Medical Firm Not Worried About Bush Budget
BY PETER BENESH
INVESTOR'S BUSINESS DAILY
President Bush's proposed fiscal 2005 budget will squeeze federal funds for the nation's top two medical research granting agencies: the National Institutes of Health and the Centers for Disease Control and Prevention.
You'd think officials at Qiagen NV, (QGENF) would be worried. After all, the company sells technology and products to separate and purify nucleic acids, known by most people as DNA and RNA. Many of its products are used in research.
With less research funding, will that mean less business for Qiagen?
Not necessarily, says Peer Schatz, chief executive of the German-based, Dutch-owned company.
The reason: Qiagen gets a lot of its business throughout Europe as well as in Japan, Australia and Canada.
So cutbacks in the U.S. budget won't impact its business as much as some other rivals, Schatz says.
"In Europe we see strong increases in life science funding as governments recognize they're losing competitive advantage to the U.S.," he said.
Bad News, Good News
At least one analyst — Aaron Geist of Robert W. Baird & Co. — suggests Schatz is downplaying the impact of the 2005 Bush budget.
Research funding will be Qiagen's biggest issue in the coming year, Geist says.
"The problem is that Qiagen plays in a market that is research-based," he said. "Funding growth for life science research has come down."
The budget shows that NIH will get an increase of only 2.7% in 2005 under the Bush plan. The CDC will suffer a cut of almost 9%.
That's not the only problem. Large pharmaceutical firms have also cut back their funding for research.
Qiagen's Schatz says not all of the news is bad. He points to the fact that the National Institute of Allergy and Infectious Diseases, part of NIH, will get a 17% funding boost in 2005.
"A lot of research called bioterrorism is actually infectious disease research," Schatz said. "We're big in (that area). If you have a bacterium like anthrax or a virus like smallpox, our tools are in the lab."
Steady Gains
Not much has come between Qiagen and financial growth over the years. The firm has shown a knack for pumping out double-digit revenue gains.
Other than 2002, when earnings fell slightly, the bottom line has shown similar growth.
Qiagen earned 8 cents a share during last year's third quarter, up from 5 cents the prior year. Sales grew 18% to $90.5 million.
The company is scheduled to report fourth-quarter and full-year earnings on Feb. 18.
Analysts polled by First Call expect quarterly profit to come in at 9 cents a share, up 29% from the prior year.
Earnings for all 2003 are seen gaining 35% to 31 cents a share, then reaching 39 cents this year.
A January report from three analysts at S.G. Cowen Securities Corp. calls the outlook for life science supply companies "distinctly opaque."
The report highlights Qiagen's plans to beef up its work in molecular diagnostics, which generated around 20% of the firm's revenue last year.
Molecular diagnostics, or MDx is the study of the DNA and RNA for predisposition for disease. Industry watchers call it the next great thing in genetic research.
'Limitless' Market?
S.G. Cowen, which might seek Qiagen's banking business, sees MDx as the fastest growing biotech segment, with an estimated $1.5 billion in industry sales last year. That figure is expected to reach $2.5 billion by 2007.
The Cowen report also notes that molecular testing has focused on HIV and Hepatitis B and C the last five years.
The next stage will be molecular testing in blood screening to predict predisposition to cancer and genetic diseases.
The market is almost limitless, the report says, because people will want to know what potential diseases lie ahead and take pre-emptive action. Governments might even mandate such tests.
"If a genetic screen can identify an increased susceptibility to a disease, modification of lifestyle could act as a preventative medicine," the report said.
Qiagen is up against a herd of competitors, including divisions of Roche Diagnostics, Applera Corp.-Applied Biosystems, (ABI) Millipore Corp., (MIL) Invitrogen Corp., (IVGN) and Third Wave Technologies Inc. (TWTI)
Most of those companies depend on other medical sectors for the majority of sales, however.
Qiagen's main competition comes from do-it-yourself technology, or "home brew," as Schatz calls it.
He contends that in-house technology in nucleic acid purification is inefficient. What labs might save on materials, they more than waste in extra time and labor.
Analyst Geist takes the argument a step further, likening in-house technologies to people using a "paper towel instead of a paper filter" in their coffee makers. |
