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Goldman Sachs Downgrades Myriad, Exact Sciences; Upgrades Shares of Alere

NEW YORK (GenomeWeb) - Goldman Sachs on Wednesday downgraded shares of Myriad Genetics to a Sell rating and Exact Sciences to Neutral, while upgrading Alere to Neutral.

The bank maintained its stock ratings for Hologic, Cepheid, and T2 Biosystems.

In a research note, analyst Isaac Ro said he based the downgrade of Myriad from Neutral to Sell on rising competition, and the cost of new growth initiatives now present a negative risk-to-reward ratio. He forecasted that the hereditary cancer market would become more price-sensitive and that Myriad's upcoming earnings would show mounting evidence that new, lower-priced entrants are gaining share in BRCA testing. The firm also has renewed a share repurchase program, which he said left less flexibility for positive surprise capital allocation. Ro noted that short interest in Myriad was high.

Ro noted that GeneDx and Ambry Genetics, among others, have hereditary cancer tests priced well below Myriad's myRisk test. He also said that a shift to panel-based tests would reduce Myriad's competitive advantage in test quality.

Myriad's acquisitions in new products have diversified the company, but Ro said it may be costly to achieve material growth over time.  Sales of Myriad's Vectra DA for rheumatoid arthritis have been flat the past three quarters, he noted. "Given the sluggish pace of adoption, we believe additional clinical studies will be required to demonstrate economic utility and induce payer coverage," Ro said. For the Prolaris prostate cancer test, Ro said he believes the market would be difficult to penetrate.

Goldman Sachs lowered its six-month target price for Myriad to $25 from a prior price of $31. In afternoon trading on the Nasdaq, shares of Myriad were down about 3 percent at $35.19.

Ro also downgraded Exact Sciences to a Neutral rating from Buy, saying "the initial pace of market adoption has fallen slightly behind our initial expectations." He updated the six-month target price to $24 from a prior target of $29.

While the addressable market for the Cologuard colorectal cancer test remains "compelling," Ro said that regulatory and reimbursement catalysts would play less of a role in stock performance than commercial execution. "While we remain optimistic the Cologuard will obtain USPSTF guideline inclusion this year, we believe expectations here are already high and the implications are well understood by investors," Ro said.

Ro said that the data did not suggest that there would be accelerated test volumes until the end of fiscal year 2015, which would result in a slower projected revenue ramp.

Exact Sciences' shares were down just over 6 percent at $21.61 in afternoon trading today on the Nasdaq.

Ro upgraded Alere to Neutral from Sell, due to perceived success in operational turnaround, raising the six-month target price to $47 from $42. Since the investment bank added Alere to its Sell list in September 2014, the firm has successfully divested its Health Management business, and management has both provided a positive Fiscal Year 2015 outlook and provided detail on the firm's restructuring and portfolio realignment towards toxicology and point-of-care diagnostics.

"These markets are high single-digit growers with favorable margin profiles that should provide Alere a clearer path to grow not only the top-line but operating profit as well," Ro said.

Additionally, debt restructuring and more effective tax planning could provide even more upside to the firm's shares, he said.

Alere's shares were down less than 1 percent at $46.99 in afternoon trading today on the NYSE.

Ro reiterated Hologic's Buy rating, forecasting opportunities for top- and bottom-line growth, and raised the six-month target price to $39 from $34.

Shares of Hologic were trading down less than 1 percent at $31.94 this afternoon on the Nasdaq.

Cepheid remained at a Neutral rating, even though Goldman Sachs raised its six-month target price to $59 from a prior price of $47. Ro noted that the firm had not missed quarterly consensus sales expectations for the past eight quarters.

Cepheid's shares were down less than 1 percent at $53.21 in afternoon trading today on the Nasdaq.

T2 Biosystems also remained at a Neutral rating, even though Ro said that the firm's shares had been the worst performing in Goldman Sachs' diagnostics coverage in the year to date. The six-month target price was lowered to $21 from a prior target of $25. While interest in the T2MR technology remains high, "we have yet to find institutions that have adopted the platform," Ro said, suggesting that adoption will "likely be slower than we previously expected."

In afternoon trading today on the Nasdaq, T2 Biosystems' shares were trading down about 2 percent at $15.63.

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