Qiagen (NASDAQ: QGEN) sells researchers at drug companies and academic research laboratories kits to extract and purify genetic material from biological samples. Qiagen also sells diagnostic products to help detect pathogens or determine the origin of traces of biological material found at crime scenes.
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. 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. 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.
Net sales increased 40% in 2007 to $649.8 million. This increase was in part due to the acquisition of Digene, which helped to increase North American sales by 53%. 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.
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%. 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. The acquisition of Digene also added an additional 200 sales and marketing personnel. 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.
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. 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.
Following their acquisition of Digene Corporation, sales of Qiagen's HPV test represent as much as 20% of total revenues. 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.
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. 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.
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. 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.
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.
|Comparison of Millipore and Its Competitors|
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