Jun 3, 2013
Qiagen N.V.
(QGEN-NASDAQ)
$18.50*
Note to Readers: More details to come; changes are highlighted. Except where noted, and highlighted, no other
section of this report has been updated.
Reason for Report: 1Q13 Earnings
Prev. Ed.: Apr 22, 2013: 4Q12 & FY12 Earnings (Brokers’ materials were as of Feb 8, 2013)
Brokers’ Recommendations: Neutral: 75.0% (9); Positive: 25.0% (3); Negative: 0%
Brokers’ Target Price: $21.17 (↓$0.05 from the last edition; 9 firms)
Prev. Ed.: 4, 8, 0
Brokers’ Avg. Expected Return: 14.4%
* Note: Though dated Jun 3, 2013, share price and broker material as of May 13, 2013.
Note: The tables below (Revenue, Margins, and Earnings per Share) contain material from fewer brokers than in the
Valuation table. The extra figures in the Valuation table come from reports that did not have accompanying
spreadsheet models.
Portfolio Manager Executive Summary
Qiagen N.V. (QGEN) is one of the world’s leading providers of technologies and products for the
separation, purification, and handling of nucleic acids DNA/RNA. Sample technologies are used to
isolate and process DNA, RNA and proteins from biological samples such as blood or tissue. Assay
technologies are used to make these isolated biomolecules visible.
Of the 12 firms covering the stock, 9 firms (75.0%) assigned neutral ratings and the remaining 3 firms
(25.0%) provided positive ratings. None of the firms rendered the stock negative.
Neutral or equivalent outlook (9/12 firms): The neutral firms are concerned over the low guidance
issued by the company. The guidance falls below the expected range of the firms. They are
disappointed with the company’s projection of a decline of US HPV sales and declining trend in the
Pharma and Academia growth rate. Moreover, they also fear the effects of the sequestration which will
likely hit the financials of the company. On a positive note, the firms are positive over acquisition of
Ingenuity Systems. The firms believe that post-acquisition, the company will strengthen its position in the
nextgen sequencing (NGS) data analysis. They are further encouraged by the MDx products, which
accounts for one third of the revenue. However, they are on the sideline regarding HPV products as
these face pricing pressure from the contracts. Additionally, taking into account Qiagen’s 80% market
share in HPV space, the firms are concerned about other recent competitive product launches, which
can limit its market share gains. Their views also reflect concerns based on increased pressure in key
markets, budget uncertainties in the U.S, and a decline in instrument sales leading to an overall
slowdown in the market. These firms assert that industry headwinds such as tough competition, pricing
pressure and lower utilization rates will continue to dampen growth in the future for Qiagen as well as its
th
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peers. However, any increase in the company’s market share might be comforting for these firms.
Therefore, they believe that Qiagen’s moderate growth rate will fail to boost investor confidence.
Positive or equivalent outlook (3/12 firms): In spite of the company falling marginally short of the
estimates and lowering of its guidance, positive firms are encouraged by the company’s product line in
future. The firms believe that the product line will act as a catalyst for the company’s growth.
Additionally, they firmly believe that the latent TB testing (QuantiFERON) and QIAsymphony uptake will
continue driving the company’s revenue. The firms are also positive on KRAS tests, as well as, HPV
products. Though HPV products are on a declining trend in the U.S., on an international basis, the
product has been performing strongly. They expect Qiagen to exhibit further growth by QIAsymphony
placements and with product offerings such as the QIAensemble series in fast growing markets. They
are also encouraged with the strategic acquisitions executed by Qiagen, the most recent one being
Ingenuity Systems. These firms are also bullish as they expect expansion in newer markets to drive
growth in the long-term. The firms believe that after a year of underperformance compared to its
competitors, the company’s cost cutting initiatives along with the potential for capital deployment will
improve Qiagen’s performance going ahead.
Jun 3, 2013
Overview
Based in Venlo, the Netherlands, Qiagen N.V. (QGEN or the company) is a leading provider of
innovative technologies and products for pre-analytical sample preparation and molecular diagnostics
solutions. It has developed a comprehensive portfolio of more than 500 proprietary, consumable
products, and automated solutions for sample collection. The company specializes in nucleic acid and
protein handling, separation, and purification. It also supplies diagnostic kits, tests, and assays for
human and veterinary molecular diagnostics. The company also offers customized services such as
whole genome amplification services, deoxyribonucleic acid (DNA) sequencing, and non-cGMP DNA
production on a contract basis. Qiagen has subsidiaries in the U.S., Germany, U.K., Switzerland,
France, Japan, China, Australia, Canada, Norway, and several other countries with good sales potential.
Qiagen has established a presence in China with about 350 employees. In 2011, it created a new
subsidiary in India, one of the world’s fastest-growing healthcare markets. The company derives bulk of
its revenue from Europe, the U.S, and Japan. Its website is www.qiagen.com.
On May 3, 2012, Qiagen acquired Boston-based privately-owned company AmniSure International.
Through the acquisition, Qiagen will have access to AmniSure’s proprietary diagnostic test AmniSure
assay, which determines rupture of fetal membranes (ROM) in pregnant women.
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The analysts identified the following factors for evaluating the investment merits of Qiagen:
Key Positive Arguments
Key Negative Arguments
The firms believe that growth will be regained by positive Qiagen experiences tough competition in various key markets
uptake of the QIAsymphony RGQ instrument and the from major giants like Sigma-Aldrich corporation, Roche
QIAensemble series.
Diagnostics GmbH and Gen-Probe Inc.
All of these
competitors are in continuous process of seeking regulatory
approvals for their respective products, a successful execution
of which may affect growth of Qiagen.
Qiagen is acquiring several companies to expand its
product portfolio, the latest being Ingenuity Systems.
Moreover, it creates innovative technologies to address
new markets with substantial potential. These new
markets include functional genomics, proteomics,
molecular diagnostics, and gene therapy, which are
expected to grow rapidly in the future.
The gradual improvement in domestic HPV testing volume
even amidst a tough macro-economic scenario is
encouraging
The high growth in the DNA/RNA isolation and purification
market attracts a number of competitors, which could be a
threat to Qiagen.
The company is expanding into new markets, which in turn,
could lead to substantial increase in expenses and risks.
Note: The company’s fiscal references coincide with the calendar year.
Jun 3, 2013
Long-Term Growth
The key attraction of Qiagen's business model is the impressive resilience of its organic growth. Within
Qiagen's "4 P" framework (Prevention, Profiling, Point of Care and Personalized Healthcare), HPV
testing belongs to the prevention category (cervical cancer). Profiling includes amongst other things,
testing for infectious diseases. Point of Care testing will help to expand into less sophisticated emerging
markets and includes testing of HPV and hospital acquired infections (HAI). Personalized healthcare is
an area that Qiagen is currently trying to build into an industry-leading business.
Qiagen has taken advantage of its almost monopolistic position in nucleic acid handling and purification
domain to drive sales growth in emerging high-growth areas such as molecular diagnostics (usually
pathogen testing) and applied testing (such as forensics). The molecular diagnostics market is expected
to remain the major growth driver going forward. The company’s initiatives (e.g. personalized
healthcare) to build on its position in the growing molecular diagnostics market, not only strengthens its
market position, but also allows it to leverage its existing global sales and marketing infrastructure.
However, for the past few quarters, the company has been experiencing softer growth due to budget
constraints at hospitals, looming regulatory reforms, and possible business risks surrounding gene
patents. In addition, recent sales results were disappointing owing to weak organic sales growth in a
challenging academic environment both in North America and Europe. Yet, the firms consider these
challenges to be short lived and expect the company to gain traction in the near term.
Qiagen’s long-term business strategy involves entering into strategic alliances as well as marketing and
distribution arrangements with academic, corporate and other partners relating to the development,
commercialization, marketing and distribution of certain existing and potential products. Qiagen has
historically expanded its reach and technological portfolio through acquisitions and alliances, and is
looking for continued investment in the future. Its acquisition strategy remains focused and consistent,
looking to add complementary technologies, new commercial capabilities and/or extend geographical
reach. Additionally, Qiagen is also working on a number of partnerships with the pharmaceutical
industry, particularly in the area of oncology. The firms view Qiagen as a good long-term player in
genetic analysis (research and applied markets) as well as molecular diagnostics (clinical market).
Jun 3, 2013
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Target Price/Valuation
Rating Distribution
Positive
Neutral
Negative
Avg. Target Price
Digest High
Digest Low
No. of the analyst with Target
Price/Total Analyst
Upside from current
Maximum Upside from current
Minimum Downside from current
25.0%↓
75.0%↓
0.00%
$21.17↓
$26.00
$18.00
9/12
14.4%
40.5%
2.7%
Risks to attainment of the price target include softness in customer budgets (e.g. public funding, hospital
capital equipment budgets), market share erosion, and less-than-anticipated penetration in the HPV
market, dilutive acquisitions, integration risks, and currency fluctuations.
Recent Events
On Apr 29, 2013, Qiagen reported its 1Q13 results. Highlights are as follows:
 The company reported EPS of $0.08 in 1Q13 compared with $0.12 in 1Q12. However,
adjusted EPS came in at $0.23, flat y/y.
 In 1Q13, revenues increased 2% y/y to $303.6 million (up 3% at constant exchange rates or
CER).
 For 2Q13, the company expects the adjusted net sales to grow by approximately 1-2% at
CER while EPS to be around $0.25.
For FY13, the company projected the adjusted net sales to grow by approximately 5% CER,
while the adjusted EPS to be $1.13. The guidance includes the dilution of $0.03 per share on
account of Ingenuity acquisition. This guidance can be compared to previously guided EPS
range of $1.16 and $1.18.
Revenue
In 1Q13, Qiagen reported net revenue of $303.6 million, up 2% y/y (up 3% at CER). Growth in revenue
is attributable to the growth molecular diagnostics and applied testing customer classes. However, was
offset by less growth in Academia and Pharma segments. Currency movement offset the sales growth
by 1 percentage point.
The Zacks Digest average net revenue in 1Q13 was approximately in line with the company’s report.
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Region-wise sales
In 1Q13, in terms of geographic regions, sales in the Americas grew at 2% CER. Growth in the
molecular diagnostics was offset by lower sales in Academia and Pharma. Net sales in the Middle East,
Africa and Europe increased 4% at CER. Growth in the region is attributable to higher sales of
QuantiFERON latent TB test. Contributions were seen from Germany, the U.K., Turkey and Italy. In
Asia-Pacific and Japan, sales increased 3% at CER. Double-digit growth rate was witnessed in India
and China; however, sales were more or less flat in South Korea. Growth in Japan was modest singledigit.
Provided below is a summary of total revenue as compiled by Zacks Digest:
$ in
million
Digest
Average
Digest
High
Digest
Low
YoY
Growth
1Q12A
2012A
1Q13A
2Q13E
3Q13E
4Q13E
2013E
2014E
2015E
$296.4
$1,254.4
$303.7
$311.1↓
$320.7
$368.3↓
$1,304.2↓
$1,382.5↓
$1,474.6
$296.4
$1,254.5
$304.0
$313.0↓
$324.0
$374.5↓
$1,314.3↓
$1,398.0↓
$1,491.3
$296.0
$1,254.0
$303.6
$308.6↓
$317.4
$353.0↓
$1,292.0↓
$1,352.0↓
$1,455.0
12.2%
7.2%
2.5%
1.3%↓
5.4%
6.2%↓
4.0%↓
6.0%↑
6.7%
Outlook: For 2Q13, the company expects the adjusted net sales to grow at approximately 1% – 2%
while for FY13, the company expects revenue to increase around 5% from previously provided range of
5% and 6%. The projection of 5% sales growth includes negative affect of reduced government funding.
Segment Details
Qiagen’s revenues can be differentiated into Consumables and Automated Instruments.
Consumables (89% of total revenues in 1Q13)
Qiagen continues to expand in the consumables market by offering solutions such as plasmid DNA and
RNA purification and stabilizations, genomic and viral nucleic acid purification, nucleic acid transfection,
polymerase chain reaction (PCR) amplification, reverse transcription, DNA cleanup after PCR and
sequencing, DNA cloning and protein purification. Its largest selling consumable product is the digene
HC2 HPV Test, a signal amplified test regarded as the “gold standard” in testing for high-risk strains of
the HPV, the prime cause of cervical cancer in women. Qiagen is focused on developing new products
for nucleic acid-based molecular diagnostics. The company’s consumable manufacturing facilities are
located in Germany, China, the UK and the U.S. Currently, Qiagen offers 500 core consumable
products.
Revenues from consumables increased 4% y/y at CER in 1Q13. The growth in the segment was
brought about by double-digit growth in Molecular Diagnostics and robust single-digit growth in Applied
Testing.
Automated Instruments (11% of total revenues in 1Q13)
The instruments market is widely diverse and includes analytical instruments (DNA sequencers, high
throughput screening systems, mass spectrometers, and chromatography equipment) and laboratory
equipment (freezers, centrifuges, water purification, and automated liquid handlers).
The instrumentation systems automate the use of sample and assay techniques into efficient solutions
for low, medium and high throughput scale laboratories. These systems enable customers to perform
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nucleic acid sample preparation, assay setup, target detection and other laboratory tasks. Products in
this segment include QIAsymphony, Rotor-Gene Q, QIAensemble, PyroMark, QIAcube, QIAxcel
and ESE-Quant Tube Scanners. The company’s instrument manufacturing facilities are located in
Switzerland.
Qiagen focuses on four principal segments or customer classes for sample and assay technologies,
which include Molecular Diagnostics, Applied Testing, Pharma/Biotech and Academia/Government.
Instrumentation revenues decreased 3% y/y at CER in 1Q13. The drop in the segment’s revenues is
attributable to decline in the Pharma and low Applied Testings segments. However, the weakness was
partially offset by increase in Pharma. QIAsymphony automation platform continued its strong
performance.
Molecular Diagnostics (50% of sales):
The Molecular Diagnostics segment (50% of total sales in 1Q13) registered a 11% y/y increase in sales
at CER in 1Q13. Growth in this segment brought about by double-digit growth rate in consumables,
however, was offset by QIAsymphony placements. Sales of QuantiFERON-TB test for latent
tuberculosis (TB) grew by robust 20% at CER in U.S. and Europe. However, weakness was brought
about weak sales in HPV Testing owing to pricing pressures. Sales in HPV declined by 2% at CER.
Revenues from products under Profiling increased by double-digits on the back of growth in
QIAsymphony automation platforms.
Applied Testing (8% of sales):
The Applied Testing segment consists of forensic (including bio security), food testing and veterinarian
testing where Qiagen is a market leader. The Applied Testing segment contributed 8% of total sales in
1Q13.
Sales derived from applied testing were up 5% y/y at CER in 1Q13 primarily driven by strong single-digit
sales growth in veterinary medicine, human identification/forensics and food safety. The European
horsemeat scandal provided additional growth and awareness about benefits of molecular testing
capabilities by the company’s products.
Pharma/Biotech (18% of sales): Qiagen is a supplier for pharmaceutical and biotechnology
companies. Drug discovery and development efforts increasingly employ genomic information, both to
guide research in diseases and to differentiate the patient populations most likely to respond to
particular therapies. Approximately half of Qiagen’s sales in this customer class support research, while
the remaining half of sales support clinical development processes, including the stratification of patient
populations based on genetic information.
Qiagen’s total revenues in 1Q13 declined 4% at CER. Growth in the Asia-Pacific / Japan was offset by
the low earnings in the EMEA and Americas region. Restructuring activity and site consolidation resulted
in the decline of revenue.
Management continues to anticipate robust growth in development-related pharmaceutical sales, offset
by weak demand for research-related products. In the coming years, the company expects a wave of
newly discovered biomarkers and companion diagnostics to transform the treatment of an increasing
number of diseases.
Academia/Government (24% of sales): Qiagen provides sample and assay technologies to leading
research universities worldwide. Many academic laboratories continue to utilize manual, labor intensive
methods for nucleic acid separation and purification. Recognizing the opportunity to replace traditional
methods with reliable, fast, highly reproducible, and high-quality nucleic acid extraction and purification
technologies, Qiagen has concentrated its product development and marketing efforts toward industry
and academic research markets.
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Sales to industry and academic customer groups declined 4% y/y at CER. Decline in the growth is
attributable to low sales of both consumables and instruments. The instruments and consumable sales
declined on the back of concerns of reduced government funding. Fears of implementation of U.S.
government sequestration, which started in March, also added to the concerns. Europe and AsiaPacific/Japan, apart from China, witnessed lower sales. The company estimates that the cut in the
government funding environment might adversely affect the FY13 sales by at least 1 percentage point.
Recent Updates
On May 24, 2013, SIP Biotech Development Co., Ltd. (BioBAY) entered into a joint venture with
QIAGEN to open QIAGEN (Suzhou) Translational Medicine Center, a translational medicine R&D
Corporation. This aims to create companion diagnostics, increase discovery and validate biomarkers for
the Chinese markets.
Ingenuity acquisition: On Apr 29, 2013, Qiagen acquired Calif.-based privately owned company,
Ingenuity Systems, Inc. Through the acquisition, Qiagen will have access to Ingenuity’s proprietary
Ingenuity Knowledge Base and software applications, which is an advanced knowledge system and
analysis solution for complex biomedical information. However, financial terms of the deal were not
disclosed.
Qiagen claims that, with the Ingenuity products, the company will be able to widen its scope in the
rapidly growing market of sequencing with faster and efficient data analysis. Ingenuity stated that, while
an entire human genome sequence takes only 2 days to complete, the data analysis can take months
and years. However, the Ingenuity product line needs some time (may be some minutes) for data
interpretation.
Viewing the substantial potential of the molecular diagnostic market globally, Qiagen is currently
focusing on expanding its diagnostics products offering. The company currently derives around 50% of
its total revenue from this segment, which is likely to increase with this acquisition. Qiagen has acquired
several companies to expand its product portfolio, the significant ones are Cellestis and Ipsogen in
2011.
On Mar 30, 2013, Qiagen commercially released careHPV, approved on Nov 28, 2012, can screen for
high risk human papillomavirus (HPV) under low-resource clinical settings, such as electricity, water or
laboratories.
On Feb 13, 2013, Qiagen entered into an agreement with Eli Lilly and Company for commercialization
and development of companion diagnostics along with Lilly investigational and approved medicines
throughout therapeutic areas.
On Jan 7, 2013, Qiagen N.V. entered into three different agreements under which it obtained rights for
RET, ROS1 and DEPDC1 from Insight Genetics for lung cancer. Through this agreement, the company
will also allow the biomarkers to expand its pipeline of diagnostics for Personalized Healthcare
applications.
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Provided below is a summary of segment revenue as compiled by the Zacks Digest:
Revenue
Segments ($
in million)
Total
Consumables
Total
Instruments
Others
1Q12A
2012A
1Q13A
2Q13E
3Q13E
4Q13E
2013E
2014E
2015E
$259.7
$1,084.8
$268.8
$269.8↓
$278.4
$315.5↓
$1,132.5↓
$1,201.3↓
$1,281.5
$35.7
$0.9
$169.1
$1.5
$34.8
$42.1↓
$42.5
$58.8↑
$178.1↓
$188.2↓
$197.5
Provided below is the graphical presentation of segment revenue:
Please refer to the Zacks Research Digest spreadsheet on Qiagen for more extensive revenue figures.
Margins
In 1Q13, reported gross margin increased 5.6% y/y. As a percentage of sales it was 65.9% compared
with 63.9% in 1Q12.
The Zacks Digest adjusted gross margin in 1Q13 was 72.0% compared with 70.7% in 1Q12.
Adjusted operating income in 1Q13 was flat y/y at CER to $78.4 million. The adjusted operating
margin declined 130 bps y/y to 25.8% in 1Q13.
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The Zacks Digest operating margin in 1Q13 was 25.8% compared with 27.0% in 1Q13.
Outlook: For FY13, the company expects adjusted operating margin to be 29%. Ingenuity acquisition is
expected to adversely affect the adjusted operating margin by about 100 bps or 1 percentage points.
Provided below is a summary of margins as compiled by Zacks Digest:
Margins
Gross
Operating
Pre-tax
Net
1Q12A
70.7%
27.0%
25.6%
18.4%
2012A
71.4%
28.4%
26.4%
20.8%
1Q13A
72.0%
25.8%
23.7%
18.1%
2Q13E
71.5%
27.1%↓
24.7%↓
19.0%↓
3Q13E
71.9%
27.8%
25.9%
20.1%
4Q13E
72.2%
32.3%↑
29.1%↑
25.1%↑
2013E
72.0%↑
28.7%↓
26.5%↓
20.8%↓
2014E
72.1%
30.3%↑
27.9%↑
21.8%↓
2015E
72.3%
29.9%
28.1%
22.4%
Note: As per the Zacks Digest model, on a pro forma basis cost of goods sold (COGS) on a proforma
basis, is expected to increase 2.0% y/y in FY13 and 5.5% y/y in FY14; SG&A expense (excluding
ESOP) is expected to increase 4.0% y/y in FY13 and 5.1% y/y in FY14; and R&D expense is expected
to increase to 12.4% y/y in FY13 and increase 4.6% y/y in FY14. In comparison, revenue is expected to
increase 5.3% y/y in FY13 and 5.7% y/y in FY14.
Please refer to the Zacks Research Digest spreadsheet on QGEN for more extensive margin figures.
Earnings per Share
Qiagen’s 1Q13 EPS of $0.08 was lower than $0.12 in 1Q12. However, adjusting for certain one-time
items, EPS came in at $0.23 flat y/y.
The Zacks Digest average for 1Q13, EPS was in line with the company’s report.
Provided below is a summary of EPS as compiled by Zacks Digest:
EPS
Digest
Average
1Q12A
2012A
1Q13A
2Q13E
3Q13E
4Q13E
2013E
2014E
2015E
$0.23
$1.08
$0.23
$0.25↓
$0.27
$0.39↑
$1.13↓
$1.25↓
$1.36
$0.27
$0.39↑
$1.13↓
$1.26↓
$1.39
$0.27
$0.38↑
$1.12↓
$1.24↓
$1.33
Digest High
$0.23
$1.08
$0.23
$0.25↓
Digest Low
$0.22
$1.08
$0.23
$0.25↓
Outlook: In 2Q13, the company expects adjusted EPS to be $0.25. For FY13, the company changed
the adjusted EPS to $1.13 from previously guided range of $1.16 - $1.18. The guidance takes into
account $0.03 for ingenuity acquisition. The previous guidance took into account $0.01 - $0.02 per share
as an impact from the U.S. medical tax and high interest expenses.
Please refer to the Zacks Research Digest spreadsheet on QGEN for more extensive EPS figures.
Jun 3, 2013
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StockResearchWiki.com – The Online Stock Research Community
Discover what other investors are saying about Qiagen N.V. (QGEN) at:
QGEN profile on StockResearchWiki.com
Analyst
Varun Parekh
Copy Editor
Anita Ganguli
Content Editor
No. of brokers reported/Total
brokers
Reason for Update
Urmimala Biswas
QCA
Rajiv Mukherjee
Lead Analyst
Urmimala Biswas
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