obviously attractive area for us.

And many of these companion diagnostic and cancer kits are growing at very, very solid double-digit growth rates. The payments we're getting from pharmaceutical companies, we typically have a large number that is being committed to by pharmaceutical companies.

We assume a certain attrition number and that is what we then ultimately put into our base for the year 2015 and also resource against. And the number can increase, but very frankly, we're less focused on the growth in that area. We're more focused on making sure that we have the highest possible number of kits actually making it over the finish line.

So a lot of our time is actually spent in evaluating pharmaceutical companion diagnostic opportunities as to their likelihood of actually achieving success in creating a sizable market opportunity for kits.

And this -- so we would rather turn down a program than take one on board and potentially crowd out something more interesting just to get a short term maybe revenue gain through higher codevelopment payments. So I wouldn't assume big growth on that percentage.

We said a couple of years ago it's about 1/3 of the portfolio that just assume that it's not a dramatically changing number going forward to have a steady increase of the menu is going to, by itself, lead to a significant growth on the kit sales like we're already experiencing..

Our next question comes from the line of Dan Areith (sic) [Dan Arias] of Citigroup..

Peer, on the HPV business, it sounds like you expect the revenue headwind to progressively decline over the course of the year.

Is that just based on comps and the fact that the percentage of total sales is going to go down? Or is there a specific pricing or account element that you expect to play a role there?.

Sure. So HPV was about 4% -- U.S. HPV was about 4% of sales in the fourth quarter of 2015. And by the way, this is why you see -- if we now assume that there's continued headwind, you see that by the end of '15, this should probably not be a meaningful impact anymore.

This is why we expect that the headwinds dissipate and the underlying leading organic growth that we are currently experiencing will shine through. The majority of this is actually pricing, and we're basically rolling over contracts into these new prices as the contracts expire.

We're actually very successful in being able to roll them over, but prices have come down, as we all know, from about $20 that we had about 4, 5 years ago on average to where they are today in the single digits. And this simply had to do with irrational pricing behavior by some entrants. So we're following that.

We are helping our customers also transition and being able to justify this type of testing, but it clearly came at the expense of revenue. These contracts are starting to -- the rollover is now starting to near completion, and this is what we hope to happen at the end of '15, and we're not far away from that though..

Our next question comes from the line of Daniel Wendorff of Commerzbank..

I have a question regarding your bioinformatics product offering.

Can you potentially put that into a competitive perspective, how big is your next competitor? And if -- how complete is your offering basically versus your competition? And where do you still see gaps?.

Thanks, Daniel. This is -- so the portfolio that we have today is the industry-leading portfolio in interpretation. So I think we can say in all fairness that in interpreting PCR next-generation sequencing data, we're really second to none. And this shows by the market shares and the sizes that we have.

We are, many times, even a lot larger than the #2 in this space, and in terms of quality, we believe far ahead. This has been a 15-year effort with massive resources, and the result is just starting to show its true value. So there's a clear industry-leading position that we're now putting into a very strong reporting capability.

So the ability to create really slick, really simple reports for pathologists and even physicians is well underway. And we've already demoed it to some people, have seen it already, and this, we think, will be a great and exciting 2015 launch.

The second is on the secondary analysis, meaning, take the data -- taking the data off the sequence and putting it into, I'm calling, the variance. There, we have a very strong offering in the commercial arena. Also here, several times larger than the #2 in the market with the CLC branded product portfolio.

This has been an undisputed leader in next-generation sequencing. We have now ported it over to clinical uses. The cancer research workbench, for instance, is an intermediary step in that direction. And we've now integrated also the BIOBASE portfolio into that workbench. And some of you might've seen that this is incredibly slick.

If you look at how we can actually take data off sequencers and seamlessly move them through with just a few buttons to be pushed into a report that can be used by physicians, by pathologists. This is incredible.

Today's systems require an extensive training in bioinformatics, and this is just not going to help democratization, especially in clinical research and diagnosis, and that's where we have a good offering. So we have a good and complete offering in this space, along that pipe, but we're continuing to expand it incrementally.

For us, the key thing is, again, we will not go into areas that we think are better served by big data companies. There a lot of areas of bioinformatics that we think other companies can serve at least as well, and those are less attractive for us. But we're going to stay very close to the biology and very close to the wet lab features of it.

And that -- that's where our core domain is and the rest of the areas we partner. As you know, we have a strong partnership with IBM and with other companies in this area, and we'll continue to expand these relationships with them and others..

And our next question comes from the line of Doug Schenkel of Cowen and Company..

I guess 3 clean up questions. First, on the pharmaceutical end market. Your growth's been improving the last few quarters, but relative to some other life science tools providers, it's been a little bit late relatively speaking. Just wondering if you'd be willing to talk about why you think that might be. My second question is also on pharmaceuticals.

Did you see a spike in pharmaceutical milestone payments in Q4, given some of the companion diagnostic announcements you made towards the end of the quarter? And my third question is on HPV. Given if we kind of look at the pacing over the course of 2014, you went from about $30 million in U.S.

HPV revenue in Q1, down to something that was probably between $10 million to $15 million in Q4. I know you talked about pricing, but it seems like when you see this type of drop in a market where the competitors have been there for little bit, that there's probably some contracts that are rolling off.

Is the assumption that there's more of those rolling off next year? And should we model it accordingly?.

Sure. Thanks, Doug, I'll take 1 in 3 and Roland can take 2. So the first on the pharma side. Pharma is a very different or is very diverse group of customers. We've seen a good uptick in some regions. We've seen very poor performance in others. And it really depends on where larger projects are being done, especially in clinical development.

So it's much more lumpy than, for instance, Academia. And I wouldn't interpret too much into a quarter-over-quarter, sequential quarter performance. Look at this more in annual performance where there are improving trends.

What I would say is that on the Pharma side, we're not super satisfied in how we've been able to address that market, and that's something that we're addressing for 2015, has to do with the way that our commercial engine was set up, and we are looking at this in a new way. So this is something where we think we can improve further on this.

But again, the sequential performance, I wouldn't put too much interpretation into it. The second thing is on the HPV side. The contracts are simply rolling over and then they're renewed at new prices, and that will continue over the course of 2015, as the guidance already implicates.

Our underlying growth rate is in the high single digits, and we're seeing the headwind, and we will also see that over the course -- in particular, over the first 3 quarters of this year.

But we expect, based on how contracts are structured and what still is up for renewal, that we will see the majority of that having rolled out by the end of the year. Again going from 4% of sales in Q4 2014, this -- you'll see where this will potentially end up.

So we're already assuming a rather aggressive continuation of this trend into a number that will not impact us anymore going forward, thereafter. And that, again, will be sometime the second half of the year..

And on your question around -- results of companion diagnostic, as we said before, we particularly had a very strong fourth quarter. Please have in mind that we do report that within our MDx numbers and the growth rate ex HPV for MDx was 16%, excluding currency impact in the fourth quarter. So again, also very strong performance.

It's driven actually by both, a good kit sales performance. We see improving trends not only in U.S. but also globally. At the same time, with the number of new contracts we've been able to close, we had a good finish in the fourth quarter, clearly also one of the driver for 2015 as well..

And our last question for today comes from the line of Jeff Elliott of Robert Baird..

Quick follow-up for Roland and then a question for Peer. Roland, on the operating margin expansion commentary from earlier, were you adjusting for the fourth quarter charges in the year-over-year improvement? And then....

Yes, absolutely..

Peer, a question on the appetite for M&A. Are there specific areas you're looking for with a net leverage at 1.5 turns, it's pretty low.

I guess, what -- how big could you go in other areas that you're interested in?.

Before you answer question, just to make it very clear, so I was more or less commentating on adjusted balances also for 2014. So my basis was 25.1% for 2014..

Great. Yes, so I think there's a theoretical question, Jeff. And answer to that question, which we all can calculate with a theoretical fire power, is the company's extremely well-financed, has a strong balance sheet, and we are obviously reallocating capital to our shareholders quite aggressively as you see.

You saw the bond repurchase and the share repurchase last year.

And that said, we are aggressively also looking at acquisition opportunities in an environment like this, and we see a lot of opportunities, especially for a company our size where a lot of entities are attractive even to a certain degree needle-moving transactions on our scale, but less so for larger entities. So we have been quite successful.

You saw the Enzymatics transaction. We're very excited about that. We're very excited about BIOBASE. So we've been very selective. And if you look at the last 3, 4 years, we are very pleased with the performance of that track record. It added a phenomenal asset base and also value creation in the meantime to our entity, and we expect that to continue.

And by the way, this value creation was across Life Sciences and Diagnostics. So the capital allocation has been very balanced, and we look at opportunities and not simply at market segments..

So with that, I'd like to close the conference call. And if you have any following questions, please do not hesitate to give me a call or shoot me an e-mail. Thank you again..

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