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JP Morgan Upgrades Qiagen on Potential Organic Growth, QIAsymphony Ramp Up

NEW YORK (GenomeWeb News) – Citing expected organic growth and a continuing ramp up of QIAsymphony, investment bank JP Morgan today upgraded Qiagen to Overweight.

In a research note, analyst Tycho Peterson upgraded the firm from Neutral and estimated full-year 2012 revenues at $1.25 billion and adjusted earnings per share at $1.01. He maintained a December 2012 price target of $19.

Peterson's upgrade of Qiagen rests on the expectation that the firm will achieve higher organic growth in 2012 than in 2011. While the 4 percent growth he expects would still be modest, Qiagen also would be one of the few life science tools and molecular diagnostics firms he covers that would see accelerating organic growth, Peterson said, adding, "importantly, we do not see significant downside risk, which again, is unlike many other tools or [diagnostic] companies."

He also noted the growing adoption of Qiagen's QIAsymphony platform and estimated 550 unit placements as of the end of 2011 with further growth expected this coming year. While the firm currently lacks content cleared by the US Food and Drug Administration for QIAsymphony, that may change in 2012 as Qiagen could receive clearance for its KRAS and influenza tests during the year, Peterson said.

Qiagen submitted premarket approval applications to FDA for KRAS during the summer. In April, it said that it planned to submit an application for an influenza test, but has not provided an update on a submission.

In the longer term, QIAsymphony will be critical to the company's personalized medicine goals, Peterson said, "and it should position [Qiagen] well for a more mature molecular industry that is focused on automation and breadth of menu, rather than individual tests."

He also said that recent acquisitions by the company, such as Ipsogen and Cellestis, will be growth drivers for Qiagen. In particular, opportunities in the tuberculosis testing market, which is targeted by Cellestis' technology, should eventually outpace the human papillomavirus space.

Other factors he noted as potential positives include a restructuring effort announced by Qiagen in November, and the possibility that the company could pay out a dividend to shareholders or do a share repurchase program.

A possible headwind for Qiagen, however, is HPV testing. While the company still has the lion's share of the market, it has moved to secure long-term contracts with large HPV customers that make it more difficult for a customer to switch to a competitor offering HPV testing. These contracts, however, also carry a lower average sales price.

In addition, competition has stiffened as companies such as Roche and Gen-Probe have joined Hologic and Qiagen in the molecular HPV testing space, and the utilization environment remains challenging. The result is a contracting US market.

HPV testing now comprises about 15 percent of Qiagen's revenues, Peterson estimated. "[T]he headwind from lower HPV pricing will likely remain throughout 2012," he said, "and we do not expect this small part of the company's revenue to be a growth driver going forward. Investor attention has tended to focus too heavily on this product, in our view."

In afternoon trade on the Nasdaq, shares of Qiagen were up 2 percent at $14.48.

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