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Despite Softness in Q1, Qiagen Expects HPV Business to Bounce Back This Year

By a GenomeWeb staff reporter

NEW YORK (GenomeWeb News) – In the midst of reporting soft first-quarter earnings results that failed to meet Wall Street expectations, Qiagen officials today continued to be optimistic that the company will meet its full-year 2011 guidance with a bounceback in its human papillomavirus business, new revenue streams from its pending Cellestis acquisition, and the development of new assays and platforms.

On Wednesday, the molecular diagnostics firm reported flat revenues for the fourth quarter year over year, citing the earthquake and tsunami in Japan, flooding in Australia and New Zealand, and political unrest in Egypt.

Moving ahead, however, company officials reaffirmed full-year 2011 guidance of 5 percent to 7 percent sales growth at constant exchange rates, and 7 percent to 13 percent growth in adjusted EPS.

In a conference call today, CEO Peer Schatz said the company expects improving performance during the year and sales growth to peak in the fourth quarter, as the effects from the disruptions of the first quarter dissipate and the firm carries out its various strategic goals.

Schatz noted anticipated improvement in its HPV business, which comprises 18 percent of Qiagen's total sales. That market is of particular importance to the company and its investors because Qiagen is the dominant player in the space with an estimated 90 percent share.

But with new players such as Roche, whose HPV test for its cobas platform was cleared by the US Food and Drug Administration last week, and Gen-Probe, which submitted a pre-market approval submission to the FDA in November, Qiagen's grip on the market is viewed as loosening.

In recent separate research reports, investment firms William Blair and Goldman Sachs each cited concern about Qiagen's business and noted an expected challenge to the company in the HPV space.

In its earnings results on Wednesday, Qiagen said that sales of HPV tests in the US were soft and blamed a weak economy that resulted in fewer patient visits to doctors. While demand for HPV tests was "solid" in the first quarter of 2010, it steadily waned afterward. According to Schatz, though, a slow reversal in doctor visits is underway and "we're becoming more optimistic about trends for the later part of 2011," and Qiagen anticipates its HPV franchise to grow in 2011.

He added that the company is "converting the US market" to its technologies from other established diagnostics. The company recently achieved 40 percent market penetration and is progressing toward 45 percent. Schatz said 80 percent penetration in the US is a "conservative and reasonable estimate."

"HPV testing still remains a substantially untapped market, so conversion initiatives, particularly those targeting integrated healthcare networks and physician groups, remain a major focus," he said.

In Europe, as well, Qiagen has a strategy to ramp up adoption of HPV screening and has 20 pilot projects under way.

Commenting on growing competition within the space, Schatz that while that will have an impact on Qiagen, it has been calculated into the company's revenue expectations, and he added that newer tests don't necessarily translate into better ones.

"It is very clear that none of the competitor assays are anywhere close to being validated to the extent our assay is. Also, none provide clinical data of superiority," he said. "Normally, you would see new tests offer clinical benefits, but here this is clearly not the case."

Further, Qiagen is developing an HPV assay for its QIAensemble platform, though he deferred to comment further until next month at two medical conferences.

Aside from QIAensemble, Qiagen is developing its QIAsymphony RGQ platform and portable point-of-care devices for locations where laboratories are not available to conduct molecular testing.

The QIAsymphony RGQ platform was launched in 2010 in Europe with 14 assays for in vitro diagnostic use. Earlier this year, it was launched in the US as an open platform, and Qiagen has submitted it for FDA clearance. "So, the system is moving forward as an IVD system," Schatz said.

QIAsymphony RGQ is targeted to hospitals and medium to large reference laboratories, and because of its flexibility, it could be used in higher-throughput formats running up to 300 samples as well lower volume assays, Schatz said.

Also in the pipeline for FDA submissions are a cytomegalovirus assay and a therascreen KRAS assay. "Those are the two big ones we have," Schatz said. He did not provide a timeline for when they would be submitted to FDA.

Qiagen also plans submissions for an influenza test, the ResPlex II multiplex assay for the detection of respiratory pathogens licensed from Celera, as well as assays for HPV and chlamydia.

Expected Contribution from Cellestis

Earlier this month, Qiagen announced plans to buy Australian biotech firm Cellestis for $355 million. Schatz said today the deal will add content to its automated platforms by providing the firm access to pre-molecular testing, where disease detection can be achieved "far earlier than possible with any other diagnostic method."

Cellestis' QuantiFeron technology will be migrated to its automated systems, in particular the QIAensemble, and a "range of tests" will be developed that will be "highly complementary with our DNA- and RNA-based molecular diagnostics," Schatz said.

The deal, which is expected to be completed in the middle of the year, will be "mildly dilutive" to EPS for 2011.

Qiagen, Schatz said, plans to make "large investments" in sales initiatives and R&D in order to migrate the QuantiFeron technology to Qiagen's platforms and to develop new products based on the technology.

Starting in 2012, the acquisition is expected to accelerate company growth and be accretive to EPS by about $.03.

Cellestis has two tests currently available, one for latent tuberculosis and one for cytomegalovirus. Leveraging the QuantiFeron TB test, Qiagen plans to devise a test-flow in which patients who test negative for latent TB will be advised to return for routine testing later. Those who are positive would be tested again with Qiagen's DNA- and RNA-based molecular tests.

The QuantiFeron TB test has received regulatory approval and reimbursements in "most countries, so we are going to work on global expansion," of the test, Schatz said. The company believes the technology can be applied across all areas of Qiagen's molecular diagnostics customer class, including prevention profiling, personalized medicine, and point-of-need testing, he said.

Schatz also said that "given our healthy financial position," Qiagen is considering other targeted acquisitions.

Wall Street analysts who cover the firm suggested sales would need to accelerate for Qiagen to meet its full-year forecast.

Peter Lawson, an analyst with Mizuho Securities lowered his second-quarter EPS estimates by $.01 to $.22. He also lowered full-year 2011 revenue estimates to slightly below $1.15 billion from more than $1.15 billion previously.

Goldman Sachs did not change any of its estimates or price target, and kept a "Sell" rating on Qiagen, but analyst Isaac Ro said in a research note that "we continue to believe that lack of material improvement in test volumes, an increasingly competitive HPV environment and funding pressures in pharma and academia will make it difficult for Qiagen to reach its full-year 2011 guidance without significant new product traction."

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