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UBS Starts Investment Coverage of Genomics, MDx Space

NEW YORK (GenomeWeb) – Investment bank UBS has initiated coverage of the genomics and molecular diagnostics space, saying technology advances will enable "the next wave of transformative innovations that will impact nearly every aspect of our lives," while "creating a unique opportunity for investors." 

Analyst Jon Groberg initiated coverage on a total of 16 firms, and gave six companies Buy ratings, nine companies Neutral ratings, and one firm a Sell rating. 

In a research report, Groberg segregated the wider genomics field into three sectors — genomics, life science tools, and clinical diagnostics. He estimated they comprise a $100 billion-plus market in total and said that while they have historically experienced stable growth in aggregate, each of the three sectors has different moving parts that will impact their investment outlooks. 

In the genomics space, "we find the profound impact that … technologies will have on the world remains underappreciated," Groberg said, and applications leveraging these technologies will impact social and economic issues with innovation "poised to revolutionize the way we interact with the world around us. 

"Our message to investors is, 'Don't sleep through the revolution,'" he said. 

In life science tools, organic growth will be increasingly global gross domestic product-dependent, with mergers and acquisitions continuing to be a major theme. While some firms and investors contend that "the empirical advantage of scale is not obvious in the industry, the data is biased by both self-selection and a short history," he said, and added that M&A will drive increased returns for buyers and sellers alike. 

Groberg also identified six firms as possible M&A targets: Affymetrix; Agilent; Genomic Health, PerkinElmer; Qiagen; and Waters. 

Meantime, in clinical diagnostics, changes in the regulatory environment and reimbursements have created a volatile landscape, he said. He also noted that with so many firms in the molecular diagnostics space offering similar tests, consolidation among MDx firms is just beginning. 

At the same time, pricing, which has always been a challenge for diagnostic firms, will get even tougher, he suggsted. "The competitive dynamics of the industry, the significant changes that are being proposed from a regulatory standpoint, and potentially significant reimbursement cuts all suggest a dynamic but difficult time for [diagnostic] test suppliers, which we believe should create plenty of opportunities for nimble investors," Groberg said. 

He gave a Buy rating to Thermo Fisher Scientific, along with a $160 price target; Illumina ($240 price target); Hologic ($38 price target); PerkinElmer ($53 price target); Qiagen ($28 price target); and Mettler-Toledo ($350 price target). 

Groberg gave Neutral ratings to Affymetrix ($13 price target); Becton Dickinson ($159 price target); Waters ($130 price target); Agilent ($45 price target); Bruker ($20 price target); Genomic Health ($34 price target); Foundation Medicine ($50 price target); VWR International ($27 price target); and Pall ($106 price target). 

Groberg gave his lone Sell rating to Myriad Genetics His price target for the company is $34. Myriad "has adequate relative scale, but we see it as the brand leader in a product that is going generic," he said, referring to Myriad's leadership position in BRCA1/2 testing, a space that competitors, such as Quest Diagnostics, GeneDx, Ambry Genetics, and others have encroached. 

While Myriad is diversifying its portfolio and becoming less reliant on its BRACAnalysis test for revenues, that strategy will take time to have a material effect on the firm's business, Groberg said.