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Prudential Initiates Genomica Coverage with a Strong Buy Rating

NEW YORK, Oct 24 – Prudential Securities began coverage of Genomica on Tuesday with a “strong buy” recommendation, saying that the company offers leading bioinformatics software and a strong management team.

  “Genomica is well positioned to successfully compete in the rapidly growing bioinformatics market,” analyst Charles Duncan, senior biotechnology analyst at the firm’s Prudential Vector Health Group, wrote in a report. “The company is working to establish its systems as standards for managing genomic information.”

In addition to having its Discovery Manager, LinkMapper, and reference database, Duncan said he expects the company to “significantly extend” its offerings to include software for gene and protein expression analysis and protein function prediction. The company also plans to acquire additional businesses and products, Duncan said.

Although the number of competitors is growing in the burgeoning bioinformatics field, Duncan noted that Genomica’s Discovery Manager offers some of the best functionality in the sector. As a result, Duncan said the company is poised to capture a strong foothold in the market, which according to Front Line Strategic Managment Consulting, is expected to grow to $2 billion by 2005 and $5.4 billion by 2010, up from $468 million today.

Thomas Marr, the company's CSO, assisted in developing Genome Topographer, a tool used by the Human Genome Project.

Duncan estimated that the company would post a net loss of $1.55 a share for full-year 2000 and 80 cents a share for full-year 2001, compared with 68 cents in 1999. Revenues are expected to increase to $1.6 million in 2000 and $3.7 million in 2001, up from $800,000 in 1999.

The company is also trading at a discount relative to other bioinformatics companies, Duncan said. Based on “relative technology values,” or market capitalization minus cash, Duncan calculated a value of $126 million for Genomica shares, 63 percent below the median technology value of $345 million for companies such as Lion Biosciences, InforMax, Compugen, and Rosetta Inpharmatics.

Despite the strong outlook, Duncan noted that risks do exist. Genomica has a strategic partnership with Applied Biosystems and a letter of intent to develop a tailor-made software product for Celera Genomics, but the company only has 10 customers, five of which accounted for 86 percent of its revenues in the first six months of the year.

In addition, Genomica is converting its software to the Java/Oracle platform, a move that could have adverse effects in terms of timing and performance.

Duncan issued a 12-month price target of $26 for Genomica’s shares.

Genomica, which began trading at $19 a share on the Nasdaq in September, was recently trading down 1 1/2, or 12.9 percent, at 13 1/8.

Prudential Health Care Group was a co-manager for Genomica’s offering, which raised $122 million.

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