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Qiagen Ups ‘07 Revenue Guidance After Closing Digene Buy; Posts Strong Q2 Revenues, Profit

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
 
Qiagen this week increased its guidance for fiscal 2007 by roughly 20 percent, following the completion of its purchase of Digene more quickly than expected.
 
The firm believes it will benefit from a sales force of more than 250 who are focused on selling molecular diagnostics products, which are an increasingly larger piece of Qiagen’s overall revenues. The integration process, which began before the firms announced the deal in June, is expected to be completed next spring, Qiagen officials noted during a conference call this week.
 
Qiagen also reported double-digit revenue and profit growth for its second quarter ended June 30.
 
The $1.6 billion acquisition of Digene, which was completed last week ahead of schedule, will enable Qiagen to branch out beyond its current diagnostics focus on infectious diseases and into cancer testing, and will provide Digene with a global sales channel that it currently lacks (see BioCommerce Week 6/6/2007).
 
The deal will also shift a significant portion of Qiagen’s sales into the North American market, where Digene has a greater presence, and will result in nearly half of Qiagen’s revenues coming from the sale of molecular diagnostic products, Qiagen CEO Peer Schatz said during the conference call.
 
The Digene acquisition follows Qiagen’s purchase earlier this year of eGene for $34 million (see BioCommerce Week 4/18/2007). 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. Qiagen expects eGene to contribute revenues of around $2 million in the second half of this year and revenues of $7 million to $9 million in 2008.
 
With the acquisitions of eGene and Digene completed, Qiagen now expects to report full-year revenue of between $614 million and $635 million, up from its forecast earlier this year of between $518 million and $535 million.
 
“We are with this combination a market and technology leader in molecular diagnostics with about $400 million of molecular diagnostics revenue on the current run rate, [and] about $800 million in total revenues on an annualized current run rate,” said Schatz during the call.
 
He noted during the call that molecular diagnostics sales accounted for roughly 30 percent of revenues in the second quarter, but that number will jump to nearly 50 percent once Digene’s operations are fully integrated with Qiagen.
 
Post-merger, the firm now has over 250 sales people focused on molecular diagnostic sales, which Schatz said is “significantly larger than anybody else has on the ground in terms of sales force.”
 
Digene is the only company to sell a molecular diagnostic product cleared for marketing in the US and Europe for human papillomavirus, the primary cause of cervical cancer. Schatz has estimated that the HPV molecular diagnostics market is potentially worth $1 billion, but perhaps more importantly for Qiagen, Digene’s technology provides a link between oncology and Qiagen’s virology portfolio of assays.
 
“What I think is so unique about HPV is it really is more than just a test or an area of testing; it is a link between virology, which is today’s majority of molecular testing, into oncology, which is clearly the next generation of molecular value generation,” said Schatz.
 
According to Schatz, the post-merger integration process began roughly two months prior to the June announcement of the deal, which he said is a typical timeline for Qiagen when it acquires another company. Schatz said the integration of the two firms will take about 12 months, which means it will finish next spring.
 
“The integration is going quite well,” he said. “There are no negative surprises. What we have actually seen in the first days of July when we had all-hands meetings and the companies coming together … [are] a lot more opportunities than we originally saw.”
 
Schatz was asked by an analyst during the conference call if Qiagen’s acquisitions and increasing development of its own assays was having any negative affect on its OEM diagnostics business. “We have an absolute loyalty to our existing relationships, and an active, ongoing OEM program, and actually have some new editions,” Schatz replied. “The increased capabilities, the increased infrastructure, and the increased manufacturing capabilities that we have just added to the attractiveness of the [OEM] business.”
 
Although Qiagen has been more aggressive in the M&A market this year, after a very quiet 2006 in which it made only two acquisitions for a total of $60 million, Schatz’s comments suggest partnerships are more likely in the near-term.
 
He said the firm is “aggressively looking at” extending the link between oncology and virology testing. However, “A lot of these content engines are not really in the commercial space, they’re mostly academic, and much more importantly, pharma,” said Schatz.
 
“If you look at what the diagnostic industry spends on development it’s a few hundred million dollars a year, and if you look at what the pharma industry spends in this space it’s in the billions. The fact that we have a very substantial business supplying biomedical research and clinical development … this is a tremendous feeder into potential next-generation content, and we’re trying to utilize that even better going forward,” he added.
 

“The fact that we have a very substantial business supplying biomedical research and clinical development … this is a tremendous feeder into potential next-generation content, and we’re trying to utilize that even better going forward.”

“I’m not sure if this is really going to be built on acquisitions. I think a lot of it will be organic and partnership related,” said Schatz.
 
Revenues Rise 19 Percent
 
Qiagen also reported this week that its second-quarter revenues increased 19 percent to $135 million from $113.2 million in last year’s second quarter.
 
Organic growth contributed 11 percent to the total, with 4 percent of growth coming from acquisitions. The firm’s consumables sales grew 19 percent, and its instrument sales rose 29 percent in the quarter. Consumables account for 89 percent of the firm’s total sales, while instruments bring in 10 percent of total sales.
 
By geography, Asia provided the highest revenue growth in the quarter, rising 53 percent. The firm said that demand was particularly strong in China, Singapore, and Korea. North American sales, which represent 40 percent of Qiagen’s total sales, were up 6 percent for the quarter, while European sales, which represent 47 percent of total sales, rose 18 percent.
 
Following completion of the merger, 52 percent of Qiagen’s sales will come from the United States, while 36 percent will come from Europe, and 9 percent will come from Asia.
 
Schatz said that the firm had surpassed revenue and earnings expectations for the quarter. The results also do not include any contribution from Digene.
 
Digene recently posted a 31 percent increase in its second-quarter revenue to $56.8 million from $43.3 million in the prior year’s second quarter. According to Schatz, Digene also exceeded its guidance for the quarter.
 
Qiagen posted net income of $22.6 million, or $.14 per share, in the quarter, compared with net earnings of $14.2 million, or $.09 per share, in the second quarter last year.
 
The firm’s R&D spending rose 24 percent to $12.7 million from $10.2 million year over year.
 
Qiagen finished the quarter with $380.4 million in cash and cash equivalents.
 

Company officials said during the call that the firm expects to take a one-time, pre-tax charge of between $40 million and $45 million in the third quarter related to the Digene acquisition.

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