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Adding to Multiplex Molecular Dx Capabilities, Qiagen Inks Deal to Acquire eGene for $34M

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
 
Following through on earlier statements that it planned to be aggressive in the mergers and acquisitions market this year, Qiagen last week signed a deal to acquire sample-separation technology company eGene in a cash and stock deal valued at around $34 million.
 
The deal, which has been approved by both companies’ boards and is expected to close in the third quarter, provides Qiagen with products that complement its sample-preparation and assay technologies. In particular, Qiagen believes eGene’s technologies will give its multiplex molecular diagnostics an advantage in the market.
 
eGene, which is based in Irvine, Calif., sells the HAD-GT12 Genetic Analyzer, a multi-channel sample-separation and -analysis instrument that includes software and a range of consumable cartridges. In a statement, Qiagen CEO Peer Schatz said eGene’s products will combine seamlessly with Qiagen’s sample and assay technologies for molecular diagnostics and clinical research applications.
 
Qiagen offered $.65 in cash and .0416 of its common shares for each share of eGene’s stock, which closed up 52 percent on Friday — the first day of trading after the deal was announced — at $1.32.
Qiagen said it expects the acquisition will contribute revenues of around $2 million in the second half of this year and revenues of $7 million to $9 million in 2008. After 2008, Qiagen expects the eGene division to grow rapidly and to make a “significant” contribution to profits.
 
eGene reported sales of $1.3 million in 2005, but has yet to disclose its 2006 revenue. The firm recently asked the US Securities and Exchange Commission for a time extension in filing its 2006 annual report.
 
eGene has regional distribution partners worldwide. It distributes its own products in the US, while Fisher Scientific Canada, a unit of Thermo Fisher Scientific, sells eGene’s products in Canada.
 
Solveigh Mähler, director of investor relations at Qiagen, said the firm was unsure at this point whether eGene’s operations would remain in California or be transferred to Qiagen’s American headquarters in Maryland. eGene has approximately 20 employees, and Qiagen is hoping they will all join the firm, she said.
 
Consumables accounted for 89 percent of Qiagen’s $466 million in 2006 annual sales, while instruments comprised 10 percent of total revenues, and the acquisition of eGene is not expected to change that split.
 
“I doubt that you will see the revenue split being shifted in one direction or the other,” said Mähler. She noted that the acquisition is not likely to have an impact on Qiagen’s profit margins.
 
Qiagen said it will incur a one-time charge of $.01 on earnings per share in the third quarter and an overall reduction in EPS of $0.1 for the second half of 2007.
 
Another Molecular Dx Piece
 
The acquisition builds on Qiagen’s earlier molecular diagnostics purchases, and is expected to enhance the assays Qiagen received through its purchase last year of Genaco Biomedical (see BioCommerce Week 11/1/2006).
 
“We don’t really need this technology or eGene’s capabilities to enter the [multiplex] molecular diagnostics markets, but it helps,” said Mähler. “With eGene’s technology you can do two things: you can do a quality control on the sample, and then you can do a post-PCR quality control for the assay.
 
“With multiplexing it’s even more interesting because you can split up the different multiplex targets,” she told BioCommerce Week. “It broadens the field of applications for this technology a little bit.”
 
Qiagen’s multiplexing capabilities came via the Genaco acquisition and that firm’s proprietary PCR-based multiplexing technology, called Tem-PCR, which is used to develop molecular diagnostic tests. The firm — which Qiagen purchased for $22 million, but could reach $40 million if certain milestones are met — currently sells 11 test panels for respiratory, hospital-acquired, and bacterial infections, among other conditions, for research use only.
 
The Genaco Templex tests have been renamed QIAplex since the acquisition. Mähler confirmed that Qiagen is on track to file this year for US Food and Drug Administration approval of the ResPlex III and StaphPlex panels. Among the tests in the ResPlex III panel is an H5N1 avian flu assay.
 
Qiagen expects the QIAplex panels to be used to qualitatively detect potential targets that will later be quantitatively tested by assays developed by Artus, a maker of PCR-based assays that Qiagen acquired for $40 million in 2005 (see BioCommerce Week 6/2/2005).
 
The QIAplex panels can be used on a variety of detection instruments, said Qiagen, but they are currently optimized and marketed for use on Luminex’s bead-based platform. Qiagen has been selling its LiquiChip system, which is a modified version of Luminex’s platform, since 2000. But with the acquisition of eGene, Qiagen could potentially replace the Luminex system with its own proprietary instrument offering.
 

“We don’t really need this technology or eGene’s capabilities to enter the [multiplex] molecular diagnostics markets, but it helps.”

“At the moment, we’re using the Luminex platform as a detection platform,” said Mähler. “But, for example, in some fields where you need separated DNA fractions afterward, such as in HLA testing — or some veterinary or food applications — the [eGene] technology brings some advantages.”
 
Schatz said during Qiagen’s fourth-quarter conference call two months ago that he did not expect Qiagen’s relationship with Luminex to change, despite Luminex’s planned acquisition of Tm Biosciences, a direct competitor to Qiagen in the assay development market (see BioCommerce Week 2/14/2007).
 
“In general, we have a good relationship with Luminex,” said Schatz in February. “We discuss openly about our plans and opportunities, and we think it’s a very strong platform. There are thousands of placements, it’s well accepted, and the technology that we have around multiplexing fits very well onto the Luminex system.”
 
Jumping Back Into M&A Market
 
Early this year, Schatz told BioCommerce Week that Qiagen plans to be more active in the mergers and acquisitions market this year than last year (see BioCommerce Week 1/10/2007)
 
Qiagen, which was very aggressive on the M&A front in 2004 and 2005, made only two buys in 2006. But according to Schatz, “that’s more a coincidence. We continue to be very aggressive and we’re looking at a lot of things.”
 
Qiagen made only two acquisitions last year for a total cost of $60 million. In May, the firm acquired Gentra Systems for $38 million (see BioCommerce Week 5/10/2006), and followed that later in the year with the purchase of Genaco.
 
Though Qiagen slowed the pace of its acquisitions last year, it has stuck with a formula of buying firms with sample preparation or molecular diagnostic technologies that complement its existing portfolio. It also has stuck with relatively smaller purchases, eschewing the transforming deals that several firms in the research tools space have made over the past year. The eGene acquisition fits that strategy, as well.

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