QIAGEN Gets Efficient While It Waits for the Next Growth Driver

QIAGEN's (QGEN 1.34%) second-quarter revenue came in at the high end of management's guidance, while adjusted earnings per share exceeded the company's expectations.

Investors can't ask for much more than that from the diagnostic test company.

QIAGEN results: The raw numbers

Data source: QIAGEN.

What happened with QIAGEN this quarter?

• Some of the revenue growth came from changes in currency rates; at constant exchange rates, revenue was up 6% year over year.
• The molecular diagnostics division drove year-over-year growth with a 10% increase at constant exchange rates, which was backed by 20% growth -- again at constant exchange rates -- of its QuantiFERON latent TB test, which is on track to meet the company's goal of $300 million in annual sales in 2020. Companion diagnostics -- tests that tell doctors which drugs are likely to work -- also helped drive revenue from the unit. There was also double-digit growth for consumables used in its flagship diagnostic machine, the QIAsymphony, which is on pace to reach more than 2,300 cumulative placements by the end of this year.
• Next-generation sequencing products grew by double-digits at constant exchange rates. The company is looking for sales of more than $140 million from the category this year, up from about $115 million in 2017.
• Sales to pharma and academia both increased 4% year over year, which isn't driving the revenue needle much, but at least sales of the divisions are headed in the right direction.
• The only downside to the quarter was the applied testing division, which saw sales decrease 3%, but that was to be expected after the divestment of veterinary testing products in early 2018.
• Earnings grew faster than revenue as QIAGEN continues to become more efficient. Adjusted gross margins were up, and spending on research and development, sales and marketing, and general and administration were all down as a percentage of sales compared to the year-ago quarter.

Image source: QIAGEN.

What management had to say

Sales of QuantiFERON-TB have been growing like gangbusters, but CEO Peer Michael Schatz still sees potential for additional growth:

The substantial $1 billion market opportunity is still only barely 20% converted from the 120-year-old skin test, which is more time consuming for healthcare providers and less accurate than modern lab-based blood tests. In other words, there is a very large opportunity ahead of us.

The recently launched QIAstat-Dx, which is designed to run multiple tests to help diagnose complex diseases, didn't provide much in the way of sales in the second quarter, but Schatz is clearly counting on it being the next growth driver for the company in the years to come:

QIAstat-Dx is off to a very successful start in Europe and [is] rapidly gaining recognition as the next-generation platform to provide insights into complex disease syndromes. The first two QIAstat-Dx tests are already launched in Europe, delivering sample to insight processing of highly multiplex PCR panels to evaluate respiratory and gastrointestinal syndromes. Teams are also working as planned, toward the U.S. regulatory submission of this system in 2019.

Looking forward

For the third quarter, management is guiding for revenue to increase 6% at constant exchange rates, which includes about one percentage point of growth from the launch of QIAstat-Dx. Adjusted earnings at constant exchange rates are expected to be in the range of $0.33 to $0.34 per share.

As long as the company can keep becoming more efficient, growing earnings faster than revenue, investors can tolerate modest growth in 2018 as they wait for the full launch of QIAstat-Dx to start contributing more to revenue growth in the years ahead.