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

Jonathan Groberg - UBS Securities LLC Tycho W. Peterson - JPMorgan Securities LLC William R. Quirk - Piper Jaffray & Co (Broker) Scott J. Bardo - Joh. Berenberg, Gossler & Co. KG (United Kingdom) Brian D. Weinstein - William Blair & Co. LLC Derik de Bruin - Bank of America Merrill Lynch Jeff T. Elliott - Robert W. Baird & Co., Inc.

(Broker) Daniel Wendorff - Commerzbank AG (Broker) Steve C. Beuchaw - Morgan Stanley & Co. LLC Gunnar Romer - Deutsche Bank AG (Broker) Jack Meehan - Barclays Capital, Inc..

I am Patrick Wright, your Chorus Call operator. Welcome and thank you for joining QIAGEN's Conference Call to discuss the results of the Fourth Quarter and Full Year 2015. At this time, all participants are in a listen-only mode. Please be advised that this call is being recorded at QIAGEN's request and will be made available on their Internet site.

The presentation will be followed by a question-and-answer session. 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, Patrick. And welcome to all of you, and thank you for joining our conference call today to review the results we released last night and provide a business update and also discuss our prospective for 2016 before we get to a Q&A session.

Our speakers today are Peer Schatz, the Chief Executive Officer of QIAGEN; and Roland Sackers, the Chief Financial Officer. Also joining us today on the call is Dr. Sarah Fakih who joined our IR team and has previously worked in R&D at QIAGEN.

On slide two, you see the customary Safe Harbor statement explaining that the discussion and the responses to your questions on this call reflect management's views as of today, February 3, 2016.

We will be making statements and providing responses to your questions that state our intentions, beliefs, expectations, predictions of the future, and these constitute forward-looking statements for the purpose of Safe Harbor provisions.

These can involve risks and uncertainties that could cause actual results to differ materially from those projected. QIAGEN disclaims any intention or obligation to revise any forward-looking statements. For more information, please refer to our filings with the U.S. Securities and Exchange Commission.

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

As the last point, we are planning to hold a series of events this year to give you the opportunity to learn more about QIAGEN, and we will keep you updated as we schedule them during the year. With that, I would like to now hand over to Peer..

First, NGS experts who may add the GeneReader to the lab to better handle high sample throughput and flexible workflow demands; two, existing NGS users who may consider an instrument swap-out to reduce workflow and vendor complexity. Few people actually realize that a typical next-generation sequencing workflow involves a dozen or more vendors.

QIAGEN however, can serve as the sole partner offering Sample to Insight solutions; three, labs currently in a decision making process to bring in next-generation sequencing and will now assess GeneReader; and four, labs previously resistant to next-generation sequencing that will now consider it, thanks to the benefits of GeneReader.

The next-generation sequencing landscape is very diverse. Some research labs may want to focus on pure sequencing horsepower and technology breakthroughs when making their purchasing decisions. At the same time, many labs are focusing on different factors, and these are the customers we're trying to address.

I'm now on slide ten, and here you see our GeneReader roadmap. Our top priority in 2016 is to develop this market opportunity and secure system placements. Keep in mind that the placement process involves often a sales cycle of about six months to nine months and this is why we are reluctant to provide sales or placement targets for 2016.

However, our goal is clearly to gain a double-digit share in the benchtop sequencing market for targeted panels. Among our objectives will be to develop the product cycle, and this involves adding more sample types to the current solutions which are targeting FFPE samples.

This involves enabling the use of other sample types, including liquid biopsies as well as fresh and frozen tissue. We also intend to expand the gene panel test menu to cover other specific cancer types and will further optimize the workflow through chemistry and other technical upgrades.

I'm now on slide 11 to review some of the key areas we have identified for investments during 2016 with the intention of leveraging midterm growth opportunities. We have grouped these investments into three categories.

The first involves strengthening our commercialization power, in particular though the addition of more sales and marketing resources (17:06) the QuantiFERON latent TB test in the United States and Europe. Our ambition is to reach a faster annual growth rate than the current 20% and to do so on an increasing base of sales.

Another area involves our decision to consolidate and expand the personalized healthcare and next-generation sequencing commercial teams in the United States, Europe and some other regions to create an even more compelling offering to customers.

The addition of the GeneReader next-generation sequencing system strengthens our leadership in molecular oncology testing as the only company to offer next-generation sequencing along with PCR and Modaplex technologies. We have also identified some targeted growth areas for investment.

As I just mentioned, we plan to expand our next-gen sequencing offering, both in terms of building out the GeneReader next-generation sequencing system, as well as our QIAseq portfolio of universal solutions that can run on other platforms as well. The addition of MO BIO also shows our commitment to building on our foundation in sample technologies.

Moving downstream, in lab processes, we intend to further expand the test menu on our automation systems. As a last investment area, we are targeting geographic expansion opportunities. We are currently building up our activities in South Africa, which is an attractive emerging market for diagnostics and also have plans to enter Thailand.

Another focus area will be the Middle East, where QIAGEN is currently rather underrepresented, and we are also looking at opportunities in Latin America beyond our current operations in Mexico and Brazil. With that, I'd like to hand over to Roland..

Thank you, Peer. Good afternoon to everyone in Europe and good morning to those of you joining from the U.S. I'm now on slide 12 to review our financial performance in 2015 and outlook for 2016.

First, for the fourth quarter the adjusted net sales growth of 3% at constant exchange rate included two percentage points from the acquisitions of Enzymatics while the rest of the portfolio grew about one point. This was also after absorbing about one percentage point due to lower U.S. HPV sales compared to the prior-year quarter.

As a result, the rest of the QIAGEN portfolio represented 97% of total sales and grew 4% constant exchange rate in the quarter. Adverse currency movements created a very strong six percentage points of headwind, so sales at actual rates declined 3% to about $349 million.

Moving down the income statement, adjusted operating income rose 26% to about $90 million and the operating income margin was 26% of sales. Keep in mind, however, that the results for the fourth quarter of 2014 included restructuring charges of $25.5 million.

So the adjusted operating income margin for the fourth quarter of 2015 was down about one percentage point from 27% in the prior-year quarter when excluding the 2014 charges. In terms of the margin development, excluding this charge, the adjusted gross margin declined about one percentage point to 71% of sales.

Excluding restructuring charges, we also had lower year-on-year R&D investments and general and administration cost in the quarter as a percentage of sales, while on the other hand we had higher sales and marketing expenses compared to the same period in 2014.

Our decision to reinvest savings into targeted activities during the second half of 2015 weighted on this margin development. But we see this as a worthwhile tradeoff given the opportunities to bolster growth prospects and capture new opportunities.

Also for the fourth quarter, adjusted net income was about USD $74 million while adjusted earnings per share was $0.33 at constant exchange rate. In light of the adverse currency movements, adjusted EPS at actual rates was $0.31 per share. The adjusted tax rate was 15% and the share count was 237 million and both were in line with our outlook.

For the full year, the results for adjusted net sales and adjusted earnings per share were in line with the preliminary estimates. Adjusted net sales grew 3% at constant exchange rates to $1.39 billion. However, adverse currency movements were tough throughout the year and adjusted net sales at actual rates declined 5% to $1.28 billion.

Adjusted operating income rose 1% to about $315 million, but taking into account the restructuring charge in 2014, adjusted operating income declined about 7%. The adjusted operating income margin was 25% of sales in 2015 and this was down about 50 basis points from the margin in 2014 when excluding the restructuring charges.

The trend was similar to what we saw in the fourth quarter. The adjusted gross margin declined to 71% of sales from 72% for the full year in 2014, while lower R&D and administration costs as a percentage of sales offset higher sales and marketing expenses. Again, this is excluding restructuring charges.

Adjusted diluted earnings per share were $1.13 per share at constant exchange rates, up from $1.00 per share in 2014. However, results at actual rates were $1.05 per share due to the $0.08 of adverse currency movements, and this compared to $1.00 in 2014. The adjusted tax rate was 17%, and this was in line with our outlook.

Moving to slide 13, I would like to provide you with an overview of the customer classes. As noted earlier, these include contributions from the Enzymatics acquisition completed in December 2014. The acquisition of MO BIO occurred very late in 2015, so it did not have a meaningful impact.

The trend during 2015 was improving sentiment in the Life Science areas of Academia, Pharma, and Applied Testing. In Academia, total net sales rose 5% for the full year at constant exchange rates on better government funding trends, particular in the U.S. and Europe.

Pharma sales rose 5% constant exchange rate for the full year 2015, but this was still slower than in previous years. Sales to these customers often face volatility due to pharma industry M&A and restructuring activities.

Applied Testing maintained its traditional high-single-digit constant exchange rate growth pace in 2015 with the strongest expansion in human identification and forensics, and this is expected to continue into 2016. In Molecular Diagnostics, we had mixed trends. On the one hand the underlying improvements were overshadowed by headwinds from lower U.S.

HPV test sales with sales of other products to these customers rising 7% constant exchange rates for the year.

As we mentioned earlier, bright spots included the ongoing 20% constant exchange rate growth pace for the QuantiFERON latent TB test and double-digit constant exchange rate growth in the sales of consumables for the QIAsymphony system, as we achieved our 2015 goal for new system placements.

At the same time, sales remained soft in the fourth quarter, and this was noted in our preliminary announcement. Here we felt the impact of volatility in the timing of revenues from the companion diagnostic partnerships with pharma companies with sales up year-on-year and also in the quarter, but not as high as we had planned.

The decline in instrument sales for the fourth quarter was also disappointing, and this included some impact from the timing of revenue recognition from the multi-year QIAsymphony reagent rental contracts. I'm now on slide 14 to review sales on a regional basis. In the fourth quarter, we saw improving trends across all regions.

The Europe/Middle East/Africa region led the overall performance for the year with sales up 6% constant exchange rate for the year and up 7% constant exchange rate in the fourth quarter, and led by Germany and Turkey along with general improving results in other European countries.

The Americas delivered 2% constant exchange rate growth for the fourth quarter, and sales for the full year were largely unchanged compared to 2014. This region had to absorb the headwinds from lower U.S. HPV test sales and regional performance was up 7% at constant exchange rates for the full year when excluding this impact.

After a slowdown in the third quarter, the Asia-Pacific/Japan region returned to faster growth in the fourth quarter, rising 6% at constant exchange rates. This was in line with the full year growth rate at 7% constant exchange rate. Japan has remained a challenge, declining at a single-digit constant exchange rate for the year.

At the same time, China showed improvement in the fourth quarter, and here we saw high-single-digit constant exchange rate growth on a full year basis for 2015. China was also one of the highlights among our top-seven emerging markets, which as a group rose 8% constant exchange rate for the year and represented 15% of total sales.

Other top incremental contributors were Turkey, South Korea, and India, and this more than offset lower sales in Mexico and Russia. Moving to slide 15, this is an update on our balance sheet and cash flow position at the end of the year. Operating cash flow for 2015 was $318 million, an increase of 10% from $288 million in 2014.

This was above our target for more than $300 million. We also had a similar increase in free cash flow for the full year to about $220 million from about $175 million in 2013. We want to maintain appropriate liquidity while using resources to strengthen the business and increase returns.

Net debt remains at a manageable level with leverage at 1.6 times net debt-to-adjusted EBITDA at the end of 2015 compared to 1.3 times at the end of 2014. We still have about $30 million left in this third $100 million share repurchase program. We certainly view our shares as being undervalued and are considering a new repurchase program.

At the same time, we continue have the bias towards targeted acquisitions as you saw with MO BIO. As announced in January, our target is for adjusted net sales of about 6% constant exchange rate growth in 2016 and we see this year as opportunity to show the power of our transformation.

This outlook is based on about one percentage point of growth from the acquisition of MO BIO that was completed in late 2015 and about five percentage points from the rest of the business. Keep in mind that this includes about one percentage points of headwinds from lower sales of U.S. HPV sales.

And as we announced in January, adjusted EPS is expected to grow approximately in line with sales at the constant exchange rate, and this implies a target of about $1.10 to $1.11 per share.

As you know, we intend to keep investing in targeted growth opportunities and that means we have a goal for the full year to maintain the adjusted operating income margin at the 2015 level of 25% of sales.

Based on currency exchange rates, we currently expect pressure for the full year results in 2016 of about three percentage point in adjusted net sales. So this implies about 3% sales growth at actual rates. In terms of the currency impact on adjusted EPS, we currently expect pressure of about $0.03 per share on adjusted diluted EPS.

So this implies about $1.07 to $1.08 per share at actual rates. In our pre-announcement, we had anticipated currency headwinds of about two percentage points based on rates at that time. Since then, we have seen volatility in some currencies such as the British pound, the Australian dollar, and the Chinese renminbi.

Moving to slide 17, I would like to provide some details on our outlook for 2016 as well for the first quarter and provide some details for the assumptions on adjusted results. For the first quarter, we have set a goal for adjusted net sales growth of about 2% at constant exchange rates.

This is based on the mix from the current portfolio and the MO BIO acquisition. It also takes into account expectations for about two percentage point of headwinds from U.S. HPV test sales. We face a tough comparison against the strong underlying performance in the first quarter of 2015.

Another reason for this guidance is our expectation for weaker trends in Japan for this quarter, which is a key quarter as it is the end of their fiscal year. We also anticipate slower trends in some emerging markets and for more modest growth in China.

In terms of currency impact for the first quarter, this is expected to be about four percentage points based on rates as of February 1. On adjusted EPS, we have set a goal for about $0.19 per share to $0.20 per share at constant exchange rates and for an adverse impact of about $0.01 on results at actual rates.

This slide also contains adjustments assumption for the full year and the first quarter of 2016. The adjusted tax rate is expected to be about 17%, which is the same level as in 2015 and the weighted average number of fully diluted shares is expected to remain relatively stable at about 239 million compared to 237 million in 2015.

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

Yeah, thank you, Roland. I'm now on slide 18 for a summary before we move into Q&A. So let me review what we have announced.

First, we are pleased with the progress made during 2015 to set QIAGEN on a course for accelerating growth in 2016 and the coming years, but disappointed with the shortfall in the fourth quarter that weighed on our full year performance.

We delivered solid sales growth from our core business, especially the double-digit gains for growth drivers, while also putting behind us the significant headwinds from the declining U.S. HPV sales that have overshadowed our performance for the past years.

Second, we are moving ahead on initiatives to transform QIAGEN and are demonstrating success in areas with dynamic mid-term and long-term growth prospects. The benefits of these efforts will become even more apparent during 2016, a year with important catalysts.

These include, driving greater use of the QuantiFERON-TB test, developing market opportunities for the GeneReader NGS system, benefit from improved life sciences funding in the U.S.

and other key markets, and also expanding our leadership in sample technologies with differentiated premium products such as liquid biopsies and the microbiome portfolio, which also includes MO BIO.

And as a last point, we are setting full year guidance for higher adjusted net sales and earnings per share at constant exchange rates, along with ambitions to increase free cash flow and making targeted investments to secure our current business and capture new opportunities through geographic expansion in digital sales (33:47).

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

Thank you. Ladies and gentlemen, at this time we'll begin the question-and-answer session. Our first question today comes from the line of Jon Groberg of UBS. Please go ahead..

Great. Thanks a million. Peer, can you – if you think over the last few years where HPV – U.S. HPV has been a big headwind. You've done a remarkable job in terms of keeping your margins fairly stable. And I think one of the disappointments for investors as you move into 2016 is maybe not seeing that operating leverage and earnings leverage and so forth.

Can you maybe elaborate as to why we're not seeing it in 2016 and when we will see some operating leverage?.

Sure. So obviously when we looked at 2016 and planning for 2016, and we tried to take a very balanced view, also considering that we are making significant target in investments in areas that are still ramping up. We made significant increases also beyond our initial expectations in the QuantiFERON resource space.

So that has become a much larger commercialization engine than we originally thought, but the growth rates are also very substantial. In addition, we are quite excited about the GeneReader franchise, which initially was targeting a smaller segment, and now with the initial feedback over the last few months can go broader.

So there is a broader resource base also allocated to that, which is clearly not recognizing the average sales that we see on the rest of the business per head count, because we are still in ramp up mode there.

So it's really all about – and you will see from I think the numbers going forward that the majority of these investments are in the commercial engine, where we have made significant changes.

And in 2016, you are probably going to see some of these investments have a higher weight versus than probably in the second half of the year and then the years thereafter show more leverage. The goal for 2016 was to show top-line flexing from the 3% to 4% now up to the 6% guidance that we gave.

And for the periods then thereafter we think that the EBIT line, the bottom line will then start accelerating as well and show that leverage from the top-line pull-through, which we think will continue also based on the longevity of these growth drivers for quite some time..

Our next question comes from the line of Tycho Peterson of JPMorgan. Please go ahead..

Thanks. I want to ask on two things, the – just the issues that were there in 4Q, the lumpiness in the companion diagnostics business and the lower instrument revenues.

Do you expect these to linger in the first part of the year, or if some of those actually come through in the first month here? And then secondly, can you give us a little more color on the underlying growth assumptions for the divisions? I'm just trying to understand where you're really modeling an acceleration I guess from our perspective things like GeneReader, while interesting, you are only launching with one assay.

It's a reagent rental model. You've got some cannibalization of therascreen, so it probably doesn't move the needle that much.

So can you maybe just give a little bit color of what could really drive the accelerating growth for 2016 as well?.

Well, the – I'll take the second question, Roland, if you take the first one. The second question was the – is – if you look at the trajectory of revenue growth that we had over the last few years ex the HPV headwinds, it was always fluctuating anywhere between 5% and 10% and typically somewhere between 6% and 7%.

And so this is pretty much the basis that we put out now for 2016. So it's the trajectory that we've seen in the prior years, plus with the – minus the HPV headwinds. So that doesn't really imply a significant acceleration for 2016 in the guidance. It's a continuation of the current trend with now just the elimination of that headwind.

On top of that there's a percentage point of MO BIO baked in there as well. So you see, I think it is – it's not in any way a change in the trends that we've seen over the past few quarters.

Roland?.

Yeah, and on the fourth quarter I think on the instrumentation side that, that is the trend what we are seeing now in more general that even outside Molecular Diagnostics customers going more and more for reagent rentals. So I don't think that is something necessarily what will change for 2016, other than already included in the guidance.

On the companion diagnostics side, I would say that is something clearly that we believe a couple of things are coming back over the course of 2016, not necessarily the first quarter. Again, it's a little bit too early to say and we are rather taking a more cautious approach.

Nevertheless, I would say these things probably most likely will come back over time..

You know, if I could just add to that, Tycho, the interesting thing is, while we are seeing volatility in the service revenue income, and that was obviously the major deviation from the expectations we had in the fourth quarter, we are seeing a record inflow of new partnerships and we announced the fifteenth master collaboration agreement.

And, you know, there is several programs typically within each of these pharma company partnerships. So this is, I don't know, ten times more than anybody else is running in molecular. So this has accelerated significantly in 2015 and we also see good trajectory into 2016.

So the – that revenue piece, it just will remain volatile and we're trying to understand how we deal with it best..

Thank you..

Our next question comes from the line of Bill Quirk of Piper Jaffray. Please go ahead..

Great. Thanks. Good afternoon. First question actually is the two-part question, so I guess first off is, on the refugee crisis, kind of help us think a little bit about what this could do to the QuantiFERON performance I guess in 2016.

And then secondly, Peer, just curious kind of how you are sizing the desktop NGS market for targeted panels? Thanks, guys..

Sure. The QuantiFERON opportunity remains vast and the recommendations that came out from WHO and others to also expand the use of QuantiFERON, which was traditionally seen as a developed world product, now into developing countries, that was a watershed event.

There was something like a religion war going on for many years; is latent TB screening better or is active TB screening better? And we clearly believe that you have to address the pool of the disease prior to it becoming something that will further contribute to the spreading of the disease, i.e. prior to becoming active.

And now the first subgroups of populations, also in developing countries have been called out as segments that should be screened using latent TB tests, in particular risk groups. And that's why we're also now highlighting the HIV populations and the pregnant women segments of the market that are now targets for latent TB screening.

So the developed world is still barely penetrated – it's barely double-digit penetrated as a percent of the total market. And the developing world, we are basically starting at very low points, and again, moving up into very exciting numbers and are active on many, many regional and national screening programs at the moment and studies.

In terms of the GeneReader market potential, we have very clear estimates where this is, and it is highly synergistic with our therascreen and our Ipsogen portfolio. We have a very significant presence in molecular pathology. It's been a market we've been in since 20 years and have a target commercialization engine there.

And that same team is commercializing the GeneReader. And also here, while there has been a big battle, is PCR better, is next-generation sequencing better, there is a place for both. And having both under one roof gives customers not a technology discussion, but a solution discussion, which we've seen very productive.

The market for benchtop sequencing and targeted panels in oncology is one that we have clearly defined. These are several hundred systems a year. We'll be able to give further guidance over the course of the year with further data, plus also as we highlighted, we will be expanding the menu.

We started with a targeted panel to allow a very controlled and very visible launch, but clearly we have one of the largest menu development teams in this industry, have dozens of panels for generic use already in the market and are generating substantial sales there.

So the question is this; when and how do we port those over to the GeneReader into a very controlled Sample to Insight solution, which would significantly expand the market beyond there. It's the fastest growing market opportunity.

We're the first clinical company in many years now to enter next-generation sequencing with a full lineup of clinical expertise and the service and support networks and customers see this as a very good development and are looking forward to getting our products..

Our next question comes from the line of Scott Bardo of Berenberg. Please go ahead..

Yeah, thanks very much for taking my questions, Peer. Actually, two quick topics. First of all, just looking into gross margin, there's been a little bit of contraction in gross margin over the last successive quarters. Obviously you mentioned the timing of the companion diagnostic revenues, which require high gross margin.

But I wonder if you can just give us a little bit of an outlook on gross margin into 2016? What are some of the positive and negative considerations, both 2016 and beyond? Second question just relates to catalysts. Thank you for just giving us an outline of the things to watch.

I think one thing you didn't mention was your Capital Markets Day, which I think you were highlighting at the last update for around springtime. Just wonder if you could give us a feeling for when that will be and when you are likely to set any midterm targets. Thank you..

Excellent. So Scott, I'll ask Roland to answer the question on the gross margin and will answer the one on Capital Markets Day together with John Gilardi.

So Roland, do you want to take the first one?.

Yeah, sure. On the gross margin side – and hi Scott, it's something what we I think said also before. For 2016, we was (45:57) expect the gross margin all-in to be probably quite flattish compared to 2015, where at the same time we believe that we have some opportunities to improve gross margin beyond 2016.

And one clear driver for that is opportunity on insourcing QuantiFERON. We are probably right now halfway through. It is clearly a major product for us in the meantime and most all production steps was significantly outsourced and we are insourcing significant parts now, which has clearly also a costing impact for us. So I guess that is one area.

General cost mix will be more favorable as we see that molecular typically comes with a slightly better gross margin in general than other customer classes in our portfolio. So the overall mix development, for example also including bioinformatics that's having a faster growth rate are going to help us here.

And again, we all know that for the last three years we had a significant headwind on the gross margin side as well, which was again out of the HPV situation in North America that this is getting now less of an topic over the course of 2016. It's clearly also good news for us over the course (47:24) of the year as well..

Scott, in terms of your question about the Capital Markets Day, we were looking at a date in spring, but we feel, due to various factors, we're going to do one later in the year.

Also give us a chance to give you more color about where we are with GeneReader and some other developments, but we're going to do various events on the phone and also in person for people in the U.S. and Europe during the year as well and to complement that with a chance to meet and kind of give a wrap-up.

But we'll give you more information later in the year as we progress..

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

Hey, guys. Thanks for taking the question. With respect to liquid biopsy, you guys are obviously a player more on the front end.

Do you guys have intentions to broaden your reach and go deeper in liquid biopsy? And if so, is that an area of focus for M&A for you for this year? And maybe you can touch on kind of this broader areas of focus for M&A as well? Thanks..

Sure. So, in liquid biopsy, you're correct to point out that we have a strong franchise in the area of sample technologies and we're expanding that and you'll see a lot over 2016 as well in that area. The presence that we have is – I think there's no company having as many touch points into liquid biopsy as we do.

Almost all of these liquid biopsy companies are using our sample technologies to be able to target those rare circulating analytes or rarely present analytes. At the same time, we also pioneered the first companion diagnostic with a liquid biopsy, creating a Sample to Insight solution with the CE marking of the EGFR assay for use with IRESSA.

In monitoring, you typically want to have fast results and inexpensive results and go into higher iterations. So this has proven actually to be a very interesting addition to our portfolio, which is very well received.

In addition, we also announced that GeneReader will receive liquid biopsy capabilities, making a Sample to Insight solution also available for next-generation sequencing for our panel work.

So it is an integral part of our portfolio, right now focusing more on the predictive and prognostic markers and, in some cases, diagnostic markers that we currently have and expanding also into the panels that partly we already have in the market today and making them liquid biopsy ready.

You might have seen that at the AMP we had a session where we showed that most of our panels that we're marketing today – and this is very unique because we're the only party that has this availability, are – can be used with both solid tumor and with liquid biopsy samples.

So we see the two as highly synergistic and part of a continuum of care, in particular in cancer. In terms of the M&A strategy, we'll – we are highly focused on what we have on the plate. We think we have a very attractive portfolio that we want to execute on now. We worked hard for the last three years in this transformation to reposition it.

I think the Street has now started to see that the addition of the world's-leading bioinformatics portfolio – there was a very good research report showing we have over 50% share in this emerging market, the integration with unique automation, unique assay development and strong Sample to Insight integration capabilities that this is starting to show its value and we're looking forward to translate this into numbers..

Our next question comes from the line of Derik de Bruin of Bank of America Merrill Lynch. Please go ahead..

Hi. Good morning..

Good morning..

Two questions.

So you know there – could you just give us a little bit in terms of the size of some of the growth driver markets – your (51:48) percentage of revenues you got? For example, could you size us the QuantiFERON exposure, how big of a percentage of sales is that? How big your companion diagnostics? And how big the NGS is? I'm just trying to get a better sense for modeling purposes to get a better sense of what the growth opportunities are..

Sure. Well, as Roland detailed in the call, the QuantiFERON revenue base 2015 was about $115 million. We have a – showed a 20% growth rate last year and are stepping up that growth rate in 2016. The market opportunity, as we detailed many times, we believe it is probably around $1 billion under the current recommendations.

And this is just based on the existing and to-date performed skin tests and market opportunities that we think are – represent also opportunities that with a – that are feasible to convert to QuantiFERON. So it's a vast opportunity, but these markets don't snowball. They – as we've seen in other markets, they kind of convert one segment at a time.

The other one is the companion diagnostic franchise, as we've detailed also previously is about $100 million in size and is also for us a growth engine that is expanding, as you see from the number of new partnerships and also the announcements that we did this year.

And this will further expand with the addition of next-generation sequencing, which by itself is a growth driver that we detailed could – just is alone (53:33) – we today, even prior to the launch of GeneReader, we said a few times that we're north of $75 million in sales in 2015 and that portfolio that relates to next-generation sequences – and we're not entering into a market, we're there.

We're really one of the larger players already in this market with a portfolio present in the target segment that we have, and we're now adding on to that with a complete Sample to Insight solution. So these growth opportunities are vast, as you see. Just those alone are just the tips of the iceberg.

And like, most of you have written reports on all of these showing massive numbers that we're trying to be conservative on and take this into a very incremental mode. But the platform has been built, and we are now in execution mode to be able to address this..

Our next question comes from the line of Jeff Elliott of Robert W. Baird. Please go ahead..

Yeah. A question for Roland quick is, on the free cash flow, could you give a 2016 guidance number? And then how should we think about the cash-on-cash returns on some of the investments you're making? Really in light of where the stock's headed, you described it as being undervalued.

How do you think about the tradeoff there between investments and buybacks? Thanks..

As you have seen, 2015, I think that demonstrated quite nicely our ability to grow, again, cash even much faster than net income.

And again, if you see the underlying net revenue growth we had in 2015, especially with currency headwinds we had, to be able to increase cash flow by 9% to roughly $220 million free cash flow, I think, is showing our commitment to what we said I think now three years ago on our Analyst Day where we said we want to double operational cash flow over a period of, at that time, four years to five years.

And I think we feel quite comfortable on that way. We do expect that also cash flow is growing faster than net income again in 2016.

We clearly now also said that we growing especially in the first part of the year have larger amount of incremental investments, but at the same time we do believe that there should – that the return of these investments should come in over a reasonable time period as well.

Clearly, if you set up new local offices, it takes some time to get you to a breakeven point, but nevertheless within of a 20 – 12 months to 18 months time period you are typically on a – in a reasonable scale here as well.

And also the activities around QuantiFERON should be allowing us to get here some traction, because we clearly do not start here from zero. It's as Peer just said, a significant part of our business. We just see here very nice development over all of the world, allowing us to grab even a bigger market share.

As we all know, the overall penetration is still very low. Again, it's probably 15% of skin tests. So also here the returns should come in quite quickly..

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

Thanks for taking my questions and two if I may. Starting off with the EBIT margin and development, I understand what is going to happen in 2016, but maybe you can give us a sense of how we should think of the EBIT margin developing beyond 2016.

So the investment programs you highlighted to us, is that something we should also consider beyond 2016? And my second question would be actually a follow-up question on the instrument side. And can you potentially tell us what percentage of instruments are not placed on a reagent rental basis? And also potentially how this compares to the industry.

Thank you..

Starting with the first question. Overall you will see already in the – over the course of 2016 an EBIT margin development.

It's quite obvious that of course we start a little slower here into the year, but leaving the year is clearly a number which I would expect is already quite significantly higher compared to, again, to where we start into the year and probably also then, a good basis moving into 2017.

So I would expect a EBIT ratio somewhere again in the high 20s, leaving 2016 end of the year. But beyond 2016 we are clearly very much committed in terms of margin improvement. So as we said before there's 50 basis points to 100 basis points margin improvement as a midterm goal on a yearly basis.

It's still something where, again we are working towards and what we have seen here is a nice opportunity to invest into areas where we either believe that we are underrepresented in terms of market share compared to the global share QIAGEN has, therefore there's regional expansion.

Or we see opportunities like QuantiFERON, like NGS, where we do believe there is also a nice opportunity to get quite soon to incremental growth and it would be just not very smart not going for that even if you're coming out of a very difficult timeframe, it doesn't help us to wait here 12 months.

Again, now is the time to act and I guess that is something what we decided to do, and again, do believe that returns coming in not only in 2017 but also over the course of 2016. The second question on reagent rentals.

As I said before, it's clearly something, especially on the QIAsymphony side where we have seen that's quite common around molecular diagnostic customers. It's now moving ahead of that, especially also on Applied Testing customers that we get more and more request for reagent rentals. Why? Customers like that they have matched cash flows.

Lot of our customers get paid by the test, so they want to pay by the test and don't have this up-front cash-out. And so what we have seen over the last more or less two years you see a growth somewhere (01:00:26) of 30%, now again, depending a little bit on which area you are, which customer class, even the 60s plus percentage range..

Our next question comes from the line of Steve Beuchaw of Morgan Stanley. Please go ahead..

Hi. Good morning or good afternoon and thanks for taking the questions. I have a two-parter related to the organic growth outlook for 2016.

So point number one, if I look at the Academic and Pharmaceutical segments over the last two or three quarters, the trends there have certainly gotten a little bit better as the underlying markets are a little bit better.

So are you assuming that those growth trends hold up? And then Peer, as I think back to the comment that you made about the ex HPV growth in recent quarters, it's certainly a very fair comment that the growth has been stronger.

All that said, it would seem like if we're assuming that Academic and Pharma growth holds up at a level that's more similar to what we've seen over the last two or three quarters, you're giving yourself more cushion on Molecular Diagnostics and the growth there; is that correct? And if so, is that more about just taking a more conservative approach on companion diagnostics, or is there some other driver there? Thanks..

Thanks. Yeah, good comment on the academic growth. I think everybody is feeling that there is a tailwind – at least expected tailwind for 2016 now in Academia and we saw – we indeed saw a lot of improvement over the second half of the year.

We've significantly restructured and reorganized that business over the last three years as well as we detailed many times and there is a very exciting also innovation pipeline that we are taking forward. And as we all know that this is extremely important for the life science and Academia market.

And particularly if we look at Academia, one of the few areas that is actually growing is related to next-gen sequencing and obviously that portfolio has now received – reached a certain critical mass and there's a lot of – there are a lot of other cool things coming around that portfolio that we will hopefully see also generate revenues in 2016.

So I'm actually quite positive about the Academic markets in 2016 and our ability to see some good developments there. The guidance was given out also together with the announcement that we did on January 10.

We know that this is a year where we want to see also the value come through from a lot of the work that we did over the past few years and so we think it represents prudent guidance. It's ambitious in some areas; it's prudent in others, and it is our best view on what would make sense to bring forward now as guidance. I wouldn't call it aggressive.

I wouldn't call it overly conservative. I think against the backdrop of everything else happening, including our situation, we thought it was the best aggregation of all of these variables..

Our next question comes from the line of Gunnar Romer of Deutsche Bank. Please go ahead..

Good afternoon, everyone. Thanks for taking my question.

And the first one would be with regards – can you help us understand a little bit better how you think about the phasing going into the second half of the year and potentially an exit rate into 2017, what should we think about ballpark wise? And then technically upon your companion diagnostic pipeline on – can you share anything about the potentially upcoming catalysts, just how should we think about that over the course of 2016? And then last one is just if you can remind us of your exposure to the British pound? Thank you..

Okay. Number one and three, I'll ask Roland to take. I'll take number two. The Personalized Healthcare portfolio, there are indeed quite a few catalysts for 2016 as well.

Unfortunately some of them are tied to drugs where we are under confidentiality, and therefore I'll have to refer to the date where we have a PDUFA or a similar announcement that would be coming out from the pharma companies also related to our diagnostic.

But there's quite a bit in the portfolio that today spans all three platforms, PCR, Modaplex and next-generation sequencing. And I'd love to share this with you; it's a really exciting pipeline, but unfortunately this is something we have under CDA.

Roland?.

Yeah. On the currency side I think you're referring to the movements we have seen over the last couple of days. And again, between the time we have given – what you have just seen just generally is of course that a couple of currencies devaluated quite largely against U.S.

dollar, like the British pound to 2.3% or $12, $3; Russian ruble 8%, and Indian about 3%. So it's actually a mixed bag. Clearly Europe is – British pound or U.K. is for us a larger business, not totally the size of Germany but quite close to that.

So it's clearly one of the larger business we have in Europe, but it's really the group of business bringing now the FX impact from 2 to 3 percentage points or cents. And what – the other topic you are referring to is the phasing over the year.

As I said before, it's – and Peer was also alluding to in his presentation is, we started a couple of investments where some of the cost will – incremental cost will stay for the time as we are – as it also related to new hires, but there's also a larger part of cost which is rather activity-driven and therefore probably also have a much larger impact on the first part of the year than compared to the second part of the year.

So you will see a ramp-up over the course of the year from the first quarter was the guidance given today into what I've said before, an EBIT adjusted margin probably in the fourth quarter in the high 20s. And that is probably also, again, the kind of phasing you should expect over the rest of the year..

And our next question comes from the line of Jack Meehan of Barclays. Please go ahead..

Hi. Thanks for squeezing me in. I want to ask two questions, one on international HPV and then one on the companion diagnostics piece. For international HPV, I'm just curious what the expectations are for this year around growth in that business, whether it's price or volume. Any detail there would be great.

And then on the companion diagnostics piece, want to focus more on the assay side what some of the trends you are seeing in the market are. I know last quarter you talked a little bit about some of the reimbursement seeing some nervousness in the market. I was wondering if you saw that dynamic change at all. Thank you..

Sure. So first question, HPV international, we are seeing volume increases and we are seeing pretty steady prices in Europe. In Asia it's a little bit a mixed bag, but also here it's a very attractive market and we've seen very good growth in Asia and it's a sizable piece. Actually the revenue growth – the revenue portion ex U.S.

is now larger than the revenue portion in U.S. and so – hence this is an important question. What we have to note in Europe is that prices were always substantially lower than they were in the United States. The average price of a diagnostic is often only 50% of what it is sold for in the U.S.

Prices are much lower and much more competitive in Europe than they are in the United States. And so this has already been baked in and there hasn't been a big change as we, for instance, saw in the United States over the last three years in pricing.

In companion diagnostics, there has been some stabilization and a lot of institutions are clearly eating the cost of the companion diagnostic. It is still a very weird situation right now. In the U.S., obviously with the FDA approved assays, we have a lot of tailwind and institutions that are working with payers that are fully reimbursing these.

And again, the FDA approvals really help. In Europe it's very spotty. It's very different country by country and payer by payer, but it has become more established and more mature, and there's less complexity and uncertainty around these things, because people have a little bit more experience.

So the nervousness has been removed and people have kind of found a way to live with it in the last couple of years and increasingly also in 2015. The big question now is on the reimbursement of the next-generation sequencing panels that is obviously important for us, and we'll see what – where this will go..

So with that – Roland, would you like to jump in?.

No. Thanks..

Okay..

With that, I'd like to end the conference call for today. If you have any questions or comments, please do not hesitate to contact Sarah and me, and we look forward to seeing you in the coming weeks at various industry events. Thank you..

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