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Qiagen NV (NYSE:QGEN)
Q2 2019 Earnings Call
Jul 31, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. I am Marjorie, your PGI call operator. Welcome, and thank you for joining QIAGEN's Q2 2019 Earnings Conference Call Webcast. [Operator Instructions]. The presentation will be followed by a question-and-answer session. [Operator Instructions]

[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.

John Gilardi -- Vice President Corporate Communications

Thank you, Audra [Phonetic], and welcome all of you to our conference call today. The speakers for our call are Peer Schatz, the Chief Executive Officer 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 in the Investors section of our Invest -- of website at www.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 views as of today, Wednesday, July 31st 2019.

We will be making statements and providing responses to your questions that state our intentions, beliefs, expectations or predictions for 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 a reconciliation of these figures to GAAP in the press release and the presentation for this call. As the last point, I just wanted to provide some context as to why we made the pre-announcement on July 24th. This was due to the requirements of Germany Securities law and the ad hoc system that we have in this country that requires companies to make a public disclosure once there is a material news development. So that material news was the change in our China partnership for next generation sequence in the clinical area and the impact for the 2019 outlook and we thought it would be helpful for analysts and investors to see this information as well together in one package with the financial outlook and update from the second quarter.

With that, I'd like to now hand over to Peer.

Peer M. Schatz -- Chief Executive Officer

Well, thank you, John, and thank you to all of you for joining us for this call.

I have the following key messages for you today. First, we achieved our outlook for net sales growth and adjusted earnings per share. Net sales were $381.6 million and rose 5% at constant exchange rates. Adjusted earnings per share were $0.34 at CER and $0.33 on a reported basis. Second, we shared some important updates while we continue advancing our Sample to Insight portfolio. We announced on July 24 our decision to restructure the current format of our clinical sequencing joint venture in China, which has an impact on our outlook for 2019. The joint venture has been formed and announced in the middle of 2017. After a review period and discussions with our partner, we believe this decision is the best solution. A key factor was a slower-than-expected progress in bringing in-vitro diagnostic clinical sequencing to customers in this country. We have been anticipating about $30 million of sales from this joint venture in 2019 and for about $20 million in the second half of this year. These involve primarily revenues for the services provided by QIAGEN to develop in-vitro diagnostic assays on behalf of the joint venture as well as the sale of GeneReader NGS Systems in China and other consumables and products for the joint venture transfer prices.

At the same time, it is important to note that our Universal NGS portfolio in this country is not run through the joint venture, but has always been commercialized directly by QIAGEN. These universal NGS products are independent from GeneReader and have been performing very well in China and also on a global basis. So we continue to believe in the promise of NGS technologies in China and we will now consider various new options to participate in further growth opportunities there.

Moving to the QuantiFERON-TB test. Sales, as expected, were below the usual [Technical Issues] growth trajectory of at least 15% CER as they rose 6% CER in second quarter of 2019. This was in line with our outlook for mid-single-digit CER growth. This more moderate growth was due to the comparison against the year-ago period, which marked the end of the inventory building during the conversion of customers from the third generation to the fourth generation QuantiFERON assay.

We continue to expect full-year 2019 growth above our 15% CER target. We also had our second important FDA approval this year for a new and novel therascreen companion diagnostic assay and this assay tests for variance of the PI3K-kinase gene to help guide the use of a new Novartis therapy for breast cancer.

This announcement was in addition to our previously announced approval in April for the therascreen FGFR companion diagnostic assay to help guide the use of a new Janssen therapy for urothelial cancer. We are in a period with multiple new product launches. These include the QIAstat-Dx system for syndromic testing that received FDA approval in May and is now available in the United States and Europe, and many other countries; as well as the integrated PCR System NeuMoDx that we are distributing in Europe. We have 6 CE-IVD assays on NeuMoDx in Europe and have a goal to offer 11 assays by the end of 2019. For our Life Sciences customers, we are seeing good progress on the roll-out of the new QIAcube Connect sample processing instrument we introduced in January, which replaces first generation that had over 8,000 placements. The development of the new Digital PCR System for 2020 launch is also progressing well. Third, as you saw in the press release on July 24, we have updated our full-year 2019. outlook. We now expect net sales growth of about 5% to 6% CER for the year, and for adjusted EPS of about $1.42 to $1.44 per share also at CER. We are committed to maximizing the opportunities for our exciting new product launches and are allocating resources to the best opportunities. So as a quick summary. We achieved our outlook for the second quarter of 2019 and have made an important decision on how to address NGS growth opportunities in China.

QIAGEN is positioned for an improving growth profile in the coming years, as we strengthen our portfolio and set our sights on the new mid-term targets we announced in June for an 8% to 9% CER sales compound annual growth rate from 2019 to 2023 and for at least a 10% CER CAGR for adjusted earnings during the same period.

And with this, I would now like to hand over to Roland.

Roland Sackers -- Chief Financial Officer

Thank you, Peer. Good afternoon to those of you in Europe and good morning to those of you in the U.S.. I will first review the financial results for the second quarter and later provide an update on the outlook. Net sales in the second quarter of 2019 were $381.6 million and rose 5% at constant exchange rates and in line with our outlook for 5% CER growth.

Sales growth on a reported basis was 1% and this was due to the significant adverse currency headwinds that we are in line with our outlook for the period. The acquisition of N-of-One, which was completed in January 2019 contributed to very modest sales for the period. For the first six months of 2019, net sales growth [Phonetic] $730.3 million and also rose 5 percentage points CER and we're up 1 percentage point on the reported basis due to 4 percentage points of headwind.

About one percentage point of sales growth came from the launch of QIAstat-Dx which was acquired in April 2018, while the rest of the portfolio provided a solid 4 percentage points of growth. These results also absorbed a combined 1 percentage point of headwinds from the ongoing decline in revenues from third-party instrument service contracts and the divestment of the veterinary assay portfolio that we did in 2018.

Moving down to income statement. The adjusted cost margin was 70.8% of sales in the second quarter of 2019, compared to 71.5% in the year-ago quarter. For the first half of 2019, the adjusted cost margin also declined slightly to 70.3% of sales from 70.8% in the same period of 2018. Adjusted operating income declined 2% to $99.1 million from $101.1 million in the second quarter of 2018, absorbing the investments for the development, production ramp-up and commercialization of new instruments. The adjusted operating income margin was 26%, compared to 26.8% in the prior-year period. These trends remained relatively consistent from the first quarter of the year with adjusted operating income down 1% to $177 million, compared to $178 million in the first half of 2018.

As a result, the adjusted operating income margin was 24.2% compared to 24.7% in the first half of 2018. In terms of adjusted earnings per share, we were at the high-end of our outlook for $0.34 CER. Given the currency headwinds, adjusted EPS on a reported basis was $0.33. The adjusted tax rate of 20% for the second quarter, which -- was in line with our outlook for the quarter. For the first half of 2019, adjusted EPS was $0.62 CER and the adjusted tax rate was also 20%.

I would like to now review our sales results based on the product categories and to our customers in the Life Sciences and Molecular Diagnostics. Among the product categories, Consumables and related revenues rose 4% CER to $335 million in the second quarter of 2019 and represented 88% of total sales.

For the first half of 2019, Consumables and related revenues was at the same 5% CER pace, reaching $648 million and represented 89% of sales. Instrument sales growth is in much faster rate in the second quarter of 2019, going 9% CER to $47 million and representing 12% of total sales. Key drivers was a roll-out of the new QIAcube Connect instrument for sample processing to Life Sciences customers as well as sales contributions from QIAstat-Dx and other instruments in Molecular Diagnostics.

As mentioned before, we have reduced our third-party instrument service contract, which has created a sales headwind in the recent quarter. Excluding service revenues, instrument sales were up 15% in the second quarter. For the first six months of 2019, instrument sales was 5% CER to $83 million and represented 11% of total sales, and underlying sales were up 15% CER excluding third-party service revenues. In the Molecular Diagnostics customer class, sales were up 5% CER to $188 million in the second quarter of 2019 and represented 49% of total sales. This came from a combination of solid double-digit CER sales growth for instruments, even while absorbing the decline in instrument service revenues and mid-single-digit CER growth in consumables and related revenues. Sales of the QuantiFERON-TB test grew 6% CER, while companion diagnostics co-development revenues were under pressure and reduced growth in this customer class by 2 percentage points with a 21 CER decline to $11 million.

We had ongoing solid placements of the QIAsymphony system and double-digit CER growth in the related consumables and also contributions from the launch of QIAstat-Dx in the U.S., along with sales in Europe. For the first half of 2019, Molecular Diagnostics sales was 7% CER and [Indecipherable] 49% of total sales. In the Life Science customer class, sales were also up 5% CER and reached $194 million in the second quarter of 2019 that represented 51% of total sales.

We experience single-digit CER growth in both instrument sales as well as consumables and related revenues compared to the second quarter of 2018. For the first half of 2019, Life Science sales grew 4% CER and represented 51% of total sales.

Within the Life Sciences, sales to Pharma customers rose 4% CER with [Indecipherable] contributions from both consumables and instruments during the second quarter. Sales in the Academia/Applied Testing customer class rose 5% CER with continued double-digit CER growth in instrument sales in particular, due to the launch of QIAcube Connect earlier this year and mid-single-digit CER growth in consumables.

I'd like to now review the performance among all three geographic regions. The Asia Pacific-Japan region led to performance with 12% CER growth in the second quarter of 2019 to $83 million, providing 22% of total sales. We were pleased with double-digit CER growth in China, which follows on from growth rates above 20% for the last two quarters.

This is due to the increased demand in the Life Sciences and solid trends for our QuantiFERON-TB test and other Molecular Diagnostic products, while sales in Japan were largely unchanged from the second quarter of 2018. For the first half of 2019, the Asia Pacific-Japan region grew 10% CER to $151 million and represented 21% of sales. The Europe, Middle East And Africa regions grew 5% CER to $118 million in the second quarter and represented 31% of total sales. We saw soft trends in the core Western European countries; in particular, France, Italy and the United Kingdom, but saw improving trends in Turkey, Middle East and Africa.

For the first half of 2019, sales grew 4% CER to $227 million and represented 31% of total sales. The Americas region grew only 1% CER to $181 million in the second quarter and represented 47% of sales, with the U.S. growing at the same rate as the region due mainly to the slower growth rate for QuantiFERON-TB. At the same time, we had improving trends in Brazil and Mexico at higher single-digit CER rates. For the first six months of 2019, the Americas grew 4% CER to about $350 million and represented 48% of total sales.

In terms of the top seven emerging markets, this country's collectively grew 20% CER in the second quarter of 2019 and represented 18% of sales. The top performers were Turkey and China, while Korea was the only one to show a year-on-year decline against growth in India, Mexico, Brazil and Russia.

I would like to now give you an update on our balance sheet and cash flow.

At the end of the first half of 2019, our leverage ratio stood at 1.7 times net debt to EBITDA and remains unchanged from the end of the first half of 2018. We saw a decline in group liquidity to $786 million from $900 million in the prior-year period. At the same time, net debt increased to $978 million from $863 million in the same period of 2018.

This reflects primarily the influx of cash flows from the business as well as proceeds from the issuance of $500 million of new cash-settled convertible notes against the outflow of about $430 million for repayment of the 2019 cash-settled convertible notes in the first quarter of this year as well as investments in the business and about $74 million for the share repurchase program.

In terms of cash flow, we saw a decline in operating cash flow to $127.2 million in the first six months of 2019, compared to $166.2 million for the same period in 2018. Among the key factors were cash payments for derivatives, transactions and higher tax payments in parts to sell tax audits for prior years, which were accrued in the past.

Investments in property, plant and equipment were also higher in the first six months of 2019 at $54.4 million, compared to $42.9 million in the same period of 2018. This was mainly due to investments in building up our manufacturing capacity to support new product launches, in particular QIAstat-Dx. As a result, free cash flow was $72.9 million for the first half of 2019, compared to $123.4 million in the same period of 2018.

I'd like to now hand back to Peer for strategy update.

Peer M. Schatz -- Chief Executive Officer

Yeah. Thank you, Roland. I'm now on slide 9 to give you an overview of key developments in our Sample to Insight portfolio. I'd like to point out two highlights here, before going into greater detail on some areas of this portfolio. First, our flagship QIAsymphony platform continues to show strong placement rates and good growth in related consumables and we are on track to reach our target for more than 2500 cumulative placements at the end of 2019.

Additionally, we reached an important milestone in surpassing 1 million patient tests analyzed with QIAGEN Clinical Insight. This is a significant number. This proprietary informatic solution pulls information from over 40 clinical and scientific knowledge bases, including many proprietary ones such as the vast and continually updating QIAGEN Knowledge Base and this is playing a key role for our customers in enabling and advancing the practice of precision medicine.

On slide 10, I would like to provide more details on our portfolio for next-generation sequencing. As mentioned earlier, we have decided to restructure our clinical sequencing joint venture in China. Sales from this joint venture were planned to be approximately $30 million in CER for the full year, 2019, and weighted to the second half of this year.

These involved primarily revenues for the services provided by QIAGEN to develop in-vitro diagnostic assays on behalf of the joint venture as well as the sale of GeneReader NGS Systems and other consumables and products to the joint venture at transfer prices. I want to note that sales of the larger NGS revenue component, the so-called universal NGS solutions in China, are handled directly by QIAGEN in this country and QIAGEN is experiencing strong growth in this portfolio.

We intend to review various options on how to further add from the growth opportunities for NGS technologies in China and how GeneReader can be expanded from its current base in China into a new structure. We expect overall NGS-related sales of about $180 million at constant exchange rates in 2019 compared to the prior target of over $190 million and this now reflects the changes in China and compares to over $140 million in 2018 and represents a growth rate of around 30%. Just as a reminder, there are three main components to the calculation of NGS-related sales. NGS consumables including gene panels, instruments and consumables for the GeneReader system; and the last, the third, involves revenues from NGS-related bioinformatics solutions.

Additionally, we expect a decline of about $20 million to reflect in companion diagnostic and other assay co-development revenues. All of the adverse sales impacts due to the change in China are recorded in the Molecular Diagnostics customer class.

As I mentioned earlier, our portfolio of universal NGS solutions continues to see strong uptake in all regions. Most recently, we launched the QIAseq Expanded Carrier Screening Panel that provides identification of targets, genes, and other regions of interest responsible for more than 200 disease indications. This new product leverages QIAseq's single primary extension technology and is integrated with our bioinformatics solutions. This new panel further expands our existing universal NGS portfolio of more than 30 off-the-shelf pre-configured gene panels in addition to an unlimited number of panels available through our customization services.

I would like to now provide an update on QuantiFERON-TB on slide 11 and our plans to expand the franchise of assays developed with this proprietary technology. As an update on our collaboration with DiaSorin, we now have more than 120 DiaSorin LIAISON customers in Europe that have embedded the QuantiFERON-TB Gold Plus TB assay onto their systems.

This is a great number so soon after the launch and promising considering the large installed base still in front of us. In terms of the U.S., we are waiting for FDA approval during the second half of this year. Our number one priority is further driving the conversion from the old skin test to the modern gold standard with QuantiFERON. More than 70 million skin tests are done annually. We see current global penetration at only about 20% with ample room for growth.

An urgent and important driver is the recent announcement by the U.S. Centers for Disease Control or CDC that they are expecting a 3- to 10-month nationwide shortage of tuberculin antigens, which are required for performing the skin test. We are seeing shortages in other countries as well, including Germany.

Building on the DiaSorin collaboration and our intention to offer a series of QuantiFERON-based assays on the LIAISON system from DiaSorin, we have entered into a new agreement with DiaSorin to co-develop a QuantiFERON-based test for earlier detection of Lyme disease on the LIAISON platforms. The QuantiFERON Lyme test will allow a new testing framework by linking QuantiFERON technology with the DiaSorin serology assays, where DiaSorin has a leading position. And this with the aim to offer a new dimension of clinical value through much earlier detection to allow much earlier treatment. This is addressing a significant unmet medical need.

The QuantiFERON Lyme test is planned to be used in conjunction with the Borrelia IgG and IgM assays by DiaSorin, creating a highly synergistic portfolio on LIAISON for customers. The CE-IVD launch for this QuantiFERON assay, which is planned for a market estimated at $400 million to $600 million of annual testing, is planned for 2021 and later in the United States.

In the area of Precision Medicine, where companion diagnostic assays are used to guide treatment decisions and primarily for cancer patients, we had a successful quarter with the FDA approval and launch of two new companion diagnostics. After the approval in April 2019 of our first FGFR assay for use with a new therapy from Janssen called Balversa, which was approved for use in treating patients with urothelial cancer, we received approval in June for the therascreen PIK3 kinase RGQ PCR Kit, which is also the first approval of this biomarker.

It was approved by the FDA for use in identifying breast cancer patients suitable for treatment with the newly approved Novartis therascreen Piqray and was given approval for use with both liquid biopsy and tissue samples. In fact, this is the first companion diagnostic approved by the FDA for use in guiding treatment decisions in breast cancer using tissue or liquid biopsy specimens. This assay is expected to be used widely since it detects 11 PIK3 kinase-related mutations that are estimated to be present in approximately 40% of hormone receptor-positive advanced or metastatic breast cancer patients.

Both assays, FGFR and PIK3 kinase, were offered in the United States through our Day-One Lab Readiness program, which enabled LabCorp, Neogenomics and Quest and others to almost immediately start offering these assays to physicians and patients following the approval of new targeted therapies.

In addition, we recently announced a new partnership with Inovio Pharmaceuticals to co-develop a companion diagnostic to guide the use of Inovio's DNA-based immunotherapy in late-stage development for the treatment of cervical dysplasia caused by the human papillomavirus or HPV. Inovio's VGX-3100 has the potential to become the first FDA-approved treatment for HPV infection of the cervix and the first non-surgical treatment for precancerous cervical lesions associated with this virus.

I would now like to update you on our newest automation systems, QIAstat-Dx and NeuMoDx. QIAstat-Dx is our fully integrated real-time PCR platform for next-generation syndromic testing applications. And it was first launched in Europe in April 2018 with the respiratory and gastrointestinal panels. In May, we received FDA clearance of the system along with the respiratory panel and quickly began commercialization to gain as many placements ahead as possible, ahead of the upcoming cold and flu season.

As part of the U.S. commercialization, we announced ahead of our recent Investor and Analyst Day in June that we have partnered with McKesson, one of the largest U.S. healthcare distribution companies, for them to serve as the exclusive distributor of QIAstat-Dx in the acute market segment of U.S. hospitals with 200 beds or less, an area where QIAGEN is less present with its commercial activities.

McKesson also can become a non-exclusive distributor in the future for planned expansion of QIAstat-Dx into the non-acute retail clinics that are increasingly being found in U.S. retail pharmacies.

And for NeuMoDx, we are expanding the early installed base aggressively with placements in Europe and other markets outside of the U.S. for the 96 and 288 versions of this fully integrated next-generation molecular testing system.

We are now able to offer a menu with six CE-IVD cleared assays and are on track to offer 11 assays by the end of the year. And this in addition to the ability to allow customers to run LDTs, laboratory-developed tests, in full random access. The two most recent CE-marked NeuMoDx assays in Europe involve detection of the cytomegalovirus and the Epstein-Barr virus. Future menu expansion plans include blood-borne viruses, women's health, and transplantation assays. Rapid menu expansion is a key focus in our plans to capture growth opportunities in this large market opportunity, estimated at around $3 billion for low-plex testing and high volume in hospital and reference lab networks.

And with this, I'd like to hand back to Roland.

Roland Sackers -- Chief Financial Officer

Thank you, Peer. 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 5% to 6% CER growth reflecting the lower sales growth due to the restructuring of the clinical sequencing NGS joint venture in China. We have updated our outlook for adjusted diluted EPS to $1.42 to $1.44 per share, also at CER. As for currencies, based on rates as of July 29th, in terms of net sales, we expect a currency headwind of about 3 percentage points on results at actual rate. For adjusted EPS for the full year, we expect a currency headwind of about $0.03 to $0.04 per share. For the third quarter, our outlook is for total net sales growth of about 4% to 5% CER and this includes adverse impact of the changes in China, but also for QuantiFERON-TB to go -- to grow above our full-year target for at least 50% CER growth.

Adjusted diluted EPS is expected to be about $0.35 to $0.36 per share and at constant exchange rates. In terms of currency impact for the third quarter, based on rates as of July 29th 2019, we expect headwinds of about 2 percentage points on net sales growth and about $0.01 on the adjusted EPS.

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

Peer M. Schatz -- Chief Executive Officer

Thank you, Roland. So here's a quick summary before we move into Q&A. Let me review what we have announced. First, we achieved our outlook for net sales growth and adjusted EPS in the second quarter of 2019. Second, we are focused on advancing our Sample to Insight portfolio and have had some important developments. We announced a change in our clinical sequencing strategy for China and intend to review ways to capture growth opportunities in this important market.

In other areas of the portfolio, we're moving ahead, especially with the QuantiFERON latent TB Test, our expanding portfolio of automation systems, and renewed focus on growth in the Life Sciences. We are in a heavy lift phase with new product launches that are set to help accelerate our performance in the coming years and are very proactively reallocating resources to support the most attractive opportunities.

Third, we have updated our full-year 2019 outlook after the decision on the China joint venture. And fourth, we are determined to execute on our strategy to maximize the value of our portfolio with a disciplined focus on capital allocation involving acquisitions to support our portfolio as well as increasing returns to shareholders through buybacks.

These actions are aligned with our strategy to strengthen our position for more growth in 2020 and the coming years, in line with our new mid-term targets out to 2023.

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

Questions and Answers:

Operator

Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions]

[Operator Instructions] We'll go first to Tycho Peterson at JPMorgan.

Tycho Peterson -- JP Morgan -- Analyst

Hey. Good morning. Thanks for taking the question. So on the China NGS decision, curious if you could provide a little bit more color on what caused the partnership failure. Was any of this as a result of competitive pressures given the BGI MGI launch? And then, when was a decision made? Obviously, you reiterated the guidance that the June 20th, Analyst Day. So I'm curious when you made the decision to break up the partnership. And then as we think about guidance, you talked about a $20 million contribution in the back half of the year, which is about 1.3% growth. You're taking down guidance by 2%. So is there something else to the guidance reduction? And then lastly, looking ahead, what would you look for in a new partnership on the NGS front in China and has your long-term outlook on GeneReader in China changed at all? Thanks.

Peer M. Schatz -- Chief Executive Officer

Great. Good morning, Tycho. Thanks for asking this question. So first, the -- China is definitely a market which is quite complex and we're kind of -- we're offering something different to most other companies in this space in the sense that the joint venture was focused on a integrated solution Sample to Insight including everything pre-configured, approved assays, the bioinformatics, the whole workflow; and turned out that it became very difficult to align a lot of these components into this integrated workflow and bring them through the respective process to become available in China. This is a market that is still in a very dynamic mode and with somewhat change in goalposts and we were just about to enter into a ramp-up phase in the second half of the year for the assay development as indicated also before, and -- we just didn't feel comfortable with the risk-reward profile on this.

The market for NGS in China is more an open market. You see definitely a lot of research being done. There are clinical activities being done, but in a slightly less integrated and more open formats. And this is also reflected by the very strong growth that we're seeing in the UNGS portfolio in China that is being used across the board there and as we said previously, growing at very high growth rates. So this was a important decision for us to make in particular, in light of the second half of the year and also had to be done together with our partner, obviously, to align both of us. And for the guidance question, I'll defer to Roland.

Roland Sackers -- Chief Financial Officer

Yeah. Hi, Tycho. At the end of the day -- I think it's very straightforward that of course we have to look on the full year, If you talk about the full-year guidance. And there clearly is also certain impact -- It's quite obvious that we also had a certain impact in the second quarter.

Nevertheless, I think we were able to make our guidance here as well. But as I said before, I think, at the end of the day, the $30 million on the full-year basis is a right number to look at and it's quite obvious that the rest [Indecipherable] certain range.

Operator

Moving -- We're moving next to Jack Meehan of Barclays.

Jack Meehan -- Barclays Bank PLC -- Analyst

Thank you. Good morning, good afternoon. I was hoping you could give a little bit more color on the QIAstat launch to start the year. I think it added a point I saw in the release to first-half growth. Just -- What's your level of visibility end of the $30 million target for this year? What are some of the initiatives you have in place to drive placements? And finally, is there any timing update you can give on the GI approval in the U.S.?

Peer M. Schatz -- Chief Executive Officer

Thanks. Yeah. Good questions. The QIAstat approval came in a little bit earlier, now in the second quarter which was good; and you saw that we immediately started the launch initiatives in the United States, which as you know is by far the majority of the market. 80% of the global market is -- for syndromic testing is currently in United States. So this was obviously important event. And we were also actively looking at ensuring that we get broader coverage than we can have with our teams that are very well positioned in molecular testing laboratories, but there is also a big syndromic market outside of those molecular testing laboratories and that's why we signed up McKesson as the first partner for the smaller hospital area. So we have quite a few people on the ground. [Technical Issues] we've seen a lot of interest around the QIAstat platform and right now the focus -- and is also -- you've also seen the numbers on the instrument placements in the second quarter start moving up and so this is important because we want to have as many placements out there as possible for -- in preparation of the fourth quarter. So depending on when the flu season starts or the respiratory season starts, we want to make sure that people have instruments available and start ordering the consumables to be able to address their testing needs in the respiratory season. So the gastrointestinal panel is in development. We said it would be sometime in -- later this year/earlier next year that we would get the clearance and we feel good about that timeline. We also feel good about the timeline, and this is important, of the meningitis panel -- encephalitis/meningitis panel in Europe. Because that is an important cornerstone asset for us to have there as well. So you've got the menu roadmap. We've also showed it here again and we are committed to making that one happen.

Operator

We'll go next to Patrick Donnelly at Goldman Sachs.

Patrick B. Donnelly -- Goldman Sachs Group Inc. -- Analyst

Thanks. Peer, maybe just one on the trends in Europe. It sounded like some softness in Western Europe for you guys. It seems to be weak across the industry with the general noise over there. Can you just give a few more details on what you're seeing there and then also just your expectations going forward in the region?

Peer M. Schatz -- Chief Executive Officer

Sure. It's a good observation. Europe is generally a little bit puzzling at the moment. We are definitely seeing, in particular in core European countries, that the large markets we're seeing quite soft growth and this -- despite the fact that there are commitments to academic funding and also long-term commitments. We talked in the last call about the horizon programs being approved and obviously quite aggressive funding coming in from the EU, which is an important cornerstone funder in public research over the coming years.

So the academic markets are -- and [Indecipherable] Life Science markets more broadly are indeed quite soft in Europe and at -- there is a lot of caution, and it could be political uncertainty; there have been a lot of elections going on, a lot of changes in the political landscape and a lot of noise and that instability is certainly not good for predictability of funding and that always -- there is a long lever typically that the Life Science markets have. So if there is uncertainty in the future, it will have an impact. So this is our assumption of what is happening right now in Europe and the fundamentals, however, are generally quite good. So we're watching it very closely.

Operator

Next, we'll move to Ross Muken at Evercore ISI.

Ross Muken -- Evercore ISI -- Analyst

Hey, guys. It's Ross -- I mean, It's Luke on for Ross today. Just a quick cleanup. Did you guys say 50% of TB in 3Q growth, if I heard that correctly, Ron? And then I guess, just more on the TB in the strategy. Can you just update on the details with the DiaSorin on the contract terms and how that will flow through and contribute to growth in the back half and even into 2020? And then lastly, was the TB shortage or antigen shortage in the U.S. contemplated when you guys came up with that 15% guidance Just trying to get a sense of upside.

Peer M. Schatz -- Chief Executive Officer

Great. Yeah, good question. So the 15%. Sorry for the pronunciation, It is indeed 15% in the full-year guidance. So our target for the full year, 2019, is more than 15% growth and obviously, the second quarter was a little bit slower. So we'll see faster growth in the second half of the year as we now have much less of this inventory base effect that we had in the second quarter.

The DiaSorin partnership, It's quite simple. The distribution of the detection assay goes through DiaSorin. The distribution of the assay itself, which is contained in the collection tube, goes through QIAGEN. The two products are in about a 60-40 split. So if you'd [Phonetic] say $20 to take a round number, you'd see 12 going to QIAGEN channels directly. That would be down from the 20 that we had as an overall package. $8 would be distributed through the DiaSorin revenue line, but there our royalty rates and also purchases of components that -- where QIAGEN would be getting income, that would, to a very significant degree, compensate for that 8 going away. So the difference is really only a few dollars and that, however, is still a very attractive deal for us because the EBITDA impact is quite positive.

So strategically and also financially, we have a big interest to migrate over to the DiaSorin platform. And this is obviously what we have been able to do quite successfully already in early phases and want to ramp up further in the -- and in particular, after the launch in the United States as well.

The antigen was not -- we have had this in the past before. This is now a little bit of a longer one. So we'll have to see what the impact is. It is more the adoption of new testing that would be done. We'll see what it means. And I wouldn't want to call out that this is now a big impact for the year yet. We'll see what it effectively means and in particular also in other countries around the world that are starting to call out to Brooklyn shortages.

Operator

We'll go next to Daniel Wendorff at Commerzbank.

Daniel Wendorff -- Commerzbank -- `Analyst

Yes. Hi, it's Daniel Wendorff from Commerzbank, and thanks for taking my question. My question is more a general top-down question, I guess. And if you look at the last three years, you have shown constant exchange rate growth of 6% annually and with basically your growth drivers gaining traction and muted the right acquisitions over that time in my view, 2019 is now another year further out and it looks as if you fall into the same ballpark again. So my question would be, what do you say to those who question that QIAGEN will be able to grow above this rate of 6% which somehow has to be turned out to be a sort of hurdle over the last years? Thank you.

Peer M. Schatz -- Chief Executive Officer

Sure. It's -- Roland, maybe you want to add something to that afterwards. I think it's a fair question. I think the important and first answer I would give, we've actually been shedding a lot of activities at the same time and what you're seeing here is a company that is fully committed to ensuring that our focus and our resources is dedicated to high growth opportunities, I think we all agree that with QIAstat, we have a very attractive platform and one of the highest growth areas of today's molecular testing and with NeuMoDx, we have a next-generation platform that has the potential to address a $3 billion market and we are committed to fueling that on top of the growth of the QIAsymphony, the strong strategic and also the competitive position of QuantiFERON.

We have some really, really important differentiating products out there. And therefore, if you look at the prior years, it's important not just to look at the headline number, but we have been actively spinning off businesses that we, this year, are not calling out as we're calling them into an overall growth number. And therefore, that is what you are observing here.

Roland, do you want to add anything?

Roland Sackers -- Chief Financial Officer

Yeah, no. I think that was well said. And I think, just to add, it's clear that we did a lot of homework over the last couple of quarters and we see no certain traction with product launches in Europe, not more in U.S., We shouldn't forget that also next year with digital PCR and other important launches coming up for QIAGEN, we see particular that some of the instruments are gaining traction. So you -- we talked about a bit today on the QIAcube side, typically something where people are not focused on. Nevertheless, it is an important franchise for us, as we all know.

Yes, absolutely. I think we all would love to see that it grows faster than what we see right now. Nevertheless, I think we are on the right track in the right direction.

Operator

We'll move next to Doug Schenkel at Cowen.

Doug Schenkel -- Cowen -- Analyst

Hi, guys. Thanks for taking my question. I want to start on GeneReader, the instrument itself and your strategic vision from here. On the day you disclosed the change in your guidance outlook related to the JV -- Yeah, we caught up with Roland and John and based on what we ran through it, it's pretty clear that GeneReader generated -- the instrument itself generated about $10 million in 2018 sales excluding [Indecipherable]. Recognizing the cost of the acquisition and R&D investment, it seems fair to assert that you've probably spend in excess of $100 million to $200 million on this over the past seven years, going back to the IBS acquisition and subsequent development and commercialization efforts. I may not be precisely right, but I mean even if I'm in the right neighborhood with these numbers, it clearly hasn't been a great ROI and that's going to happen from time to time.

So with that in mind, you've got a lot of other exciting opportunities that you've discussed on this call. At this point, is it fair to say that you're redirecting investment to the other areas of next-generation sequencing where you're competing more effectively today and also to other growth opportunities that we've talked about instead of continuing to invest in the instrument itself?

Peer M. Schatz -- Chief Executive Officer

Yeah. Thanks, Doug. So I won't comment on the numbers. GeneReader is actually a solid niche product. It was developed for sequencing of smaller gene panels and primarily in oncology. As we all know, that market has changed dramatically in the last three to four years in particular to the emergence of immuno-oncology. And assays like TMB and others, they require larger flow cells particularly because these assays cover hundreds of genes and the GeneReader is targeting obviously very fast turnaround, multiple samples, high flexibility and as a part of that, is using multiple flow cells where each flow cell is up to 3 gigs. And this is still a very attractive market in many countries and -- but a lot of the laboratories have been used/starting to use concurrently TMB and other larger panels. So either they have larger systems next to a GeneReader, or they have the larger systems altogether. And while some of these larger panel assays are not yet broadly used in other countries of the world, we're starting to see these mixed environments being used more. But it is in a stable life cycle and we continue to place systems, but primarily in Europe and Asia. And that was important for us to do a lot of that research that you see that we did around next-generation sequencing is really not the development of the instrument itself, but creating a competency around next-generation sequencing. And I think we have to also acknowledge that approaching $200 million in sales in next-generation sequencing, this is one of the largest entities outside the two market leaders in this space in next-generation sequencing, and it's growing at 30%.

So if you look at the overall investment we're still doing in the GeneReader system that we launched in 2016 and '17, that was -- that is really more on a stable Life Science investment burn. And so even double-digit revenue numbers can make that a product worth carrying.

Roland, do you want to add to that?

Roland Sackers -- Chief Financial Officer

No, I think you said it.

Peer M. Schatz -- Chief Executive Officer

Okay.

Operator

We'll move next to Romain Zana at Exane.

Romain Zana -- Exane BNP Paribas -- Analyst

Yes. Thank you for squeezing me in. Two question, if I may. The first one will be on the guidance. If we look at your QuantiFERON-TB growth guidance of more than 15% growth for the full year, it implies around 20% in H2. And this would already drive almost 4 percentage point of growth for the Group. So why -- this is actually the Group guidance for Q3. So, is that fair to assume that the China JV headwind will be offsetting the growth of the rest of the portfolio?

And second question is on the cash flow, maybe [Indecipherable]. If you could just clarify to what refer the $41 million increase in accrued liabilities that hurt the free cash flow in Q2. Thank you.

Peer M. Schatz -- Chief Executive Officer

Excellent job. You want to [Indecipherable], Roland?

Roland Sackers -- Chief Financial Officer

Yeah. In terms of guidance. Yeah, I think it's quite obvious as we said before that [Indecipherable] quite comfortable in expecting QuantiFERON went up in terms of revenues for the second part of the year. Again, it's not different. So, we have seen for the full year. Last year is no different, that we have seen for the full -- for the first quarter of this year. We should have in mind that the second quarter had a special event last year. And therefore, I think that is more or less also of the numbers we use for our models as well. On the cash flow side, in general, I would say, we clearly have seen a couple of investments which we had to make in terms of equipment and for the ramp-up of the QIAstat production.

I think that is a big driver or (ph) an impact factor for us right now on the cash flow side. Other than that, we had a couple of one-offs as we talked about earlier in the first quarter of this year, where we paid some tax audit if you got [Indecipherable] before. Other than that, I would say, it was our normal underlying business as we said before.

Operator

We'll go next to Steve Beuchaw at Wolfe Research.

Steve Beuchaw -- Wolfe Research -- Analyst

Hi. Thanks for the time. I'd love just to get some granularity on the trends in instrumentation. Maybe it's a two-parter. First of all, you had two events in the quarter. So you had presumably some stocking in the McKesson. And then what -- the stat-Dx system and of course, you had the initial launch of the cube and as you pointed out, there are 8,000 systems out there that could be upgraded or replaced. So could you give us a sense for how much of an impact those two items had on revenue in the quarter and then just following on that, and what's your assumption for instrumentation growth for the second half of the year? Thank you.

Peer M. Schatz -- Chief Executive Officer

Roland?

Roland Sackers -- Chief Financial Officer

In terms of instrumentation. Of course, overall in terms of placements, we are expecting a very good quarter. I think that's very straightforward, particular driven by the QIAstat and NeuMoDx launches. I think the one question which is still a bit early to answer for us is how much will be reagent rentals, how much will be straight sales. That is always something we are -- in a certain way, we are -- where we need a certain run rate and QIAstat in still early in terms of lifetime.

Nevertheless, overall, if I just would focus on what we place, I would say there is a significant ramp-up to be expected for the second part of the year, driven by [Indecipherable] three important launches; QIAstat, NeuMoDx both are much more phased in the fourth quarter than in the third quarter, of course, and ongoing on QIAcube Connect.

And the first part of your question, sorry, I didn't catch that faster [Phonetic].

Operator

And he has removed himself from the queue.

Peer M. Schatz -- Chief Executive Officer

Okay. We'll catch up [Speech Overlap].

Roland Sackers -- Chief Financial Officer

Okay, so [Speech Overlap]. Yeah.

Operator

We'll go next to Dan Brennan at UBS.

Daniel Brennan -- UBS -- Analyst

Great. Hey. Thanks for taking the question. I joined a little bit late. I had a two-parter, if you don't mind. I know NeuMoDx is really going to begin to hit next year, but just wondering, guys, just an update on kind of what you're hearing from kind of customers' confidence toward kind of achieving some of the revenue goals that you've set out, number one. And the number two, unrelated, but I know there is a question obviously to start the call off, I believe, on Europe, but just specifically, just kind of what's baked into your guidance in the back half of the year in terms of European growth. Thank you.

Peer M. Schatz -- Chief Executive Officer

Thanks, Dan. Well, yes, indeed we are getting first feedback in from the installed base from in -- in quite routine testing now already. And this with current menu of only six assays, which is obviously being broadened and more completed over the second half of the year and into 2020, the feedback we're getting from customers is indeed extremely positive. So as every new roll-out and other adjustments that we're making, improvements that we're doing, new software rates rapidly delivering those, but everything is ramping actually very nicely and we are seeing first customers providing side-by-side data, which is very impressive. We are seeing flexibility, time analyses, cost-of-ownership analyses, the general -- also the quality of the result comparisons come in, the flexibility on the samples and all these things are pointing absolutely in the right direction. So we are excited and -- but it -- again, it is an early long cycle -- it's an early indication now in a long purchasing cycle. We have first large reference labs hospitals that have already -- that are already testing systems and first placements altogether purchases in addition to, obviously, evaluation sites on top of that. So we are currently playing a conservative on the numbers, but it's -- clearly, if you look at the 2023 targets, NeuMoDx will play a role, we said. And I think we got some comments that that was a conservative number, but that 2023 requires a contribution from QIAstat and NeuMoDx above $150 million for that target to work.

And I think that's a number that we will continue to benchmark ourselves against in future quarters.

Operator

And we'll go next to Peter Welford at Jefferies.

Peter Welford -- Jefferies International -- Analyst

Hi. Yeah. Thanks for taking my questions. Two quick questions. Then a follow-up, which is just with regards to the margin. I guess if we look, despite being a significant number of launches rates [Indecipherable] on at the moment, you still have [Phonetic] very well controlled but [Phonetic] sales and marketing and R&D. I guess if we just [Indecipherable] forward in future years. I guess, can you just outline why shouldn't we see significant leverage coming through, or perhaps another way, what is the thing we should be thinking about as areas you thinking to invest in future years that will, I guess, constrain the margin. Opposite -- the opposite way of looking at it.

And then just to follow up on QuantiFERON-TB, which is that -- we are hearing that there might be a couple of months delay in the U.S. to file an amendment before that can be fully launched on the LIAISON platform. Can you just comment at all on that, and whether or not that's impacted at all. I need your objectives for this year. Thank you.

Peer M. Schatz -- Chief Executive Officer

Roland, you want to take that question? [Phonetic]

Roland Sackers -- Chief Financial Officer

Yeah. I can go for it. Let me kick it off with the margin question. Now I think -- Peter, I think it's a good observation. I think we feel very positive about also mid-term margin potential. It's quite obvious that right now we have some headwinds because we have to build up on one-hand side. So an infrastructure particular for new launches and the consumable sides, which clearly leads that certain products, particularly on the QIAstat consumables side, one on underutilized production side. But with the increased volume over time, that is going to turn around and we do believe that this was a contribution factor. So I would expect that on the one-hand side we get, over time, a certain ease on the gross margin side, as in general I would believe that the whole molecular franchise grows a little bit faster than the Life Science franchise, which I think in general would help the overall gross margin as well.

In terms of operational expansion, I think we're going to continue to see more leverage out of SG&A, particularly on the sales side. So whole digitization of our sales channel is very helpful for our margin structure. There is a cost per transaction is coming down quite nicely and that will help us, of course, mid-term as well. So in the R&D side of expenses, I would expect that we stay in the framework where we are today as in terms of percentage of revenues, it's an area where we believe we do have a nice balance in terms of input-output and that should work out going forward.

So yes, I would expect that we see also 2020 and the years beyond a margin expansion year-over-year.

Peer M. Schatz -- Chief Executive Officer

Great. And related to the submission that we made in the United States together with our partner DiaSorin, This is a PMA. And as usual in PMAs, there are information exchanges that happen between FDA and the company. I'm not quite sure what you're referring to, but we are on track and confirming second half of the year being our current expectation for this. So we have currently no reason to believe that there is any change to that originally committed timeline.

Roland Sackers -- Chief Financial Officer

Okay. Peer and Roland. With that, I would like to end the conference call and thank all of you for your participation. If you have any questions or comments, please do not hesitate to reach out to us. Thank you.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

John Gilardi -- Vice President Corporate Communications

Peer M. Schatz -- Chief Executive Officer

Roland Sackers -- Chief Financial Officer

Tycho Peterson -- JP Morgan -- Analyst

Jack Meehan -- Barclays Bank PLC -- Analyst

Patrick B. Donnelly -- Goldman Sachs Group Inc. -- Analyst

Ross Muken -- Evercore ISI -- Analyst

Daniel Wendorff -- Commerzbank -- `Analyst

Doug Schenkel -- Cowen -- Analyst

Romain Zana -- Exane BNP Paribas -- Analyst

Steve Beuchaw -- Wolfe Research -- Analyst

Daniel Brennan -- UBS -- Analyst

Peter Welford -- Jefferies International -- Analyst

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