Illumina and Qiagen recently announced a 15-year partnership to develop next-generation sequencing-based in vitro diagnostic kits, including companion diagnostics. The deal accompanied announcements that Qiagen CEO Peer Schatz would step down and that the firm has lowered its third quarter sales growth expectations.

Under the terms of the non-exclusive agreement, Qiagen will have rights to develop and commercialize IVD kits to be used with Illumina's MiSeq Dx and NextSeq 550Dx systems. The agreement also includes rights for expansion onto future Illumina clinical sequencing systems.

The partners will also explore opportunities for Qiagen to develop and market companion diagnostics based on Illumina's TruSight Oncology assays. Illumina and Qiagen will initially focus on oncology and may expand to include cardiology, hereditary diseases, infectious diseases, and autoimmune and inflammatory diseases.

Financial terms were not disclosed, though in an analyst note, Tycho Peterson of JP Morgan wrote that Qiagen would be "paying ILMN a platform access fee and milestones."

"We are committed to expanding the range of clinical use cases addressed by genomic sequencing by enabling partners to deliver IVD tests and companion diagnostics on Illumina's Dx instruments," Illumina CEO Francis deSouza said in a statement.

Schatz added that the partnership would be "a key cornerstone of our NGS strategy." The deal signals the firm's repositioning within the NGS testing market. Qiagen said in a statement that it would continue to support its GeneReader NGS system but that it would suspend ongoing NGS-related instrument development. Instead, the firm will focus development activities on the Illumina collaboration and expand its offering of universal NGS consumables solutions for use with any sequencer.

Qiagen, based in Germany, has marketed the GeneReader "sample to insight" sequencing system since 2015, along with targeted panels for it.

In morning  trading on the New York Stock Exchange, shares of Qiagen were down 21 percent at $25.35; shares of Illumina, trading on the Nasdaq, were down 4 percent at $289.55.

The firm also said that Schatz, who has been Qiagen's CEO since 2004, will be stepping down after 27 years at the firm and transitioning to a "special advisor" role.

"It has been a tremendous privilege to serve as the CEO of Qiagen for such a long time. I am incredibly proud of the market and technology leadership that we have created and what our teams and partners have accomplished together," Schatz said in a statement. "Qiagen has contributed to modern molecular biology in a way very few companies have had the honor to do. We can build on a strong culture of openness, agility, and dedication to ensuring that our customers can rely on our premier solutions to gain superior molecular insights."

Qiagen said it will start an executive search; meantime, Thierry Bernard, senior VP and head of molecular diagnostics, will act as interim CEO and work in tandem with CFO Roland Sackers.

Qiagen announced "measures to prioritize resource allocation to the most attractive growth opportunities," and said it has "established a new orientation for its NGS-related activities that involves focusing development activities on th[e] collaboration [with Illumina], as well as expanding its offering of universal NGS consumables solutions for use with any sequencer."

Schatz is not the only executive Qiagen has lost recently. In September, former Qiagen Senior VP of Global Commercial Operations Manuel Méndez joined Quest Diagnostics as senior VP and chief commercial officer. Barclays analyst Jack Meehan wrote in a note today that "we believe the significant level of change [at Qiagen] raises risk around managing new product launches in the near term." 

Qiagen also said it projected third quarter sales growth of about 3 percent at a constant exchange rate, down from a prior outlook of 4 to 5 percent CER growth, but that its adjusted EPS would be in line with its previous outlook of between $.35 and $.36. The firm attributed the difference to "significantly weaker-than-expected developments in China" and said it would provide more information when it reports its third quarter results on Oct. 30. 

"We spoke to management this [morning] and the miss was on the non-NGS [molecular diagnostics] business ex-QuantiFERON and was due to overall deceleration in hospital and third-party testing," Evercore ISI analyst Vijay Kumar wrote in a note. 

JP Morgan's Peterson added that "slower hospital ordering patterns on IVD and molecular tests drove a [greater than] 25 percent decline in China." 

In addition, Qiagen said it will take a pre-tax restructuring charge of about $260 million to $265 million, or about $1.14 to $1.15 per share after taxes, in the quarter, including $195 million to $200 million in  "non-cash items that are primarily related to the decision on NGS instrument development activities and comprised of charges for the impairment of software and instrument development, licenses, partnership valuations, and other assets." Further, the firm raised the possibility of workforce reductions.