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Qiagen, Bruised by Weak Pharma, May Not be Accurate Genomics Bellwether

This article has been updated from a previous version.

 

NEW YORK, July 3 - Though Qiagen today blamed a weak and penny-pinching pharmaceutical industry on its decision to slash sales targets for the year by 13 percent, the news may mean that the battered genomics-tool sector may be due for a turnaround.

 

News of Qiagen's misfortune, which centered on a new sales forecast of $300 million for 2002 and a warning that sales next year would be equally anorexic, triggered a flash-flood sell-off of it stock on the Nasdaq exchange where shares fell 34 percent, or $3.44, to $6.58, in mid-afternoon trade--$3.56 below their lowest level over the past year.

The announcement by the world's largest manufacturer of nucleic acid-purification kits also gave the shivers to shareholders of most other genomics tool and technology companies: In mid-afternoon trading, shares in Affymetrix fell roughly 15 percent; Caliper, Incyte Genomics, and Invitrogen each saw their stock dip approximately 8 percent; Orchid Biosciences' shares were nudged down by about 7 percent; and Applied Biosystems was off just over 5 percent.

This has forced analysts to frame Qiagen's woes in perspective. In a hastily penned report, for example, Schroder SalomonSmithBarney told investors in Amersham Biosciences, which competes with Qiagen, that the Dutch giant's profit warning is "no cause for concern." It added that shares in Amersham, whose nucleic acid-purification tools directly compete with Qiagen's, have "experienced some weakness as a result."

 

Schroder said that Amersham itself "had flagged slow growth" in this business months ago and echoed Qiagen's line that the slowdown is the result of "short-term budgetary pressure as pharma companies reduce R&D spending."

 

Winton Gibbons, a genomics analyst for William Blair & Co., meantime, articulates the view held by optimists in the genomics-tool space that believe Qiagen's announcement, far from being a red flag, may in fact signal that the sector is nearing its nadir.

 

"If you look at US-based genomics companies, most of them have already had their problems," said Gibbons. "I think that Qiagen's reduced forecast means that the tough times have finally reached such a big player," and that more favorable market conditions may not be far off. Besides, he said, market expectations were enormous to start with for Qiagen, allowing little room for error.

 

More importantly, though, Gibbons stressed that the high-value reagent base is growing 20 percent worldwide, a comfy market nook in which companies like Qiagen can enjoy refuge.

 

"People were just looking for a reason to sell," he said. "It's really no big deal."

 

Gibbons thinks that genomics-tool shops will regain mid-teen-percent revenue growth by the end of the year.

 

Others aren't convinced. "What it indicates is that there's a change in mindset going on in the US pharmaceutical industry," WestLB Panmure analyst Chris Redhead said in a report by Dow Jones Newswires. "It's setting a feeling that pharmaceutical companies are looking for smarter approaches as opposed to large-scale approaches."

 

Qiagen complained in a statement early this morning that a marked slowdown in R&D spending by US drug companies battered its instrumentation and synthetic nucleic-acid business, and added that the straights were dire enough to affect sales and earnings for the rest of this year and 2003.

"What happened in the second quarter is that pharmaceutical revenues in the US, instead of growing rapidly, were actually flat or declined," Peer Schatz, Qiagen's chief financial officer, told Dow Jones. "This has got nothing to do with our products. We think there is a short-term contraction in pharmaceutical budgets."

 

He stressed that the developments would not alter the company's overall strategy.

Qiagen said it expects to make $.05 per share in the current second quarter, down from $.09 per share, and expects to make $.05 and $.06 per share for the third and fourth quarters, respectively. Qiagen's original projection was to earn $.11 per share for both periods.

Though next year should see a 48-percent jump in per-share earnings, to $.34, Qiagen said, that would still be significantly lower than the $.45 average forecasted by analysts up until this morning's statement.

Stressing a bright spot, Qiagen said that though instrumentation accounts for just 11 percent of its total worldwide sales, and that some 35 percent of its sales   are from the pharmaceutical industry, fully half of its total revenues come from academia, which remains a strong customer base.

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