This article has been updated with current information from Veracyte.
NEW YORK (GenomeWeb) – Investment bank Leerink has reinitiated coverage of Veracyte with an Outperform rating and a price target of $12 on the firm's stock.
Leerink analyst Puneet Souda praised Veracyte's negative classifier tests, noting that they reduce diagnostic ambiguity for many thyroid and lung cancer patients, leading to a reduction in unnecessary surgeries. "Veracyte is addressing a ~$2 billion diagnostic market via its negative classifier tests," Souda wrote in a note to investors. "We believe that poses significant value for providers and payors in the value-driven healthcare system."
Veracyte has also shown its technology could address other kinds of inconclusive biopsies, Souda added. It's Afirma 142-gene expression test is on the path to becoming standard of care for patients with thyroid nodules, and the company currently has achieved about 26 percent market penetrance in what is a $500 million market in the US. In the long term, as it collects more clinical evidence of the utility of its tests, the company could reach 60 percent penetrance. "We believe adoption of Veracyte's gene expression test for cancerous thyroid nodules and lung bronchi should increase, and forthcoming data and further reimbursement updates on its pipeline offer additional catalysts," Souda wrote.
Further, Leerink noted, Veracyte is addressing a $425 million to $525 million market opportunity with its 23-gene bronchial gene expression classifier test Percepta. Local Medicare administrative contractor Palmetto GBA agreed to cover Percepta in late September, "placing it on what we believe is a solid path to further reimbursement by commercial payers in 2017," according to Souda.
And Veracyte has also begun to commercialize a test for Idiopathic Pulmonary Fibrosis (IPF) called Envisia — the test helps identify the presence of usual interstitial pneumonia whose presence can help physicians diagnose IPF. Veracyte tells GenomeWeb that it expects revenues for Envisia to ramp up in 2018 as it pursues reimbursement agreements with payors. With these three tests, Leerink calculates that the company's total addressable market will be approximately $2 billion.
"We believe reimbursement will continue to be an important driver for Veracyte's revenue, and the company has continued to build [a] stronger payer base over time, gaining increasingly more covered lives and those under contract to drive further adoption of the tests," Souda wrote. "And with both Afirma and Percepta ramping [in] 2017, we see 2017 as a major inflection year for Veracyte, setting [the] stage for a company with potentially three solidly reimbursed products on the market in the longer run."
Last week, Leerink also reinitiated coverage of several other omics companies: Illumina, Bruker, and T2 Biosystems all at Market Perform, and Thermo Fisher Scientific, Agilent, Waters, and Invitae all at Outperform.
Veracyte's shares dipped a fraction of a percent to $6.99 in midday trading on the Nasdaq.