Qiagen is looking to expand its reach in the molecular diagnostics market through an agreement announced this week to acquire Hamburg, Germany-based Artus for around $40 million in cash.
The acquisition will mark the first time Qiagen will sell assays, rather than just preparation products, to the molecular diagnostics field. It also is the latest in a series of moves that Qiagen has made as it continues to partner and compete with some of the molecular biology tool firms tracked by BioCommerce Week.
As with many of these 15 high-end life-science firms, Qiagen is looking to provide its diagnostic customers with integrated tools across several molecular biology disciplines. By acquiring Artus, Qiagen has "taken a big pain out of the process, namely the integration of the pre-analytical and the analytical component," said Qiagen CEO Peer Schatz in a conference call following the announcement of the acquisition. "We're handing a complete solution over to the customer that is fully streamlined and optimized."
He added, "Artus is something like an 'Intel Inside' in the molecular diagnostics industry. It has created a very strong position in the area of the design of [PCR-based] diagnostic assays."
Among Qiagen's partners are Thermo Electron, Agilent, and Beckman Coulter, and its primary competitors include Invitrogen, Bio-Rad, GE Healthcare, ABI, Stratagene, and Sigma-Aldrich.
Thermo and Qiagen have since late 2003 been co-marketing Thermo's KingFisher instrumentation technology with Qiagen's magnetic bead-based nucleic acid separation and purification technology for research and diagnostic applications. Qiagen's pact with Agilent dates back to early 2003 and is a co-marketing arrangement involving Agilent's 2100 BioAnalyzer and LabChip kits with Qiagen's consumables and instruments for separation, purification and handling of nucleic acids and proteins.
And Qiagen has been very busy this past month, inking an OEM deal with Epigenomics to develop research products for analyzing DNA methylation; signing a pact to manufacture DNA purification kits for Beckman Coulter; and licensing exclusive rights to sell Procognia's on-chip glycoanalysis technology with its own QProteome product line.
Focus on OEM
Qiagen said that it would acquire Artus, which makes PCR-based molecular diagnostics for pathogenic testing, genotyping, and pharmacogenomics applications, for roughly $39.2 million in cash. Of that total, $11.6 million will be paid into escrow and released subject to certain milestones being met.
The Dutch firm expects to incur charges of $2 million to $3 million related to the purchase in the second quarter. Qiagen expects Artus to generate revenue of $11 million for full-year 2005, of which about $5 million will be recognized in the second half of the year — a relatively minor addition to Qiagen, which posted revenue of $380.6 million for fiscal 2004.
Qiagen also estimated that Artus, which operates primarily as an OEM shop, will ring up sales of approximately $15 million and net income of $1.5 million to $2 million in 2006.
Artus has a portfolio of more than 60 assays, of which 30 have received the CE Mark in Europe. The assays target a variety of viral and bacterial pathogens such as those that cause SARS, herpes, Epstein-Barr virus, West Nile virus, malaria, and salmonella.
Schatz said many large diagnostic companies are Artus customers, including Abbott, Roche, and ABI. And although the companies sell to many of the same diagnostics firms, Schatz noted that Qiagen's customer list is quite a bit broader than Artus'.
Still, Schatz said the acquisition significantly increases Qiagen's value as an OEM molecular diagnostics partner. He said the firm would be able to sell pre-analytical products and "linked assays." He also said, "There is a proven compatibility of the assays — [and] it's a perfect fit for Qiagen's PCR technology portfolio as well, which was previously limited to the research space, and is now available to the molecular diagnostics segment."
Noel Doheny, vice president of solutions for molecular diagnostics at Qiagen, told BioCommerce Week that the firm intends to primarily remain an OEM partner for the larger diagnostic firms. "We're clearly not competing, and not positioning ourselves to compete against the likes of Roche and Abbott," he said. "They are dealing in the high-volume, blood-based molecular methods. We'd be happy to supply them prep, and we'd be glad to OEM them assays, but that's not where we see the competition."
He added, "We're going to focus our own assay development at targeted niches where we can establish a leadership position. And by virtue of that, we're going to be competing against companies that have really limited assay-range offerings — either in stool pathogens, or respiratory pathogens, or in transplant pathogens."
Doheny said, "Most of the competitors will be ASR or limited-menu providers that focus on purely the assay rather than the combination of prep and assay."
Schatz said there are three major product sellers in Artus' line: "a custom blood-bank assay for a partner, a CMV assay, and an infectious disease assay for a partner." He said none of those assays account for more than 10 percent of Artus' total revenues.
Schatz also said that preliminary discussions have been held with the US Food and Drug Administration regarding an undisclosed number of the assays, and "it will be a matter of prioritizing the clinical trials associated with those to gain clearance."
Qiagen and Artus have been collaborating since December 2003, when Artus began incorporating Qiagen's nucleic acid sample preparation technologies into its diagnostic systems for detecting infectious diseases.
Artus holds a global license from Roche to PCR for molecular diagnostic applications. Qiagen officials would not disclose the royalty rates for the license, but did say that royalties for the research market are "quite significant," while royalties on the diagnostics side are "not quite as significant."
Schatz said that Qiagen records about 20 percent of its sales from molecular diagnostic applications — a field it has been in since 1992. He noted that the firm has roughly two dozen partnerships, 15 of which are "active," in diagnostics with customers such as Roche, Johnson & Johnson company Veridex, and Beckman Coulter.
The rest of its revenue comes from the life sciences research market. "We actually have a substantial business in PCR," Schatz said. "We have a broad product portfolio of consumables that are used in combination with our pre-analytical solutions to do assays that are ultimately detected in open-architecture platforms, such as ABI's TaqMan, Roche's LifeCycler, Bio-Rad, Stratagene, Cepheid, or other systems."
Asked during the conference call how revenue growth would come from the Artus purchase — given that the companies are already selling to many of the same customers in the diagnostics space — Schatz suggested that the strategy is not to open a new channel. Rather, "It's the ability within the given channels that we have to substantially increase the revenue opportunity," he said. "The cost of an assay is three to four times higher than the cost of a pre-analytical product."
Qiagen officials noted during the call that they are looking at detection of respiratory infectious agents as an area of optimal growth potential following the acquisition.
— Edward Winnick ([email protected])