Qiagen reported after the close of the market recently that its third quarter revenues increased 1 percent year over year, missing analysts' consensus estimate.
Qiagen also lowered its full-year 2019 sales outlook for the second time in as many quarters due to continued anticipated weakness in China that is expected to be exacerbated by the company's recent announcement that it would halt development of new next-generation sequencing instruments.
For the three months ended Sept. 30, Qiagen tallied revenues of $382.7 million compared to $377.9 million a year ago and below Wall Street's expectation of $383.2 million. At constant currency exchange rates (CER), Q3 revenues increased 3 percent year over year, in line with the company's earnings preannouncement earlier this month.
In Q3, consumables and related revenues rose 3 percent (CER 5 percent) to $342 million, while instrument sales fell 13 percent (CER 11 percent) to $41 million.
By customer class, molecular diagnostics revenues dropped 3 percent (CER 2 percent) to $183 million while life sciences revenues increased 6 percent (CER 7 percent) to $199 million.
Molecular diagnostics revenues included companion diagnostic codevelopment revenues of $11 million, a 37 percent drop both as reported and at CER compared to the year-ago period. Molecular diagnostics revenues were also affected by the discontinuation of a joint Chinese venture in NGS development that Qiagen announced in July.
In an earnings call Wednesday recapping Q3 earnings, Thierry Bernard, who was appointed as interim CEO earlier this month after the announced departure of long-time CEO Peer Schatz, noted that the weaker-than-expected sales in China "went beyond the discontinuation of the GeneReader NGS system joint venture that we announced in July."
"There is no doubt that at Qiagen we are clearly disappointed by the third quarter in China, but at the same time we believe that market remains a key source of ¡ potential growth for our company," Bernard said. "Sales in this country declined 24 percent CER to $26 million in the third quarter of 2019, from $35 million in the same period of 2018."
Bernard noted that the revenue dip was primarily due to "weaker-than-expected trends" in China from some distributors.
"A significant part of our sales in China are ¡ from commercial partners," Bernard said. "We estimate that this created a headwind of about 20 percentage points on results for this quarter. This slowdown in ordering patterns from some of our distributors came as they were seeing a slowdown in payments coming in from their own customers, the hospitals and laboratories."
Bernard also noted that Qiagen faced a headwind of about 11 revenue percentage points in Q3 because the prior-year period included roughly $4 million sales from the discontinued China NGS joint venture. "At the same time, we saw about 8 percent growth from the rest of our portfolio in China, which is weighted to about two-thirds molecular diagnostic and one-third life science customers," Bernard said. "We believe the fundamentals in this market are good, but we are seeing a modest slowdown in demand, and have accordingly adjusted supply capacity with our distributors."
A bright spot in the quarter were sales of the QuantiFeron-TB test for latent tuberculosis, which grew 18 percent at CER driven by continued adoption of the company's fourth-generation test.
Qiagen said life sciences sales grew in all regions, with high-single-digit CER gains in consumables and related revenues easily offsetting a single-digit CER drop in instruments. Within life sciences, sales to academia/applied testing grew 4 percent (CER 6 percent) to $122 million, while sales to pharma grew 9 percent (CER 10 percent) to $77 million.
During the quarter Qiagen also formed a new 15-year strategic partnership with Illumina to develop next-generation sequencing-based in vitro diagnostic kits, including companion diagnostics, for Illumina NGS systems.
Qiagen recorded a Q3 net loss of $160.6 million, or $.71 per share, compared to a net income of $60.3 million, or $.26 per share, a year ago. On an adjusted basis, Qiagen reported Q3 earnings per share of $.36, just ahead of analysts' consensus estimate of $.36 and at the top end of the adjusted EPS range it preannounced earlier in the month.
The company took a pre-tax restructuring charge of $276.8 million in Q3 related to the discontinuation of new NGS development, leading to the net loss as reported.
During the earnings call, Qiagen CFO Roland Sackers noted that the company currently anticipates an additional pre-tax restructuring charge of about $12 million to $17 million, or about $.04 to $.05 per share after taxes, to be taken in the fourth quarter of 2019 that is related to this measure, and a charge in the single-digit million-dollar range in 2020.
Qiagen's Q3 R&D expenses dipped slightly to $41.8 million from $42.0 million a year ago, while its SG&A expenses rose about 3 percent to $125.8 million from $122.7 million a year ago.
Qiagen finished the quarter with $700.9 million in cash and cash equivalents and $98.3 million in short-term investments.
Qiagen lowered its full-year 2019 sales outlook to about 4 percent growth at CER from a range of 5 percent to 6 percent at CER as stated in its preliminary Q2 earnings announcement in July. That 5 percent to 6 percent full-year sales growth range had previously been adjusted downward from an expected range of 7 percent to 8 percent.
The newly adjusted sales outlook includes about two to three percentage points of headwind from anticipated lower revenues from companion diagnostic codevelopment projects after some projects were cancelled in the wake of the discontinued NGS development.
Qiagen also tightened its outlook for adjusted full-year EPS to a range of $1.43 to $1.44 at CER, compared to a previously stated range of $1.42 to $1.44.
For the fourth quarter of 2019, net sales are expected to grow about 3 percent at CER, which includes the expected headwinds from cancelled companion diagnostic codevelopment agreements. Adjusted Q4 EPS is expected to be $.45 to $.46 at CER.
