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Qiagen Details Role of Recent Acquisitions, Agreements in Molecular Dx Business

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Qiagen this week updated investors on how its recent spate of acquisitions, licensing agreements, and partnering deals are expected to drive future organic growth in the company's rapidly ballooning sample preparation and PCR-based molecular diagnostics business.

Qiagen CEO Peer Schatz and CFO Roland Sackers made their remarks during a conference call discussing the company's fourth-quarter and full-year 2009 earnings, the highlights of which included a 22 percent increase in fourth-quarter revenues and the company eclipsing $1 billion in annual sales for the first time.

Overall, molecular diagnostics accounted for approximately 47 percent of Qiagen's total revenues in 2009, or $470 million; followed by sales to customers in academia (approximately 26 percent), pharma (21 percent) and applied testing (6 percent). Sackers said that molecular diagnostics business saw organic growth of 19 percent for the year, which he said was "significantly higher than the industry average." Overall the company reported organic growth of 13 percent.

Revenue for both the fourth quarter and full-year 2009 included contributions from DxS, which Qiagen acquired in September; and SABiosciences, which it purchased in December.

The acquisitions, along with the introduction of new instrument platforms and diagnostic assays, helped drive 10 percent growth in consumables and 37 percent growth in instrument sales for the year.

This may be just the beginning of Qiagen's growth in sample prep and molecular diagnostics, Schatz said during the conference call, as the company expects "an unprecedented rollout of platforms and assays" in the coming quarters that should drive primarily organic revenue growth over the next few years.

The rollout will primarily be a product of acquiring a trio of assay and/or instrumentation firms in the last six months. First, in September, Qiagen acquired UK-based companion diagnostics firm DxS in a deal worth up to $130 million. Then, in November it purchased Frederick, Md.-based PCR assay provider SABiosciences for $90 million; followed by January's $19 million acquisition of German optical instrumentation manufacturer ESE.

After having spent more than $200 million on the three acquisitions ($35 million of the DxS acquisition is tied up in the completion of future milestones), Qiagen now does not see any major holes in its business that would necessitate any near-term "major acquisitions," but will continue to eye small to midsize acquisition and partnership opportunities to beef up its product offerings, according to Schatz and Sackers.

"The focus of our [merger and acquisition activity] clearly is to expand the menu offering on the real estate that we have spent so much on building and are rolling out over the next two years," Schatz said.

The most recent example of this was not a company purchase, but that Qiagen's new DxS subsidiary has acquired an exclusive, worldwide license from Johns Hopkins University to develop real-time and endpoint PCR assays for the PI3K biomarker, variations in which have been linked to predicting the success of certain cancer treatments. Qiagen said that it has an active PI3K assay development and partnering program with pharmaceutical companies to develop and market tests for new cancer drug candidates.

Schatz called the deal "very important" for Qiagen, and said that it was a "nice example" of what we want to do more of."

A similar partnering deal, announced last week, will again see Qiagen's DxS unit develop for Pfizer a real-time PCR-based companion diagnostic for a brain cancer treatment that Pfizer has in Phase 2 clinical trials.

And this week, Qiagen announced yet another diagnostic assay panel deal, this time with Celera. Under the agreement, Qiagen will distribute a Celera molecular multiplex assay that is the next generation version of Qiagen's ResPlex II assay for detecting respiratory pathogens.

In terms of its recent acquisitions, Qiagen's DxS buy, announced in September, is the first of the three company acquisitions to yield results. Qiagen said at the time that the acquisition provided it with a strong leadership position in personalized healthcare.

DxS' portfolio included several real-time PCR tests, all of which are compatible for use with Qiagen's existing suite of instruments, including the QIAsymphony automated sample prep and assay platform. The DxS portfolio includes a test for the mutation status of the oncogene KRAS, which is indicative for successful treatment of patients with metastatic colorectal cancer using EGFR inhibitors. That test has been CE-marked and is expected to be submitted for US regulatory approval this year.

Qiagen further bolstered its portfolio of PCR-based disease and pathway-based panels in November with its SABiosciences acquisition. Qiagen said that the company's panels will play key roles in biomedical research and the development of future drugs and diagnostics.

Lastly, the smallest of Qiagen's recent acquisitions – January's $19 million buy of ESE – may turn out to be just as important as the others, as it opens the door to the point-of-care diagnostic market. ESE's optical measurement systems can detect fluorescent signals in a wide range of molecular testing applications, particularly in nucleic acid-based point-of-care testing.

The instruments enable ultra-fast multiplexed detection, are highly portable, and can be manufactured at low cost – less than $2,000 per unit.

Schatz said that ESE's optical detection and expertise was "core" to the acquisition, and that Qiagen believes the technology will find application in a number of other Qiagen lab instruments.

But in the near term, Qiagen plans to "take assays already developed for other [Qiagen] platforms such as QIAensemble and import them to point-of-need molecular diagnostics," Schatz said, noting that while the standard for point-of-care diagnostics is to produce a result in two hours or less, ESE's instrumentation will shave that upper limit to about 15 minutes.

Schatz said that Qiagen intends to roll out its point-of-care diagnostic platform based on the instrumentation this year. "We do not intend to have a broad offering in the US because of the very efficient laboratory infrastructure there," Schatz said. Instead, Qiagen will target the acute care and hospital-acquired infection markets in the US. "But we will have a larger rollout in Europe, Asia, and developing nations targeting the molecular diagnostics and applied markets."

Schatz said that a "number of assays" have already been developed for ESE's instrumentation by third parties "and now Qiagen, as well," and that Qiagen expects to see about $6 million in revenues this year from sales of the platform.

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