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Oppenheimer Initiates Coverage of Complete Genomics with 'Outperform' Rating

By a GenomeWeb Staff Reporter

NEW YORK (GenomeWeb News) – Investment firm Oppenheimer initiated coverage of Complete Genomics on Thursday with an "Outperform" rating and a share target price of $13.

In a research note on the company, which went public in November, analyst David Ferreiro said Complete Genomics has developed an "innovative sequencing platform including robust bioinformatics tools" and added that "[d]espite a rapidly expanding installed base of [next-generation sequencing] instruments, we believe demand from the research community and later from the clinical community will continue to outpace the total market sequencing capacity."

Ferreiro outlined three reasons for this — a continued capacity constraint on the next-gen sequencing market; a $30,000 price tag for the fully loaded sequencing of a genome, more than three times the cost of Complete Genomics' services now; and an informatics bottleneck.

"[W]e expect that the task of sequencing genomes, especially more challenging ones such as in tumor samples, will be increasingly outsourced when cost and difficulty is weighed," Ferreiro said.

In his report, he also pointed to initial data that demonstrates Complete Genomics has produced "high quality sequence data, validating the platform. For data driven scientists, we believe quality supersedes cost."

According to Ferreiro, next-gen sequencing is the fastest-growing segment in the life science tools market, with sales of around $740 million in 2010 and expected to reach $2.5 billion in 2015. The installed base for the technology is expected to grow "robustly" between 2010 and 2015, driven by expansion into high-throughput sequencing labs and non-core labs with medium- to low-throughput sequencing needs.

As the market expands, "we believe that the demand for sequencing-related services will also grow," Ferreiro said. "Thus we believe continued growth in the base [next-gen sequencing] market will correlate to growth in demand for Complete Genomics' service."

In 2011, he estimated 31,500 whole human genomes will be sequenced. Of that, he forecast Complete Genomics to capture 12 percent of the market.

While the technology is currently a research tool, he added that "the signs are pointing to the more rapid than expected evolution of [next-gen sequencing] into a clinical tool."

In late afternoon trading, Complete Genomics' shares were up 4 percent at $7.62 on Nasdaq.

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