Following his company's $38-million acquisition last week of Gentra Systems, Qiagen CEO Peer Schatz suggested that the company was likely to stick with its strategy of acquiring smaller companies that generate near-term value.
The firm, which has acquired nine companies — including Gentra — since May 2005, has paid a total of $128 million for those businesses. But following the two major acquisitions announced in the past two weeks — Millipore's $1.4-billion acquisition of Serologicals (see BioCommerce Week 4/26/2006) and this week's announcement that Thermo Electron is merging with Fisher Scientific in a $10.6-billion deal (see article) — customers and investors will be watching the top consumables players, such as Qiagen and Invitrogen, to see if they will pursue such a transforming deal.
Schatz made his comments during a conference call tied to the company's first-quarter earnings report, which showed a 14-percent jump in revenue year over year — exceeding expectations — driven by a 16-percent increase in consumables sales [see sidebar].
Staying the Course
With the industry talking about the possible effects of the mammoth deal between Thermo and Fisher — both in terms of the competitive landscape and M&A activity in the life science tools industry — Schatz was asked during a conference call this week about the acquisition and whether Qiagen's strategy had changed as a result.
"This is not necessarily served by being big, and that has always been our choice to not sacrifice speed for size."
"If you look at Qiagen, we have a very clear path where we're going — at very high speed," said Schatz. "This is not necessarily served by being big, and that has always been our choice to not sacrifice speed for size.
"For us, if you look at the trend of acquisitions we've done, and we have done transactions that were south of $50 million in consideration, the value generation we saw there was just spectacular," he said. "The contributions for our strategy and for our speed were significant as evidenced by our performance in the first quarter."
Since it began its string of acquisitions in May last year, the most Qiagen has paid for a target is the $39.2 million it spent on Artus (see BioCommerce Week 6/2/2005). Artus is expected to bring in revenue of $15 million for Qiagen this year, while the other eight firms combined are expected to return roughly $30 million in revenue.
Qiagen's acquisition of Gentra, a developer and supplier of non-solid phase nucleic acid purification products, is expected to contribute approximately $6 million to 2006 sales (see Briefs).
"We did look at larger transactions … but we traditionally have not seen the acceleration opportunity for our top line and the catalytic effect for the rest of our business as strongly as for these smaller transactions," said Schatz. "I wouldn't say there's a trend. There definitely were a few transactions that were a little bit larger."
He said Qiagen would not necessarily shy away from a larger merger or acquisition, "but size is not an issue for us — strategic value and, ultimately, shareholder creation is."
Schatz also did not minimize the importance or effect that the Thermo-Fisher merger is certain to have on the industry. "It's obviously a very important deal for our industry, and I think what is one of the most important factors is that this industry now has a major player with $10 billion in sales with a very complete portfolio," said Schatz.
"We think that it is definitely an industry-changing transaction," he added. "We don't see this as a negative for Qiagen. We don't necessarily see it as positive."
He said that while others may be making moves for critical mass, "the industry has to continue to serve its customers by being very proactive and thinking long-term in terms of choosing the right technologies and tools. It's not a very much 'now and here' business."
Schatz suggested during the conference call that Qiagen would continue to seek acquisition opportunities that would further its play in the molecular diagnostics market. The Artus acquisition, and the $14.5-million purchase of Shenzhen PG Biotech in September (see BioCommerce Week 9/29/2005), are the cornerstones of its strategy in that market.
— Edward Winnick ([email protected])
Qiagen's Q1 Organic Revenues Rise 13 Percent
Qiagen's organic revenue in the quarter grew 13 percent to $108.7 million from $95 million year over year. Earlier projections had pegged revenue for the quarter at $101 million to $104 million.
Acquired businesses tacked on 7 percent, but that was offset by a negative currency effect of 6 percent. Organic growth for its consumables products was 15 percent year over year and 7 percent for its instrumentation business, Qiagen said.
Schatz said he was particularly surprised at the growth of instrumentation sales. "The instrument uptick was pretty much across the board. We saw especially good growth in pharmaceutical and biotech customers," said Schatz.
Qiagen's net income for the quarter rose 26.6 percent to $17.6 million from $13.9 million in Q1 2005, and its earnings per share rose to $.12 from $.09 year over year.
The firm's R&D expenses rose 7.4 percent for the quarter to $10.2 million from $9.5 million in the comparable period a year ago.
Following the first-quarter results and the acquisition of Gentra, Qiagen increased its revenue and earnings guidance for the year. The firm now expects to report revenue of $453 million to $462 million, up from previous expectations of $439 million to $451 million. It now expects EPS of $.52 to $.56 per share, up from a range of $.52 to $.55.
As of March 31, Qiagen had approximately $198 million in cash and cash equivalents on hand.
In addition to the Q1 results, Qiagen said that it would close its manufacturing and R&D facility in Oslo, Norway, and relocate various components to its European headquarters in Hilden, Germany. The company firm expects to complete the move in the second quarter. Qiagen said the move will result in an increase in future profitability, though it will incur one-time charges of approximately $1 million in the second quarter.