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Mizuho Initiates Coverage of Complete Genomics with Outperform Rating

NEW YORK (GenomeWeb News) – Investment firm Mizuho Securities has initiated coverage of Complete Genomics with an Outperform rating and a 12-month price target of $10.

In a research report issued Wednesday after the close of the market analyst Peter Lawson estimated 2011 revenue at $25.3 million resulting in adjusted loss per share of $2.08, and 2012 revenue at $38.5 million with an adjusted loss per share of $1.78.

He called the Mountain View, Calif.-based whole human genome sequencing services firm, which went public in November, "a thematic play on an increasing demand for whole genome sequencing and decentralized next-generation DNA sequencing technology." He added that it stands to benefit from a continued migration to sequencing technology from DNA arrays, capillary electrophoresis sequencing, and partial genome next-generation sequencing.

Additionally, a shift to outsourcing of sequencing services, especially by the research market, and the eventual development of a retail market for consumer genomics could add to Complete Genomics' value, Lawson said.

While funding for the life sciences faces challenges, he said that genomics-based researchers have a comparatively positive outlook on their funding opportunities, according to an internal survey conducted by Mizuho recently.

"Across end markets, our survey results indicated that high-end sequencing remains in high demand," he said.

Lawson estimated the human genomics research market at $5 billion with a mid- to high-single digit growth rate. Human DNA sequencing, including the diagnostic and research segments, is estimated to be a $2 billion market and growing at 20 percent to 25 percent.

Mizuho also found that though researchers in both academia and pharma may not be able or willing to make capital purchases in the form of equipment as well as new personnel hires and other support, they are willing to outsource sequencing-based projects, a positive sign for Complete Genomics.

On the shift to sequencing technologies away from microarrays, Lawson said that he expects the "substantial conversion" of the DNA array market to happen during the next three to four years, and the conversion of the RNA array market to occur in four to five years.

Lastly, as Complete Genomics continues to drop the price on its service, demand will rise. At the end of 2010, Complete charged $10,000 per genome. By the end of the second quarter of 2011 the price has been slashed to $4,000 and below for orders of more than 50 genomes.

In 2012, the price is expected to fall to $3,000, and by 2015 the $1,000 genome may be realized.

The $3,000 genome, Lawson said, is an "important milestone," bringing whole genome sequencing on par with targeted sequencing and high-value molecular diagnostics "opening up the clinical lab, and is important for clinical trials run by [contract research organizations] and pharma."

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