Research Productivity Is Key as Life Sciences Firms Race to Create Breakthrough Treatments
Karen Mroz-Bremner, Ph.D.

Companies that provide tools to boost productivity stand to benefit from the anticipated rise in life science research spending. There is a growing awareness within the U.S. healthcare system – which accounts for more than 13% of GDP – that pharmaceuticals generally provide a more cost effective treatment and a better quality of life than other interventions. Just as vaccines have helped to reduce the physical and financial toll of childhood illness, the healthcare industry here and overseas looks to life science research to provide new solutions to today’s “incurable” diseases.

Life science research also will be driven in the decades ahead by the remarkable increase in life expectancy. Indeed, this increase in longevity is in part a consequence of the progress made by life science research.

Invitrogen (IVGN) and Qiagen (QGENF) are two companies held in Shaker’s portfolio that are poised to benefit from the growing demand for increased research productivity. Both companies specialize in manufacturing consumable, diagnostic kits that help simplify and accelerate the process of understanding life at the molecular level. These kits enable scientists and researchers to conduct experiments in much less time than traditionally available methods.

Invitrogen is a worldwide supplier of molecular biology and cell culture reagents that allow researchers to more efficiently identify and analyze genes and their related proteins. Qiagen is the leading provider of reagents that enable researchers to handle and purify nucleic acids (DNA and RNA).

The products and technologies developed by Invitrogen and Qiagen are very well known for their ability to help researchers conduct experiments in less time, with more accuracy, and often without the use of toxic chemicals. In the highly competitive life science research arena, to be first on the market or first to publish a new breakthrough is key. As a result, the ability of Invitrogen and Qiagen’s products to save time and, implicitly, money, justifies a premium price.

Unlike capital equipment expenditures – which often are centralized within an organization -- the final purchasing decisions for consumable products in the life science research field are made in the lab by researchers. Researchers tend to be very loyal to the products they trust, and this helps to ensure that companies like Invitrogen and Qiagen will enjoy a renewable stream of revenues. The ability of a kit to provide results faster with improved reproducibility is significant, especially since researchers often work with scarce samples.

There is reason to believe that the development of new, more effective and safer therapies by the life sciences industry will create a virtuous cycle - wherein the successful application of new drugs will spur further increases in life science research. Companies like Invitrogen and Qiagen, which provide researchers with the tools to achieve breakthrough discoveries, are well positioned to benefit from this trend. The greatest beneficiary, however, will be future generations that experience better healthcare in old age than any previous generation.

Executive Insights
Peer Schatz, Chief Financial Officer
Qiagen N.V. [NASDAQ: QGENF]

Q: How is Qiagen positioned within the biotechnology industry?

A: As a provider of enabling technologies that help to separate and purify DNA and RNA, Qiagen is nearly 10 times the size of all of our direct competitors combined. We supply our products to virtually every major company and institution that conducts life sciences research.

Q: Could you give us some idea of the size of this market?

There are about 350,000 researchers in the life sciences field around the world and Qiagen supplies over 200,000 of them. The ones we do not reach are either
located in developing countries or work in environments that do not give them access to more modern techniques.

Q: Where are your largest markets?

A: On a regional basis, the U.S. accounts for more than 50% of our total sales, followed by Europe with 30%. The remaining 20% is divided between Japan and the rest of the world. Within these regions, we serve three specific customer segments. The largest is academic research institutions, which generates more than 50% of our revenues. Pharmaceutical companies contribute nearly 30%, and biotech and diagnostic entities make up the rest.

Q: Are any of these three segments growing at a faster pace than the others?

A: Historically, the pharmaceutical and biotechnology sectors have been our fastest growing sectors. However, during the past year the academic research market has enjoyed the fastest growth, due in part to the current slowdown in the pharmaceutical industry. Experience suggests that each of the three segments expands and develops at its own independent pace.

Q: In terms of product line, how many major products does Qiagen have?

A: We take a different approach than most industry suppliers of our size, whose product lines usually include thousands of different products. Qiagen has chosen to focus on approximately 400 products, all in the same core competency. All of our technologies and products enable researchers to extract DNA or RNA from raw biological samples in an extremely pure form that can be immediately analyzed, modified or applied.

Q: Does Qiagen have any direct competitors that focus on the same core competency?

A: We have competitors that focus on our same core competency, but their size and product applicability do not pose a significant threat. In the life sciences tools market, it is not uncommon for a single company to dominate. Clearly, we are the undisputed leader in the nucleic acid separation, handling and purification market.

Q: Will Qiagen always be focused around its existing core competencies or will it in the future develop new applications?

A: Qiagen currently provides technologies and solutions for about 60 to 70 different applications for life sciences research, which as an industry is still in an early stage. Nucleic acid is a very segmented application with different types of samples and forms of genetic information, and we have over 800 patents or patent applications for products and technologies. As new applications emerge, we will continue to develop new technologies and products within our existing core competency.

Q: Are new products and applications the result of market demand, or does a new technology developed by your engineers create demand?

A: More the former than the latter. Researchers recognize the ability of our products to help them perform faster and more accurate tests. As a consequence, they are willing to share information with us and approach us with concepts that interest them. This represents an extremely important pipeline of ideas for our company. These ideas are communicated to our 400-person research and development department. In this manner, concepts that originate in the field spur our R&D teams to create new and innovative technologies, which often have uses beyond their initial application.

Q: Looking ahead five years, how big do you expect the life sciences tool market to become?

A: The size of the life sciences tool market is currently about $1 billion, and is experiencing average annual growth between 10% and 15%. Industry analysts continue to forecast attractive growth for the long-term. Qiagen seeks to maintain a 15% annual growth rate, and by 2007 increase annual sales to $700 million from the current $300 million.

Q: In your opinion, could Qiagen become an acquisition target by a large pharmaceutical company?

A: This isn’t Qiagen’s strategic end game, although that isn’t outside the realm of possibility. Given our market share and sustained growth rate, it becomes increasingly difficult not to attract attention. Qiagen can certainly be an attractive addition to a pharmaceutical company, but we prefer to remain independent. The development of our products is based to a large extent on confidential and highly proprietary information that we receive from our clients, most of whom are research scientists. An association with a pharmaceutical concern may make them reluctant to discuss their research needs.

Q: Assuming that in the near future worldwide economies will start settling down and begin to grow, what are the major challenges Qiagen will face?

A: One, of course, is to maintain our high degree of innovation, which has been the engine of our dramatic growth. We also have to continue to do the “every day” things right, like expanding our operations in an efficient and controlled manner, attracting, motivating and managing our employees, and providing the best possible results for our customers and shareholders.