Qiagen's decision to acquire Chinese molecular diagnostics company Shenzhen PG Biotech for $14.5 million in cash, disclosed this week, will provide the company with more than 10 assays approved by the Chinese State Food and Drug Administration, more than 20 employees focused on assay development, and an established sales channel and regulatory expertise in the Chinese market.
Perhaps most importantly, the acquisition will likely strengthen the company's molecular diagnostics business, and will give Qiagen a "strong manufacturing base" in the emerging Asia market, CEO Peer Schatz said at the UBS Global Life Sciences Conference in New York this week. The move, which is part of Qiagen's broader strategy for growing its footprint in the region, could also help the company to compete more effectively there against other big-name multi-platform rivals.
PG Biotech has the first GMP manufacturing plant certified by Chinese regulatory authorities for in vitro diagnostic products in the country, Schatz noted. The firm, which has a staff of 120, manufactures and sells PCR-based molecular diagnostic assays.
Among its products are assays for pathogens such as SARS, HBV, HPV, Mycobacterium tuberculosis, Neisseria, and Chlamydia. PG Biotech currently has Chinese approval to sell a total of 10 PCR-based molecular diagnostics. In addition, the firm makes assays for import/export controls and quarantine testing, and is developing panels for disease profiles.
PG Biotech is "in the core of Qiagen's focus … and adds nicely to the Artus acquisition."
Schatz told BioCommerce Week that a key to the acquisition was that it would allow Qiagen to sell directly into the emerging market. Schatz also noted that PG Biotech's capabilities mirror those of Artus, a manufacturer of PCR-based diagnostic assays that Qiagen acquired in June (see BioCommerce Week 6/2/2005).
"It's in the core of Qiagen's focus … and adds nicely to the Artus acquisition," Schatz said.
The PG Biotech acquisition is the latest move by Qiagen to expand its operations in China. In June, the company acquired nucleic acid reagent provider Tianwei Times. The firm also opened an office in Shanghai this year and strengthened its distribution capabilities through a pact with Gene Company.
Schatz acknowledged the sticky issue of protecting intellectual property in China, and said the firm would not be doing any platform development there. Instead, Qiagen intends to ship kits there from its other manufacturing facilities.
He also noted that there is an unaffiliated company operating in China with a similar name selling cheaper versions of the firm's low-end reagents. But Schatz said the Chinese government has stepped in to try and stop the Chinese firm from selling counterfeit Qiagen products.
However, upsides to manufacturing products in China exist, including the likelihood that Qiagen would be free to make PCR-based assays without paying a license to Roche or Applied Biosystems. Qiagen officials declined to confirm if this would be the case and what the potential financial impact would be. Qiagen holds licenses in other markets from both Roche and Applied Biosystems covering the use of PCR in its products for diagnostic and research purposes.
As Molecular Dx Expands, M&A Will Grow
Long-term, the PG Biotech acquisition could strengthen Qiagen's molecular diagnostics business. Schatz speculated that Qiagen is the fourth or fifth largest player in the molecular diagnostics field, with those products currently accounting for 20 percent, or around $76 million, of its 2004 revenue of $381 million. The firm expects revenue from its molecular diagnostic products to eclipse $100 million in 2006, and the acquisition of PG Biotech is expected to boost that number in years to come as the firm sells into the largely untapped Chinese market.
"I'm not a big believer in adding a business just to have a business. We see ourselves as extremely focused on a space, and we're enjoying very rapid growth based on this focus. Going forward, we will continue to add businesses."
Schatz also said that Qiagen would pursue US Food and Drug Administration approval for many of the assays it acquired through the purchase of Artus assays that it currently sells in the US as analyte-specific reagents. The Artus acquisition brought a portfolio of more than 60 assays targeting a variety of viral and bacterial pathogens, of which 30 have received the CE Mark in Europe. It also made Qiagen a partner of many large diagnostic developers, including Abbott and Roche. (see BioCommerce Week 6/2/2005)
In addition to the Artus acquisition, Qiagen made six other purchases over the last six months, dramatically expanding its protein offerings and gearing up for future molecular diagnostic launches.
When asked recently whether the firm expects to make more acquisitions, Schatz told BioCommerce Week, "I think this was really just the start. We did six or seven acquisitions the last few months. I'm not a big believer in adding a business just to have a business. We see ourselves as extremely focused on a space, and we're enjoying very rapid growth based on this focus. Going forward, we will continue to add businesses." (see BioCommerce Week 8/11/2005)
He echoed that statement in a break-out session at the UBS conference, saying that the firm was still in its growth phase, with more acquisitions likely to come. Qiagen hopes that process will be helped by its new vice president of mergers and acquisitions, Cheri Walker, who joined the company last week from Invitrogen, where she had served as vice president of proteomics.
Details of the Acquisition
Terms of the agreement, which is pending Chinese government approval and subject to certain closing conditions, call for Qiagen to acquire all outstanding shares of Shenzhen-based PG Biotech. Slightly more than half of the company's shares are currently held by state-owned institutions, and Qiagen said that it won a regulated auction to buy PG Biotech.
Schatz said that Qiagen hopes to close the acquisition in the first quarter of 2006, after which it expects PG Biotech to contribute $6 million to $7 million in sales over 12 months. He said the acquisition is expected to be neutral to earnings per share in 2006 but accretive the following year.
Qiagen now has 15 diagnostic partners, and earlier this year the firm created a separate sales force dedicated to the diagnostics industry. It also launched a pharmacogenomics sales initiative, which Schatz said was a key to Qiagen's future growth.
Schatz pointed out that 35 percent of Qiagen's revenue currently comes from pharmaceutical and biotech partners using its technologies for research purposes. He suggested that the firm would take advantage of those relationships to get more involved in pharmacogenomics.
Qiagen still derives 45 percent of its revenue from the academic market, and Schatz stressed that even though molecular diagnostics was a key focus for the firm going forward, the academic customers remain vital. "The academic market is valued very highly," he said, because technology gets standardized at the early-research level.
Edward Winnick ([email protected])