Source: Qiagen NV

Qiagen NV (QGEN 0.83%) solutions are used every day by healthcare providers to identify disease and select the best treatment regimens and by researchers to develop next generation medicine. The company's potential growth from the rise of personalized medicine is big; however, that potential didn't translate into significant sales growth this past year.

In the third quarter, Qiagen reported that its sales improved by just 4% to $336.8 million (most numbers courtesy of S&P Capital IQ); however, that top-line performance may understate the company's ability to leverage next-generation drug research and development. That's because results were weighed down by weakening pricing power for a legacy HPV test that the company markets in the United States.

Overcoming headwinds
Exiting 2013, Qiagen's U.S. revenue from HPV testing accounted for about 10% of the company's total sales, so the impact of renewing contracts at lower prices has been significant this year. In the third quarter, Qiagen's U.S. HPV sales declined by 46%, lopping 4% off the company's overall growth.

However, the impact of falling HPV demand may ease as we get deeper into 2015 because other products are growing more quickly and HPV testing is increasingly representing a smaller piece of Qiagen's total revenue.

For example, installations of Qiagen instruments, including the QIAsymphony platform, continues to increase as customers seek out solutions that allow them to more comprehensively understand genetic samples. In the third quarter, Qiagen's instrument sales grew 11% year over year, bringing instrument sales growth during the first nine months to 3%.

The strength in third quarter instrument sales was led by a double digit percentage increase in sales of instruments used for molecular diagnostics and single digit growth for instruments used in pharmaceutical and applied testing. Growth from those end users more than offset weaker demand from academia, where research funding has weighed down sales.

Source: Qiagen NV

Qiagen's molecular diagnostic business is its largest, accounting for about 50% of the company's revenue and while U.S. HPV results were poor, 19% growth from non-U.S. HPV products allowed the segment to post overall year-over-year sales growth of 6% in the third quarter. The company's QuantiFERON-TB latent tuberculosis test was one of the fastest growing contributors to the segment's performance. QuantiFERON sales grew about 20% over the past year and Qiagen predicts that revenue from the test will eclipse $100 million this year. Thanks to a growing base of installed instruments, Qiagen also reported double digit sales growth for profiling consumables and personalized testing.

While molecular diagnostics is Qiagen's biggest business unit in terms of revenue, the company saw growth in its applied testing and pharmaceuticals businesses, too.

The applied testing business, which serves forensics, veterinary, and food safety industries, saw its sales grow 7% year over year in the quarter. The primary driver behind that growth was expanding use of genetic identification and bioinformatics solutions in forensics.

Qiagen's sales to drugmaker's R&D departments also climbed, particularly in America. Thanks to both higher instrument and consumable demand, the company's pharmaceutical segment sales grew 4% from a year ago in the quarter.

Looking ahead
Medicine is increasingly shifting toward identifying and treating DNA and RNA targets and that should translate into demand for instruments and related assays that can be used to identify genetic mutations and develop new drugs. As researchers align themselves with companion diagnostic tools, like those offered by Qiagen, opportunities to benefit from these treatments could fuel growth that further offsets falling HPV revenue, particularly as the HPV percentage of Qiagen's total revenue drops.