Qiagen (QGEN - Analyst Report) reported third quarter 2012 earnings per share (EPS) of 12 cents, compared to 15 cents in the year-ago quarter. However, adjusting for certain one-time items, EPS came in at 24 cents in the quarter, missing the Zacks Consensus Estimate by a penny but surpassing the year-ago quarter adjusted earnings by a couple of cents.
Net sales during the quarter grew 5% (10% at constant exchange rates, or CER) year over year to $304.3 million and surpassed the Zacks Consensus Estimate of $303 million. The upside in net sales was driven by balanced sales growth across all the customer classes and operational regions of the company. The acquisitions of Cellestis (in August 2011), Ipsogen (July 2011) and AmniSure (May 2012) contributed seven percentage points to this 10% growth at CER and the rest was added by the company’s remaining portfolio.
Qiagen primarily derives its revenues from molecular diagnostics, applied testing, pharma and academia, which represented 48%, 8%, 19% and 24% of total sales, respectively, during the quarter.
Region wise, the Americas (47% of revenues) witnessed an 11% increase in sales at CER, driven by strong Personalized Healthcare products sales and QuantiFERON latent TB test demand. Revenues from Europe/Middle East/Africa (33% of sales) and Asia-Pacific /Japan (19% of sales) increased 7% and 14% at CER, respectively. The hike in Europe/ Middle East / Africa was attributable to strong performance in many northern European countries as well as Russia and Turkey. The growth in Asia-Pacific /Japan came on the back of double-digit sales growth in China, Japan and Korea in the company’s Molecular Diagnostics business with strong QIAsymphony placement.
Under product categories, Consumables and related revenues (accounting for 87% of net sales in the quarter) grew 10% year over year at CER, while instrumentation revenues (accounting for the rest) increased by 4% at CER. Consumable sales during the quarter benefited from higher sales in all customer classes, particularly Molecular Diagnostics and Applied Testing. On the other hand, robust growth in instruments sales came on the back of the initiatives to secure new product placements such as the QIAsymphony automation portfolio and its Rotor-Gene Q real-time PCR platform. Majority of the placements took place in Molecular Diagnostics, primarily through reagent rental agreements under which revenues are recognized over a multi-year period. Further, with the launch of the new QIAsymphony protocols in early 2012, demand increased among Applied Testing customers.
Molecular diagnostics registered a 48% increase in sales at CER, based on a broad portfolio of assays and the successful rollout of the QIAsymphony automation portfolio. In Prevention, the QuantiFERON latent TB test contributed significantly to the total sales growth (up 20% at CER over the year ago quarter), benefiting from rapid expansion in the U.S. and Europe. After several quarters of declining HPV test revenues, the reported quarter showed a robust 7% increase in sales at CER. With the launch of the therascreen KRAS biomarker test for use in colorectal cancer patients, which received FDA approval in July 2012, the demand for companion diagnostic kits increased, which in turn led to a strong double-digit growth in the consistently growing Personalized Healthcare. In Profiling, sales of disease analysis products increased in key markets. In Point of Need, the AmniSure assay (acquired in May 2012) contributed to growth.
Sales derived from applied testing were up 21% at CER, primarily driven by strong double-digit sales growth in consumables and instrument during the quarter. Consumables sales also increased in the high single-digits range. The company witnessed demand for human identification or forensics, veterinary medicine, food safety products as well as for the QIAsymphony automation platform with the launch of a new software in early 2012.
Pharma sales grew 3% at CER benefiting from the restructuring activities at select pharmaceutical companies. Academia witnessed a mere 2% upside in net sales, as higher consumable sales more than offset a slight decline in instruments. During the reported quarter, the U.S. and European market conditions remained challenging, with government funding uncertainties. Qiagen expects market conditions in these regions to become more challenging in the next quarter as budget restriction uncertainties are expected to continue.
Qiagen exited the third quarter with cash and cash equivalent and short-term investment of $311.3 million compared with $275.7 million at the end of fiscal 2011. Year-to-date, net cash provided by operating activities were $175.0 million from $165.1 million in the same period of 2011.
Moreover, the company began a share buyback program to repurchase up to $100 million of its shares. In October, Qiagen also completed a $400 million U.S. private placement debt offering.
Qiagen reiterated its 2012 outlook. For the full year, net sales are expected to increase in the range of 8%−9% at CER due to a mix of organic growth and contributions from the acquisitions of Cellestis, Ipsogen and AmniSure. Total sales are expected to be adversely affected by unfavorable currency movements. For 2012, adjusted EPS is expected to remain within the band of $1.04−$1.06 (unchanged from the earlier guidance).
In spite of continued adverse currency movement, we are encouraged with Qiagen’s solid third quarter performance. Even amid a challenging academic research market with austerity measures and tight government budgets, we are impressed with the huge and growing molecular diagnostics market, which is currently gaining significant traction. Qiagen is also adopting an aggressive acquisition strategy to widen its scope and strengthen its position in the competitive landscape compared to other major players like Life Technologies (LIFE - Snapshot Report) and Sigma-Aldrich . Qiagen currently retains a short-term Zacks #2 (Buy) Rank.