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Piper Jaffray Initiates Coverage of Natera with Overweight Rating

NEW YORK (GenomeWeb) – Investment bank Piper Jaffray on Monday initiated coverage of Natera with an Overweight rating on the firm's stock and a $24 price target.

The San Carlos, California-based molecular diagnostic company markets Panorama, a noninvasive prenatal test. The bank said that although the company was last to market — behind Sequenom, Illumina, and Ariosa — the company's test uses SNP technology as opposed to copy number differences to call fetal aneuploidy, which it has leveraged to "gain near-equal NIPT market share," Senior Research Analyst William Quirk wrote in a report on the firm.

In addition, the bank said that although NIPT is currently marketed toward high-risk pregnancies, in the near future the $2.2 billion average-risk market will drive growth. And longer term, Natera is looking to tap into the much larger $19 billion oncology market with a liquid biopsy test.

Quirk also cited the company's test volume and revenue growth since the launch of Panorama in March 2013. The firm's first quarter 2015 testing volumes grew 44 percent year over year to 48,770, and its Q1 revenues grew 77 percent to $34.8 million. Last week, Natera said it expects its full-year 2015 revenues to be in the range of $175 million to $190 million.

"Based on literature, Panorama is the most accurate NIPT on the market, utilizing SNPs to call trisomy 21, 18 and 13, monosomy X, triploidy as well as fetal sex," Quirk wrote.

He added that given its accuracy, Natera is well suited for the $2.2 billion average risk market, which is only 5 to 6 percent penetrated, as opposed to the $750 million high-risk market, which is about 54 percent penetrated. The bank anticipates that average-risk penetration will increase to 22 percent by 2017.

Quirk wrote that although the bank forecasts volume growth for Panorama, it also anticipates a 27 percent decline in average revenue per test in Q2 2015 and an incremental 40 percent decrease in 2016, due to reimbursement challenges in the average-risk market.

Piper Jaffray's $24 price target on the stock is based on 5.0x its Fiscal Year 2017 revenue estimate, representing a 60 percent premium to Natera's small-to-mid cap diagnostic/specialty lab peer group.

In early Monday trade on the Nasdaq, shares of Natera were down around 5 percent at $18.26.

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