Qiagen N.V. (QGEN)

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In 2007 Qiagen increased its presence in the molecular diagnostics market with its acquisition of Digene. This acquisition also gave it the only test approved by the U.S. Food and Drug Administration for detecting the human papilloma virus - a virus that can cause genetial warts, and occasionaly cervical cancer.

Molecular diagnostics refers to a method of detecting a disease by analyzing a patient's DNA. While Qiagen's core business of sample preparation insures the company a steady source of revenue, the molecular diagnostic market is growing at a much faster pace and the HPV testing market, in particular, has a potential market of over $1 billion worldwide according to Qiagen's own estimates.^[1] Driven by acquisition of Digene, Qiagen generated 50% of its sales from molecular diagnostic products in the first quarter of 2008 compared with just 27% a year ago. Analysts expect Qiagen's HPV test to pull in between $260 million and $270 million in 2008.^[2] However, a competing company Third Wave Technologies, has also filed for FDA approval of their own HPV diagnostic tests. Despite Qiagen's unsuccessful patent infringement suit against Third Wave, analysts expect the latter company to gain approval for its test early as the beginning of 2009.^{[citation needed]}

[edit] Business Financials

Net sales increased 40% in 2007 to $649.8 million.^[3] This increase was in part due to the acquisition of Digene, which helped to increase North American sales by 53%.^[4] Net income decreased decreased 29% to $50.1 million from $70.5 million mainly due to the charges from the acquisition of Digene. Excluding these charges, net income increased 31% to $11.5 million from $85.3 million.^[5]

Total operating expenses increased 60.8% in 2007 to $350.4 million as research and development expenses increased 56%, sales and marketing expenses increased 42%, and general and administrative expenses increased 48%.^[6] Research and development expenses currently amount to $64.9 million or 10% of net sales, and Qiagen expects research and development costs to further increase in the future as they continue to expand their research activities and product development capabilities.^[7] The acquisition of Digene also added an additional 200 sales and marketing personnel.^[8] Qiagen keeps a large sales team because it needs separate organizations addressing the different needs of industrial and academic research, applied testing, and molecular diagnostics.

Qiagen is also looking to expand its operations in Asia, which is one of its fastest growing markets. Net sales increased 41% in the region, primarily driven by Singapore, China, and Korea.^[9]

Qiagen's net income dropped in 2007 due to the costs associated with its acquisition of Digene.^[10]

While sales in Asia only account for 7% of total sales, it is Qiagen's fastest growing region. The company is investing heavily in the area to fuel further growth.^[11]

[edit] Trends and Forces

[edit] Qiagen's Customers Include Many Academic and Government Laboratories that Rely on Grants from Government Agencies

A significant port of Qiagen's sales are to researchers, universities, government laboratories, and private foundations whose funding is dependent on grants from government agencies such as the US National Institute of Health and similar agencies worldwide.^[12] Theses funding arrangements are often dependent on the approval of government budgets, which can change yearly. Thus, Qiagen's sales can fluctuate due to the changes in research funding and also from delays in the approval of government budgets.

[edit] FDA Approval of New HPV Testing Methods Would Hurt Qiagen's Sales

Following their acquisition of Digene Corporation, sales of Qiagen's HPV test represent as much as 20% of total revenues.^[13] Qiagen's test is currently the only one to receive FDA approval giving it a first-mover advantage. However, Third Wave Technologies has submitted their own HPV diagnostic test for FDA approval with a timeframe set for early 2009. Third Wave has agreed to be acquired by Hologic, a company specialized in women's health-care market with its own large direct sales force. Qiagen also lost a patent infringement suit against Third Wave Technologies although it is appealing the ruling.

[edit] Increased Research in Life Sciences Would Lead to More Sales for Qiagen

Due to rising public health concerns and an aging population in the United States and Internationally, there has been an increased emphasis on life science research.^[14] The largest area of expenditure for many countries is health care, and that figure is only expected to increase in the coming years. Concerns about bioterrorism is also leading to more research in fast and accurate diagnostic tools, which Qiagen is actively researching. Qiagen's tools are involved in everything from basic research to drug development, so its sales would benefit greatly from an increase in life sciences research.

[edit] High Switching Costs Means that Customers Remain Loyal to the Qiagen Brand

Many of Qiagen's products are used in a research environment, where quality and accuracy are key. These costs benefit Qiagen in the $2 billion market for sample preparation, where it is an established company that many people can trust.^[15] Changing to a kit from another manufacturer not only means learning new protocols but also adds an unwanted variables to experiments. Thus, researchers are loyal to the Qiagen brand. Qiagen's large portfolio of products lets it to cross-sell its products and successfully compete against smaller companies.

[edit] Competition

Qiagen competes with many companies in both the sample preparation market and the diagnostic testing market. Other than diagnostic testing, there are also other methods to test for diseases that do not rely on the products that Qiagen produces.

• Millipore (MIL) - Once known solely for its filtration products, Millipore has expanded into being a major life sciences research company providing equipment for laboratory research and the biopharmaceutical manufacturing business. However, although Millipore has been involved in biopharmaceutical manufacturing since the 1980s, the company only began making significant inroads into the laboratory research market in 2005. Since the laboratory research market is five times larger than the biopharmaceutical manufacturing market, Millipore is investing heavily in the market both through research and development and acquisitions.^[16] While they are not as established as Qiagen in the laboratory research market, their large worldwide sales force and strong brand make them a significant competitor in this large and growing market.

• Invitrogen (IVGN) - A global company with offices in over 70 countries, Invitrogen provides products and services to pharmaceuticals, biotechnology companies, and academic and government research institutions.^[17] Its catalog includes over 25,000 products ranging from protein identification to drug discovery and process development products.^[18] Invitrogen's diagnostic products are used to find unique biomarkers that are associated with a wide variety of diseases. As with Qiagen, Invitrogen's customers rely on NIH and other governmental funding, and a decrease in research funding would slow the growth of both companies.

• Pall (PLL) - Pall Corporation is the largest filtration, separations, and purifications company in the world.^[19] Its products are used to remove pathogens from blood, water and food, purify biotech drugs, and clean water supplies.^[20] Its business is divided into a Life Sciences Division, which accounts for 23 percent of its sales, and an Industrial Division, which accounts for 77 percent of its sales.^[21] Thus, while Qiagen is solely a life sciences company, a large portion of Pall's revenue comes from its sales to the aerospace, microelectronics, and general industrial markets.

[edit] References

1. ↑ Qiagen (QGEN) Annual Report 2007, Section: A Reliable System, Page 35
2. ↑ Morningstar Analysis, Jeff Viksjo, 7/1/08, "Qiagen's HPV Test Faces Challenger," Page 1
3. ↑ Qiagen (QGEN) Annual Report 2007, Section: Financial Statements, Page 56
4. ↑ Qiagen (QGEN) Annual Report 2007, Section: Financial Statements, Page 56
5. ↑ Qiagen (QGEN) Annual Report 2007, Section: Financial Statements, Page 56
6. ↑ Qiagen (QGEN) Annual Report 2007, Section: Financial Statements, Page 57
7. ↑ Qiagen (QGEN) Annual Report 2007, Section: Financial Statements, Page 57
8. ↑ Qiagen (QGEN) Annual Report 2007, Section: Financial Statements, Page 57
9. ↑ Qiagen (QGEN) Annual Report 2007, Section: Financial Statements, Page 56
10. ↑ Qiagen 10 Year Summary, MSN Money
11. ↑ Qiagen (QGEN) Annual Report 2007, Section: Financial Statements, Page 54
12. ↑ Qiagen (QGEN) Annual Report 2007, Section: Financial Statements, Page 54
13. ↑ Qiagen (QGEN) Annual Report 2007, Section: Form 20-F Part I, Page 101
14. ↑ Millipore (MIL) Annual Report 2006, Item 7, Page 56
15. ↑ Morningstar Analysis, Jeff Viksjo, 7/1/08, "Qiagen's HPV Test Faces Challenger," Page 1
16. ↑ Millipore (MIL) Annual Report 2007, Shareholder Letter, Page 5
17. ↑ Invitrogen (IVGN): Who We Are
18. ↑ Invitrogen (IVGN): Area of Focus
19. ↑ Pall (PLL) Company Profile
20. ↑ Pall (PLL) Factsheet
21. ↑ Pall (PLL) Corporate Brochure
22. ↑ Millipore Income Statement, Yahoo Fianance
23. ↑ Invitrogen Income Statement, Yahoo Finance
24. ↑ Pall Income Statement, Yahoo Finance
25. ↑ Qiagen Income Statement, Yahoo Finance