The Next Generation for Qiagen NV (QGEN)’s Next-Gen Sequencing?

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.