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Leerink Reinitiates Coverage of Illumina, Thermo Fisher Scientific, Other Omics Firms

NEW YORK (GenomeWeb) — Investment bank Leerink late on Wednesday reinitiated coverage of seven omics companies: Illumina, Thermo Fisher Scientific, Agilent, Waters, Invitae, Bruker, and T2 Biosystems.

Leerink analyst Puneet Souda assigned Illumina a Market Perform rating and a $145 12-month price target. While Illumina has had trouble with revenue shortfalls in 2016, the company continues to "dominate" the global sequencing market, and has a strong consumables business that has the potential to continue delivering 20 percent growth, or more, in revenues. "We firmly believe the underlying demand across all markets including whole genomes, NIPT, oncology, and panels remains robust, which bodes well for Illumina in the longer run," Souda wrote in a note to investors. "But the company has to convince us and [investors]that its forecasting model is back on track, and unpredictable revenue is a thing of the past. As a result, we are inclined to stay on the sidelines until we gain clarity into the company's forecast."

Thermo Fisher has been assigned an Outperform rating and $175 price target. The company is a leader in its industry, with "an unmatched scale and reach in the research labs market," according to Souda. The company's acquisition deals over the past few years have led to the integration of several tools and diagnostics companies under the Thermo umbrella, and the firm is likely to maintain M&A as an active priority. "Given the scale and Thermo Fisher's strong positions across various markets, we remain confident that the company can deliver and possibly exceed its top-line growth estimates," Souda wrote.

Leerink has assigned Agilent an Outperform rating and a $53 12-month price target. The bank believes Agilent has potential for solid margin expansion and growth in the mid-single digits. Further, Souda noted, Agilent is an aggressive competitor in several markets, "delivering solid double-digit growth in biopharma, and maintains either the No. 1 or No. 2 position across most of its other end markets including food, environmental, and chemical/energy." Agilent is also positioned to capitalize on the growth in emerging markets like China, Souda added.

Waters, which Leerink also views positively, has been assigned an Outperform rating and a $163 12-month price target. The company is likely to benefit from growth in biopharma end markets, as it already has an established presence in biopharma quality control labs. Further, Souda added, Waters will likely continue to garner premium pricing in the liquid chromatography market, given "what we view as [the] best-in-class Ultra Performance LC system with 70 percent-plus mass spec attach rates — the highest in the industry." The company's underlying revenue base is also strong, and unlikely to change, Leerink noted.

Invitae has been assigned an Outperform rating and a $12 12-month price target. Invitae currently has a variety of panels with more than 1,000 genes currently in production, according to Souda. Further, these panels have a competitive turnaround time and are attractively priced, and the company is likely to remain ahead by continuing to offer new products that are attractive to payors, upping its reimbursement rate. "With recent and rapid progress on the reimbursement front, Invitae now has 160 million lives covered under commercial payers beyond the positive pricing already announced by CMS," Souda wrote. "Cancer testing still constitutes 75 percent to 80 percent of volume for Invitae, and thus reimbursement remains a key despite Medicare being only 8 percent to 10 percent of the company's volume."

Bruker has received a Market Perform rating and $21 price target. The company is facing several challenges, which has gotten worse this year, according to Souda's note. Its industrial end markets are "weakening," and will likely reach a trough in 2017, he wrote. There have also been continuing delays in academic funding in Europe, which accounts for 42 percent of Bruker's sales. The company also has only a limited exposure to biopharma R&D, "at a time when biopharma growth continues to deliver double-digit growth among life science tools peers," Souda wrote. "Given that backdrop, we believe it will take another full year for Bruker to reach market growth rates, limiting any upside to the stock in the near term. As a result, we are more inclined to stay on the sidelines for now."

As for T2 Biosystems, Leerink believes a Market Perform rating and a $5 12-month price target are appropriate, given its inconsistent instrument placements and recent quarterly results that were below expectations. "While we view T2's proprietary T2MR pathogen detection technology and large market opportunity favorably, we are inclined to stay on the sidelines," Souda wrote. "We believe the shares will work again if T2 meets or exceeds the updated timeline and expectations laid out for the T2Bacteria pivotal clinical trial in 1Q17 and approval in 2H17. Recall that T2 was initially planning for trial completion in 3Q16 and approval in early 2017."

In afternoon trading on the Nasdaq, Illumina's shares were up 4 percent to $138.29, Bruker's shares were up 3 percent to $22.86, and T2's shares rose 2 percent to $6.45. And in trading on the New York Stock Exchange, Thermo Fisher's shares rose 2 percent to $154.56, Agilent's shares rose 3 percent to $47.11, Waters' shares rose 1 percent to $143.55, and Invitae's shares were up 10 percent to $9.28.