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Leerink Swann Initiates Coverage of NanoString with Outperform Rating

NEW YORK (GenomeWeb News) – Investment bank Leerink Swann on Sunday initiated coverage of newly public NanoString Technologies with an Outperform rating and a $15 price target on its stock.

Leerink Swann was a co-manager of NanoString's IPO in June.

Analyst Daniel Leonard in a research report noted the Seattle-based company's technology, saying it "fills an important role in the research market by enabling mid-density gene analysis in formalin-fixed, paraffin embedded samples," and added that that capability can be used in cancer diagnostics.

NanoString's nCounter Analysis System "promises to enable complex molecular testing in a decentralized setting," and the Outperform rating is based on the investment bank's view that the company's growth opportunities are underappreciated at current levels, Leonard said.

NanoString's CodeSet technology, which enables multiplexed, direct profiling of individual molecules in a single reaction without amplification, allows expression levels of tens to hundreds of genes to be measured, "a range that falls between the optimal economic and logistical space for traditional quantitative polymerase chain reaction … and microarrays," Leonard said.

He also said that NanoString's installed base will grow quickly as the company launches new, more flexible chemistry later this year. A smaller, less expensive version of the nCounter platform is expected to launch next year, Leonard added, and he estimated the installed base will grow from 127 instruments in 2012 to 367 in 2015. As a result, NanoString's life science revenue growth will increase from about 25 percent in 2013 to about 30 percent next year.

As new products make their way onto the market, its diagnostic business is "poised to take off," Leonard said. NanoString's technology is "uniquely able to automate complex diagnostic tests, and thus enable many labs worldwide to run such tests."

The firm launched its first test, called Prosigna for breast cancer prognosis, in Europe and Israel earlier this year, and Leonard said he anticipates the US Food and Drug Administration will clear the test late this year, and a US launch to follow in early 2014. He estimated Prosigna tests to generate about $30 million in revenues for NanoString in 2015.

Lastly, he noted that with further launches of diagnostic products, the company's recurring revenue mix will improve. Consumables comprised about 58 percent of NanoString's total product revenues, and generated more than 40 percent of the list price per instrument last year.

"We believe that NanoString's consumable revenue will comprise nearly 75 percent of total revenue within the next two years following uptake of its Prosigna test," Leonard said.

In morning trading on the Nasdaq, shares of NanoString were up a fraction of 1 percent at $9.50.

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