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Jefferies Downgrades Myriad Genetics, Cepheid to Hold

NEW YORK (GenomeWeb News) – Investment bank Jefferies today downgraded Myriad Genetics and Cepheid to Hold from Buy.

In a research note, analyst Brandon Couillard cited concerns about the upcoming decision from the US Supreme Court on the lawsuit filed by the American Civil Liberties Union and others against Myriad over its patents covering the BRCA1 and BRCA2 genes, and said that "with shares up more than 20 percent since initial oral arguments at [the court] in mid-April, we view the risk/reward setup as balanced ahead of the court's final ruling."

A ruling from the court is anticipated in late June.

Earlier this month, Myriad announced plans for a new 25-gene diagnostic cancer panel expected to launch during the summer of 2015. Called myRisk Hereditary Cancer, it is being positioned by the Salt Lake City-based firm to replace BRACAnalysis.

In his note, Couillard said myRisk could "in theory" protect Myriad's core BRACAnalysis franchise from competing tests, but he added that the new test will "need to demonstrate that such incremental genes yield significantly more actionable information in order to convince payors of the panel's value beyond BRCA."

He has a price target of $31 on Myriad's stock, which was up a fraction of 1 percent at $32.32 in Friday morning trade on the Nasdaq.

On Cepheid, Couillard noted the company's launches and planned launches of new high-margin tests, as well as potential growth from its High Burden Developing Country program. But, he said, "present valuations (+20 percent vs. historical average) already appear to reflect bullish growth expectations."

Earlier this year, Cepheid launched its chlamydia/gonorrhea test, and Couillard estimated that about 10 percent of Cepheid's installed base is either already using the test or validating it. He forecast $10 million in CT/NG-related revenue for 2013 and $19 million in 2014.

Cepheid also has numerous other tests under development and "if successful, Cepheid's broad new test pipeline could add [more than] $1 billion to its aggregate market opportunity and more than triple its available test menu by 2017," Couillard said.

He was also optimistic about the HBDC program. Cepheid has placed more than 1,000 systems in HBDC markets, and the program now accounts for about 25 percent of the firm's global installed base. In 2013, Couillard is forecasting HBDC-related revenues of $45 million, and in 2014 he expects $57 million in revenues generated from the program.

"With only [approximately] 60 percent of eligible countries on board, incremental HBDC-related revenues should continue to augment Cepheid's core growth trajectory for the foreseeable future, though quarterly volatility is likely to persist until the program matures to scale," he said.

The firm's share price implies that Cepheid has a value of 5.5 times Jefferies 2014 revenue forecast, "reflecting [an approximately] 50 percent premium to peers and a 20 percent premium to historical levels," Couillard said. "Greater conviction in [Cepheid's] intermediate-term margin expansion trajectory or more compelling valuations would provide an opportunity to be more constructive on the shares."

His price target on the company's shares is $38. In Friday morning trade on the Nasdaq, shares of Cepheid were down 4 percent at $35.05.

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