Ladies and gentlemen, thank you for standing by. I am Audrey, your PGi call operator. Welcome, and thank you for joining QIAGEN's Q3 2019 Earnings Conference Call Webcast. 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 a question-and-answer session. [Operator Instructions] At this time, I'd like to introduce your host John Gilardi, Vice President of Corporate Communications and Investor Relations at QIAGEN. Please go ahead, sir.

Thank you, and welcome to our conference call today. The speakers are Thierry Bernard, the Interim CEO of QIAGEN; and Roland Sackers, the Chief Financial Officer. Also joining us today is Phoebe Loh, from our IR team. Please note that this call is being webcast live and will be archived on the Investor Relations section of our website at qiagen.com. A copy of the press release is also available in the same section. Before we begin, let me cover our safe harbor statement. The discussions and responses to your questions on this call reflect management's view as of today, Thursday, October 31, 2019. We will be making statements and providing responses to your questions that state our intentions, beliefs, expectations or predictions of the future. These constitute forward-looking statements for the purpose of the safe harbor provisions. These statements involve risks and uncertainties that could cause actual results to differ materially from those projected. QIAGEN disclaims any intention or obligation to revise any forward-looking statements. For more information please refer to our filings with the U.S. Securities and Exchange Commission. We will also be referring to certain financial measures not prepared in accordance with generally accepted accounting principles. You can find the reconciliation of these figures to GAAP in the press release and the presentation for this call. I would like to now turn the call over to Thierry.

Thank you, John. Let me begin by welcoming you to our conference call. It's a real pleasure for me to be talking to you all. As you know we announced earlier this month that Peer Schatz decided to step down as CEO and Chairman of the Management Board after 27 years at QIAGEN. On behalf of my colleagues in the Executive Committee and all of our employees, I would like to thank Peer for his exceptional contribution and impact on QIAGEN. He has played a key role in creating a true success story in the Life Sciences and Diagnostics. QIAGEN is a company that has enabled great advances in science and health care and I wish Peer all the best in his future endeavors. On this call today, Roland and I would like to review our performance for the third quarter, our outlook for the rest of this year and provide some perspective on this period of changes at QIAGEN. We have a committed team taking actions to ensure growth and create value at QIAGEN. We are focusing on the most attractive areas of our portfolio. As a first point, net sales for the third quarter of 2019 were $382.7 million and rose 3% at Constant Exchange Rates - CER. This was below our outlook for about 4% to 5% CER growth due to weaker-than-expected sales in China. This decline went beyond the discontinuation of the GeneReader NGS System joint venture that we announced in July. Another factor weighting on growth was the decline in companion diagnostic revenues which were down 37% CER in the quarter. At the same time, adjusting earnings per share were $0.30 at CER as well on a reported basis and this was at the high end of our outlook. Second, we continue to make good…

Thank you, Thierry. Good afternoon to those of you in Europe and good morning to those of you in the U.S. I would like to now review our financials for the third quarter and first nine months of the year. Net sales for the third quarter 2019 were $382.7 million and this was a 3% increase at constant exchange rates. Sales growth on a reported basis was 1% and this was due to adverse currency headwinds of about two percentage points that were in line with our outlook. The acquisition of N-of-One which was completed in January 2019 provided about $1 million of sales in the quarter. For the first nine months of 2019 net sales were USD 1.11 billion an increase of 4% at constant exchange rates over the same period in 2018. On a reported basis sales growth was 1% due to three percentage points of currency headwinds. Moving down the income statement. The adjusted cost margin was 71.6% of sales in the third quarter of 2019, which was about the same as in the year ago quarter and supported by the good performance of our higher margin consumables business. The trend for the first nine months of the year show that adjusted gross margin at 70.7% in the first nine months of 2019 compared to 71.1% in 2018 which remains at a strong level especially as we are supporting multiple new product launches. Adjusted operating income in the third quarter was 1% to US$106.2 million showing improvement compared to the same period in 2018 while still absorbing investment for the development production ramp-up and commercialization of new products. The adjusted operating income margin was 27.8% compared to 27.9% in the prior year period. For the first nine months of 2019, the adjusted operating income was largely unchanged…

Thank you, Roland. I would like to give you some more details on our performance in China. There is no doubt that at QIAGEN, we are clearly disappointed by the third quarter in China but at the same time we believe that that market remains a key source of growth and potential growth for our company. As we have mentioned, sales in this country declined 24% CER to $26 million in the third quarter of 2019 from $35 million in the same period of 2018. Let me try to explain what happened in China. As we mentioned in our preannouncement earlier this month, we saw weaker-than-expected trends in China from some distributors. As you remember, a significant part of our sales in China are covered from commercial partners. We estimate that this created a headwind of about 20 percentage points on the results for this quarter. The slowdown in ordering pattern from some of our distributors came as they were seeing a slowdown in payments coming in from their own customers, the hospitals and the laboratories. We also faced a headwind of about 11 percentage points in results for the third quarter of 2019, as a result of roughly $4 million sales in 2018 from the discontinued China, NGS joint venture. At the same time, we saw about 8% growth from the rest of our portfolio in China which is weighted to about 2/3 Molecular Diagnostics and about 1/3 Life Science customers. As I said before, we believe the fundamentals in this market are good but we are seeing a modest slowdown in demand and have accordingly adjusted supply capacity with our distributors. As some of you know, I was myself in China recently and I've been working for some years in this country as well. And we are now…

Thank you, Thierry. I would like to now review our outlook for 2019. As noted earlier, we have updated our outlook for total net sales growth of approximately 4% CER. We have updated our outlook for adjusted diluted EPS to $1.43 to $1.44 per share also at constant exchange rates. This is at the higher end of the previous range of $1.42 to $1.44. As for currencies, based on the rates as of October 30, 2019 in terms of net sales, we expect a currency headwind of about 3 percentage points on results at actual rates. For adjusted EPS for the full year, we expect a currency headwind of about $0.03 to $0.04 per share. For the fourth quarter, our outlook is for the total net sales growth of about 3% CER. This includes lower revenues from companion diagnostic co-development projects and to create a headwind of about 2 to 3 percentage points. Adjusted diluted EPS is expected to be about $0.45 to $0.46 per share and at constant exchange rates. In terms of currency impact for the fourth quarter based on rates as of October 30, 2019, we expect headwinds of about 2 percentage points on net sales growth and about $0.01 on adjusted EPS. With that, I would like to hand back to Thierry.

Thank you, Roland once again, and thanks all for your attention. Before we move to the question-and-answer session, I'd like to summarize what we just described with Roland. First of all, the weaker than expected sales results in the third quarter of 2019 were due to reduced sales in China and volatility in our companion diagnostics. Those challenges overshadowed better trends in the Life Science and other areas of our portfolio. But I would like to highlight again that our adjusted earnings per shares were at the high end of our outlook, which to me proves again the way we clearly manage our financials. Second, we have a committed leadership team in place that is focusing resources on the most attractive areas of our portfolio. I remain convinced that QIAGEN has attractive fundamental growth opportunities and we are all at QIAGEN determined to emerge as a stronger and more differentiated leader. Third, the strategic partnership with Illumina is a signal of our conviction about our NGS portfolio as we expand our presence in this key growth market. But as I said before, it's also a concrete example of our commitment to reallocate portfolio where we can clearly be and become leaders. And as a last point, we have updated our full year 2019 outlook based on the reserve for the third quarter for the net sales growth of 4% CER and adjusted EPS of $1.43 to $1.44 per share at CER again. This also include our outlook for net sales growth of 3% CER and adjusted EPS of $0.45 to $0.46 CER for the fourth quarter. I believe that this is a very realistic ambition for the fourth quarter and for the year. With that, I'd like to hand back to John and the operator for the Q&A session. Thank you very much.

Operator?

Thank you. Ladies and gentlemen, at this time we’ll be begin the question-and-answer session. [Operator Instructions] We'll go first to Steve Beuchaw at Wolfe Research.

Hi. Good morning and good afternoon to those over there. Thanks for the time, and Thierry, thanks for joining. Welcome in the call. I have two topics that I'd like to raise. One is, just a little bit of bridging, if you don't mind. Roland, I wonder if you could just isolate the impact of the revised companion diagnostics outlook and the termination of the NGS development efforts and talk about what those mean in the aggregate at the EBITDA line respectively. Should they impact, said another way, should those in total change the way we think about the LRP for the EBITDA line? And then one for, Thierry. I wonder if you could talk about your views and to the extent, they might be different from what we've seen historically, on investments in new technology. The company has historically been -- or at least over the last few years, somewhat acquisitive of new technologies in diagnostics. NeuMoDx was sort of next. So can you talk a little bit about how you think about investing in new technologies? Is the hurdle rate of the bar there going higher? And how should we think about prospectively investing in commercialization on those technologies? Is the ramp on spend there any different than it might've been historically? Thanks so much.

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

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

Thank you, Roland. And Steve, to your second question on new investment, if I got the question, because it was a bit noisy, on new investment in new technologies for the future, I really believe that at this point with the significant investment that we have done over the last two to three years, we have ideally positioned QIAGEN to be extremely competitive. For me it's very clear. We are a mid-cap company. And when we are a mid-cap, we need to focus on where we can take between number one and number three position on the market. It's not about mimicking what the others are doing. And so, if you look at the recent investment, as Roland said before, NeuMoDx which is ramping up quite nicely; QIAstat the same; and the Illumina partnership, just for the Molecular Diagnostics portfolio. If you consider the coming launch in the second half of 2020 of our digital PCR in Life Science, we have everything in hand at this moment to compete and to be successful. And to me now, it's a matter of execution. And so, in terms of reallocation of resources, we see much more resources dedicated to, first, in development, fueling those platform with the appropriate menu. In sales and marketing, obviously, making sure that we have the feet on the ground to push those solutions on the market. And on this, we will execute on those promising investment. It's focused on what we have.

We'll go next to Tycho Peterson at JPMorgan.

Hey, thanks. Apologies, I'll ask a couple here. But first, I was wondering if you can comment on the CEO search, just criteria, where you are in the process, time lines. Second on China, I'm wondering if you can elaborate on the distributor order slowdown. None of your peers have called out anything around Chinese hospitals, so how long do you expect the dynamics to last? I know you talked about the some recovery in the fourth quarter. Third, on Illumina, they're doing a lot of content deals. You seem to be the only ones paying them upfront. So I'm curious why this is the right strategy and also when you made that decision. And then lastly, on guidance, 4Q guidance revenue is below consensus, EPS is in line. Is that all driven by the reorganization cost-outs? And are you reaffirming long-term guidance? Thank you.

Okay. Thanks. I hope that I won't forget any of your points, but I think I took note. So, the search of the CEO, first of all I don't want to speak on behalf of our Chairman and our Board. But as we said, that the company is looking for a permanent CEO, which means that obviously internal and external candidates will be very welcome to apply. I expect this process, but again, this is a Board matter for me, to last probably around six months. At the same time, at the moment there is a CEO in the company. There is an executive team. There is a very good synergistic tandem between Thierry, myself and Roland. And we are here to steer the company for the coming months and moving it into 2020. China, what is happening or what we have seen is that hospitals have probably increased them -- their terms of payment to our commercial distributors. And basically we have been impacted by this because as a kind of spillover effect then faced with those longer terms of payments, distributors have reduced their orders to QIAGEN. So this is what happened. I immediately went to China, immediately challenged the team locally to take stronger commercial actions in the monitoring of our commercial partners. And I visited also some hospitals, which are telling me that that situation should not last for very much longer. It's rather a kind of a hiccup. However, to be fully transparent, I believe that the Molecular Diagnostics market, which was probably said to be growing above 20% in China in the last year has probably now slowed down between 10% to 15%. That is a reasonable expectation for this market. And this is why I insist that for me, China is still key for QIAGEN, because market of that size, I remember -- I remind everybody that the size of the market China is probably around $2 billion for diagnostic. Market of that size that are still growing at a healthy double digit are still very obviously interesting. Illumina, I'm not sure that I completely got your question. So if I'm not clear in my answer please come back to me. Yes, there are a lot of other kind of partnerships with -- by Illumina with other companies. But what I find really interesting is that remember that QIAGEN has that vision for NGS of Sample to Insight. We believe in the value of offering a full workflow from pre-analytical to data analysis and data interpretation. And this is why I think that this partnership is very specific. QIAGEN specialty, QIAGEN leadership is made on sample prep, is made on laboratory prep, is made of chemistry and data analysis bioinformatics. And Illumina's trends is made of instruments both for life science and for diagnostic. So I hope that that answers your question. But again, please come back to me here. And for the last question, I'm going to hand over to Roland.

Hi, Tycho. In terms of guidance, I would clearly say that for the fourth quarter, the guidance is as we said and we clearly also have to deal with the changes in our setup around clinical NGS and therefore the impact on the companion diagnostic side. But I think as Thierry just alluded to we see that rather as a change in dealing with our pharma partners here as well as the timing impact, because it's quite obvious that we had to stop certain developments on the co-development site. Nevertheless, I think it's very reasonable to believe that we will be able to sign more agreements. And again, that's going to add also in 2020 revenues for us. So it's clearly something what is going to happen over time as well. On the other side profitability, I think it's actually quite strong. We shouldn't again to be too negative on that topic as well. We see a nice spike and expect here, a nice spike also in the fourth quarter in terms of gross margin, in terms of EBIT margin. And at the end of the year, if things go well for us in the fourth quarter, we actually will end this year with a profitability which is probably actually in line with the EPS guidance we even have given earlier this year. So I would say that is something that we should put in perspective as well. For 2020, as I guess we're alluding before as well I think we see a couple of trends. I also do believe that we had a reason to do our -- restructuring of our clinical efforts around NGS, because we believe that an Illumina partnership is probably a stronger solution bringing the strength of both company together. And I would be again not surprised if that should be on a midterm not even a positive direction for us. Nevertheless, I want to be also very clear on that. As Thierry said, we clearly have now two quarters in a row where we unfortunately missed our guidance as well. And you should expect that we take here a cautious view going forward as well. And that I think is something what is important for us.

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

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

Hey guys, a couple here, one on TB and then one on the guide. So I guess first on TB, when you think about the mid-teens full year guidance, if that's still intact. And if so was the DFG catalog contract baked into that guidance and coming into the 4Q because you guys have a pretty big step-up there? And then for Roland can you kind of bridge us for that 4Q's 3% guide? If you look at it you have basically a 2% to 3% headwind from CDx. You get a -- and if the TB guide is correct and my math you're getting about 4% benefit from that. And then QIAstat assuming 50 to 100 basis points from there that implies the rest of the business has only grown about a percentage point. Just bridge the gap there to the full year in the 4Q guide.

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

Luke, on Q4 I think first of all and just in addition to what Thierry just said have in mind that, of course, the fourth quarter also last year was a very strong TB business growth rate. I think we had last -- fourth quarter last year was a 29% growth rate. So we clearly have here probably a certain baseline affect. Nevertheless, I think if you look on the overall franchise, you should have in mind not only the companion diagnostic impact on the NGS side is a headwind for us in the fourth quarter. We also clearly said that China on the one the hand side is improving, but we -- I think we were also very straightforward in saying that is not something what is going to clear out in one quarter. It probably takes a few quarters more. Given that -- and growth rate again 3% in total, 2% to 3% headwinds from the companion diagnostic not a strong overall China improvement puts us for the Rest of the World in a very reasonable, we'll see 5%, 6% coverage rate. And I think that is probably the rate to look at it. And we take it from here. There is no reason for us to be right now overambitious in terms of guiding. We would rather being overambitious on delivering. And again quarter-per-quarter, we want to right in the -- move in the right direction.

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

Yeah. Thanks for taking my question. So firstly I wonder, if you could just highlight please why the development panels for the QIAstat have been delayed, and also perhaps give us some discussion as to the progress of the NeuMoDx menu in the U.S., which I think is quite central to your purchasing decision there. So if you could talk about values please? And more broadly, I think five months ago at the Capital Markets Day, the company outlined 8%, 9% top line growth, double digit earnings growth. And I think the basis of my understanding was that QIAGEN as is currently the structure of portfolio is a 6% growth company. And if you deliver some of these new drivers well, it takes you into that higher single-digit category with some leverage. Now I appreciate there's a lot of moving parts, some delays in menu, termination of GeneReader, new collaborations and so forth. But what I would like to understand is, is the broad framework of that expectation still your expectation today that you can be if you execute well a high single-digit growth company? Or has something fundamentally changed in the last four or five months? Thank you.

So thanks for the question. So going first to QIAstat and NeuMoDx. So I mean as you know I think, I spent a significant number of years in diagnostic and development activities in diagnostic are not always completely easy to focus. As you probably imagine we are living on -- we are working on living organisms. And obviously sometimes we have hiccups in the development. Those hiccups could be contamination issues or could be some organism are showing either some false negative also false positive. So this explains basically that traditionally, I always try to put a buffer on development timing. But let's be clear. A typical development timing in IVD in-vitro diagnostics takes around three years for a new assay. That's always what I try to factor. And the closer you get to the market launch sometimes -- the more surprising sometimes some very last results. So this is under control in Barcelona in our Barcelona site for QIAstat, but this is why we prefer to say first half of 2020 for those two assays. It's nothing that is questioning the quality of the QIAstat technology. I'd qualify that as normal delays. I regret them, obviously. I would like to live in a world where there is no development delays, but here we have a means of roughly, let's say, three months to four months for those two assays. We are already on good track because just to give you an example, we are currently starting to evaluate some research use only format of our meningitis for Europe. So that shows you that we are very much at the end of the development. Moving to NeuMoDx, the first thing that I would like to highlight is what Roland said from 7 assays to now 10 moving on to more assays in 2020. So it's growing as well. Let's not forget that NeuMoDx is still not a very large company so I think the performance of bringing to the market 10 CE-cleared assays is quite remarkable. In the U.S because obviously we had to work out or they had to work out on European clearance plus some claim extension for Europe they are slightly late. But let's not forget that one, they already have an FDA approved. Second, they are moving to more approval into 2020 first and second half especially what we call the 510(k) assays approval. And last but not least, it's one of the few systems that combine not only regulated assays, but also LDT. And NeuMoDx has a very rich LDT laboratory developed test menu.

Hi, Scott. On your very general question on long-term trends for the company, I think, I always prefer to answer a little bit more in detail and rather give some insight into the framework you just laid out. If you just review what happened over the last few weeks, I think, it's very clear to see that we changed our strategy of our NGS with the partnership of Illumina. And that clearly has a short-term impact to our revenue growth rate. But as I said and indicated before it should be rather a mid to long-term positive for us because you're bringing the strength of two companies together who are both are clear market leader into that area -- in that specific area. If you now look on the other growth drivers, I just can't see that too many things have changed short-term, which should have a change into mid-term. TB we had a very strong quarter. We have a very good year-to-date performance. And have in mind that our mid-term CAGR for that business under 2023 -- percent is a 10% number and clearly factoring in also probably upcoming events around competition over the time period. Same is true for QIAstat. You can clearly see that the number of placements we had is now in total 800 and at the end of the year now probably 200 placement, 100 per quarter is good. Yes. Would we love to have certain panels few weeks earlier than later? There is no question around that. But do we have any doubt that we will not see many expansion not only next year's, but also the time behind? I don't think so. So, yes, I would say on the mid-term period to 2023 QIAstat should be on its way as well. Same as NeuMoDx I don't have to repeat what Thierry just said. There is clearly I would say a good placement strategy in Europe going on menu expansion. So I would say it's moving in the right direction. But last but not least please recall that our sequencing strategy was mainly driven also over the last couple of actually quarters and probably the last 2, 3 years by a very successful universal solution part of the business. That clearly is also the reason why we are going to confirm the $180 million target for this year for sequencing in general because it is a good business for us. And I don't see any reason to believe that an incremental partnership with Illumina should be a negative for us with that. So we are not going to change, confirm or deny our mid-term guidance as of today because we are working here from quarter-to-quarter. I'll give you 2020 guidance again end of January or early February. And again that is the basis for our long-term guidance, but I think the trends really hasn't changed. And we feel that the overall market in general particularly in Europe and in U.S. are stable.

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

Great. Thank you, and good afternoon, everyone. Couple of questions. Thierry first, a bigger picture question and then secondly, an operational one. So first philosophically, can you expand on some of your comments about priorities at QIAGEN? Certainly, we appreciate the increased attention on R&D, but does it also include a portfolio review? And then secondly, can you speak to the pharma and academic strength in the quarter, perhaps calling out some trends in particular? And also just how sustainable are you thinking about that franchise? And then Roland, in terms of the Illumina partnership, how should we think about the internal investments netting against the expected GeneReader spend? Will it require additional investment more or less than you were budgeting for the ongoing investment in new iterations of GeneReader? Thanks guys.

So, Bill thanks for the question. I'm not sure that I caught the second part for me but -- so the first part is on the portfolio. I mean, again, I repeat, like any company we have to constantly review our portfolio allocation. But as I said before, I really believe that if we combine the core activities of QIAGEN plus the newer investment of other recent years start NeuMoDx, N-of-One, GPCR for life science, we have everything in hand now for the coming years. But obviously, we continuously monitor to make sure that we really invest and I insist on that. We will invest where we really can take leadership position. This is key for me. We cannot be everywhere. We cannot invest everywhere. We cannot dilute our activities into too many activities. We have a solid portfolio from Life Science to MDx to bioinformatics. This is what we have to execute. I think the second part of your question, but come back to me Bill if I did not understand it was around the strength in the Pharma business especially for Life Science. It's basically driven -- as Roland described, it's basically driven by some very good growth interesting growth from the fast-growing countries in the south of Europe, especially Italy, Spain, and Turkey. We have and we continue to have good reserves with our QIAsymphony systems. So, all these contribute to that solid number.

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

We'll move next to Daniel Wendorff at Commerzbank.

Yes hi and thanks for taking my questions. Two if I may. One is related to QIAstat-Dx again. Very nice that you gave us the number of placements of 800 so far. Yet still you only achieved €11 million -- $11 million in sales versus the $15 million expected. Can you potentially explain where the difference is versus the original expectation? Is it just the delay in the launch of the new panels? Any more colors you can provide there would be helpful. And then obviously what this means for your full year number for QIAstat-Dx. I think the original expectation was for $30 million. And second question is on the companion diagnostics, the drop in revenues. Can you please explain the background of that 37% drop again in Q3 and why that is so weak in Q4? And how should we think about this going into the first half of 2020? Thank you.

Thanks for the questions. So, yes, you are perfectly right. We are our -- below our expectation on QIAstat. However as we highlighted, we are extremely pleased with the instrument sales. I mean if we compare our sales with the instrument sales performance of the leader on the market, which is probably putting something like 200 new system per quarter, we are exactly at the same pace now. So for a company that has less menu, I think it's a good performance. Why are we later on consumable? That's a very, very significant topic of attention for me. First of all, there has been some delays. We were slightly delayed in our respiratory clearance -- FDA clearance in the U.S. So, to that extent, we missed the flu season of last year because if you remember we came in Q2 of 2019 first. Second, because as I said before, we were expecting to our G.I. panel for the U.S. cleared by Q4. So, this is not going to happen. And second to be very honest with you, as I said I, prefer to be call it optimistically cautious or realistically ambitious, but we are coming now with QIAstat in the U.S. to our first flu season. And I want to make sure that we are delivering and executing before taking a stronger assumption. We are learning as we go to a certain extent. So, this is why I believe that yes, we will be below our $30 million original expectation for the year. I believe to be around $14 million to $15 million that I think is achievable compared to where we are now. For the companion diagnostic and again I don't want to make it too complicated, but what we have to keep in mind is that this is clearly an activity where QIAGEN has a leadership position in the world, probably the largest number of pharma partnership among all the other companies. And it's made or it was made primarily for many years of PCR-based deals. But as you all know over the last especially four to five years, pharma companies have been also eager to work on NGS-based technologies for those companion diagnostics. And we were having last year revenues coming from -- development coming from our own NGS platform with Pharma that are not going to happen now as we stop those development. We expect to progressively transfer those development NGS-based to the Illumina partnership. But obviously, we need to be very clear. This is going to take a bit of time, because we need to develop the kits and we need obviously to agree on those kits with our pharma partners. So you will see a progressive ramp-up, not in the first half of the year, progressively much more towards the end of 2020. But I speak -- I insist again the PCR base of our companion diagnostic is still very healthy. That's the core base that we want to continue to defend.

And Daniel just to fill you up here with some numbers, because I clearly hear that this companion topic is an important one to you. Have in mind and I know that you have fit somewhere in your docs that 2018 was clearly a very strong companion year for us. We ended the year with a $58 million business, which was growing for 2018 as a 34% growth rate. And I think we were always very clear to say that this is a volatile business on the one hand side and that is clearly a growth rate you shouldn't take forward as well. Now if you look on the third and fourth quarter, you see actually a couple of impacts here coming together. The third quarter, I think we just said there is a -- we talked about it in the summer, there's a $4 million negative impact from -- or on company diagnostics all of the cancellation of the joint venture with Next Gen. For the fourth quarter, we also have -- all of the same reason, we have also roundabout $3 million to $4 million impact to the negative out of this joint venture cancellation. But incrementally in total, we have about probably somewhere between $8 million and $10 million of impact. It did include the NGS contracts I think Thierry just described in detail. So it's clearly a headwind which is keeping us busy. And I think these numbers should help you to get your modeling straight.

We'll go next to Dan Brennan at UBS.

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

Yes. I would say the underlying base business for sample prep is probably somewhere around 3-plus percent on a constant exchange rate. It's a solid business. Right now of course we see also here I would say a rather modest positive trend to mid and long-term because what is being helpful is clearly the QIAsymphony placements. And that has clearly used more and more also as a sub-prep machine in front of many different solutions. Of course it is very important for us and close to the CFO heart because it is a high-margin business for us and I think that is something where we feel very good about. And again every quarter I see a QIAsymphony placement number I think is a nice continuation of an important business for us.

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

We'll move next to Jack Meehan of Barclays.

Thank you. Good morning, good afternoon. I had two questions on -- one on GeneReader and one on digital PCR. For GeneReader, I was wondering if you could just quantify for us within the $180 million target, how much is related to GeneReader instruments and consumables? And I was wondering if you could just give me some color on what the customer reaction has been to the decision to not invest in new instruments. How do you think the GeneReader revenue contribution is going to trend from here? And then on digital PCR just curious, could you give us some updates in terms of the time line there in terms of when you plan to introduce the new integrated box?

Very good. Thanks for the question. GeneReader overall is out of the numbers that we disclosed for NGS. It's roughly around 5% of the total revenues. So customers' reaction have been quite positive because they see again the strength and the interest of the partnership between those two leaders. For them also it means also probably a full access to not only, obviously, the Illumina platform but the full set of solution, the full integrated workflow. But honestly I believe that the GeneReader sales will progressively decrease over time. There is also a market evolution for this. The market is asking for more and more -- for larger and larger panels rather than targeted panels. So as we said we maintain. We continue to service and to serve those install GeneReader customers, but I expect them to progressively wind down over 2020 and 2021. But we continue to service them. The PCR as I said before you see -- I mean forecasting a development time is always tricky, but we expect this system to be launched in the second half of 2020. And so far we are on track to expect that commitment.

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

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

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