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Qiagen's Transforming

By Brian Orelli, PhD - Jul 30, 2015 at 12:27PM

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As sales of its human papillomavirus testing continue to shrink, the test maker grows in other areas.

Qiagen (QGEN -1.50%) reported second-quarter earnings that exceeded expectations, albeit expectations that were set fairly low.

Year-over-year revenue growth at constant currencies came in at 5%, which was higher than the company's goal of 4% growth. Factoring in the stronger dollar, revenue dropped 4%, but since Qiagen doesn't have any control of exchange rates, looking at constant currencies is a good measure of the health of the business.

As seen in the last few quarters, revenue growth was hurt by a decline in sales of Qiagen's human papillomavirus (HPV) tests in the U.S. The lower HPV sales -- a 43% drop -- pushed down overall revenue by 3 percentage points in the second quarter. Fortunately, U.S. HPV tests are now just 3% of overall sales, so any further competition won't be as obvious in year-over-year comparisons next year.

The rest of Qiagen's molecular diagnostics business, which makes up about half of the company's sales, are growing nicely with revenue up 10% at constant exchange rates, excluding the HPV sales. Applied testing, which includes forensic testing, grew 11% at constant currencies. Sales to pharma and academia both grew at 7% at constant currencies.

On the earnings side, a slightly better tax rate helped negate the lower revenue, resulting in adjusted net income that was the same as the year-ago quarter. Adjusted earnings per share in the second quarter actually increased a penny compared to last year to $0.26 per share thanks to a lower share count after the company repurchased shares. Qiagen still has $31 million left on its most recent share repurchase plan, so this will continue to be a growth driver for earnings per share, albeit a modest one.

Growing forward
While Qiagen has seen solid growth outside of the HPV testing market, the company isn't resting on its laurels. The business requires a constant development of new products since you never know when a product is going to face new competition or go out of favor with researchers or clinicians.

Qiagen recently gained Food and Drug Administration approval for its fourth companion diagnostic test. The test measures expression of the epidermal growth factor receptor, which helps doctors know if lung cancer patients will respond to AstraZeneca's Iressa.

The company is pushing into liquid biopsies, which is becoming a popular diagnostic as researchers have discovered a way to isolate DNA fragments from the blood or urine. Having the upstream application allows Qiagen to push clinical labs into its downstream tests.

Qiagen sees a major opportunity to expand revenue from forensic laboratories after patents on forensic DNA testing recently expired. The company already has its machines in most labs performing other tests, so the DNA testing using Qiagen's new test would be an easy transition for most labs. While it'll be tough to break into what was once a duopoly, Qiagen believes its test has some advantages, including being able to run a pretest that assess the quality of the DNA sample to predict whether the test will work.

Finally, Qiagen is launching an informatics kit that helps clinicians and researchers interpret their sequencing data. As the cost of sequencing has gone down, the amount of data generated has gone up, creating the need for automation to help diagnose patients based on their genetic variation. Qiagen hopes to be the one stop shop to meet that need with its Ingenuity Analysis.

Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends Qiagen. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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