Patient-specific pharmacology used to be a futuristic dream for researches and physicians, but the Human Genome Project has placed the framework for this revolution in patient care at our fingertips.
In research labs across the country, genomic studies are uncovering the small genetic changes that underlie countless diseases. In the clinic, rapid genetic sequencing is contributing to unparalleled diagnostic capabilities. But without the software to analyze sequencing results, researchers are left with an indecipherable jumble of A’s, T’s, G’s, and C’s. UnitedHealth Group Inc. (NYSE:UNH) estimates that the market for decoding genes from individual patients may grow to $25 billion from $5 billion in the next decade.
In its 2012 annual report released on May 15, Qiagen NV (NASDAQ:QGEN) stresses its plan to grow sustainably by reinforcing a “sample-to-results platform” with streamlined genomic analysis. Qiagen is already an established supplier of laboratory consumables used for various genetic techniques in research, clinical, and forensic settings.
However, the sequester and NIH spending cuts have hurt Qiagen’s revenues from academic institutions, which fell 4% in the last quarter. It is therefore appropriate that Qiagen NV (NASDAQ:QGEN) focus more heavily on molecular diagnostics and clinical tools that improve patient specific pharmacology. Diagnostics accounted for 50% of revenue last quarter, and its Therascreen platform of diagnostics is expanding to new diseases including non-small cell lung cancer, pending FDA approval.
Riding the demand wave
Qiagen first entered the “next generation sequencing” field when it acquired Intelligent Bio-systems in 2012. It recently made another move to profit from the growing demand for accessible, efficient genomic analysis software with its acquisition of privately owned Ingenuity Systems. Ingenuity boasts a powerful literature-based network for genomic analysis, with customers ranging from big pharma to academia.
The acquisition of Ingenuity Systems accomplishes a major component of Qiagen NV (NASDAQ:QGEN)’s growth strategy – it enhances the sample-to-results workflow that seeks to provide an ecosystem of sample preparation, data collection, and analysis. The question is: can this ecosystem compete with similar services offered by other contract research companies with sequencing services?
Can Qiagen keep pace?
Qiagen NV (NASDAQ:QGEN)’s acquisition is a clear attempt to keep pace with Thermo Fisher Scientific Inc. (NYSE:TMO), which recently acquired Life Technologies Corp. (NASDAQ:LIFE) for $13.6 billion. With Life Technologies comes its Ion Torrent sequencing technology and Applied Biosystems’ analytical tools.
A fellow Fool who covered that story pointed out that the addition of Life Technologies Corp. (NASDAQ:LIFE)’ genetics products and services to Thermo Fisher Scientific Inc. (NYSE:TMO)’s market-leading equipment sales allows the firm to compete for top market share in the personalized medicine space. Together, Thermo Fisher and Life share the goal of expanding personalized medicine into emerging medical markets. Even before the acquisition kicks in, Life Technologies Corp. (NASDAQ:LIFE) is three times the size of Qiagen. It seems unlikely that Qiagen NV (NASDAQ:QGEN) can provide the kind of genomics ecosystem that Life can, now that it’s under Thermo Fisher Scientific Inc. (NYSE:TMO)’s umbrella.
In fact, Qiagen’s next generation sequencing workflow is not completely self-sufficient, as Thermo Fisher Scientific Inc. (NYSE:TMO)’s now is with Life on board. Some of Qiagen’s genomics services are dependent on Illumina, Inc. (NASDAQ:ILMN)‘s iScan platform. As the other major competitor in the genomics market, Illumina’s stock has soared 60% in the last year, raising its market cap to nearly double that of Qiagen NV (NASDAQ:QGEN).
The Ingenuity software may be more powerful for research into genetic networks, but Illumina, Inc. (NASDAQ:ILMN) is well suited for genomic analysis in the clinical setting to advance personalized medicine, and has the resources to continue to innovate.
Qiagen’s acquisition of Ingenuity Systems shows its commitment to achieving goals set forth in its annual report, but it might be too little too late. Ingenuity’s powerful software may find a place in research labs, but it’s hard to see it contributing significantly to clinical genomics in the way its competitors can. To be competitive, Qiagen NV (NASDAQ:QGEN) must succeed in the launch of its own benchtop sequencing hardware, expected to be released in 2014. Without a competitively priced, high-functioning device, Qiagen will remain tied to Illumina, Inc. (NASDAQ:ILMN)’s iScan and won’t achieve its self-sufficient sample-to-results workflow.
Seth Robey has no position in any stocks mentioned. The Motley Fool recommends Qiagen NV (NASDAQ:QGEN).
The article The Next Generation for Qiagen’s Next-Gen Sequencing? originally appeared on Fool.com.
Seth is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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