NEW YORK (GenomeWeb News) – Credit Suisse on Monday initiated coverage of Genomic Health with an Outperform rating, Myriad Genetics with a Neutral rating, and Sequenom with an Underperform rating.
Analyst Vamil Divan initiated coverage of Genomic Health with a $43 price target and in a research note highlighted the firm's portfolio of Oncotype tests. He called Oncotype Dx Breast "a best-in-class asset that is likely to gain traction in other forms of breast cancer," and added that Oncotype Dx Colon is gaining positive reaction, driving uptake of the test.
As reported by GenomeWeb Daily News' sister publication Pharmacogenomics Reporter last week, Genomic Health said that its large clinical validation trial with the University of California, San Francisco has met its primary endpoint demonstrating that the Oncotype Dx Prostate cancer risk score can discern early-stage patients at risk of disease progression. Divan said that the results could be a near-term catalyst, allowing the company to enter another large market.
The company's stock has appreciated during the last two years, Divan added, a trend which should continue with its established breast and colon cancer tests and the launch of its prostate cancer test, slated for 2013.
Genomic Health's shares were up 2 percent to $35.68 in morning trading on the Nasdaq.
Divan gave Myriad a $28 price target and said that though he expects BRACAnalysis to continue putting up strong organic growth numbers, an unclear reimbursement and IP picture present near-term risks.
"[T]here is significant long-term uncertainty on the company's growth profile after BRACAnalysis loses patent protection in 2018," he said. "Results of a proprietary survey suggest to us that the BRACAnalysis franchise should continue to gain traction over the next several years, especially in areas such as triple negative breast cancer.
"However, Myriad should lose its patent protection for BRCA testing in 2018, and at that point, we believe that the franchise will face significant pricing pressure and lose market share to newer competitors," Divan continued.
On a positive note, in addition to high single-digit growth for the next several years for BRACAnalysis, other tests such as Colaris, Prolaris, and companion diagnostics should provide revenue diversification and upside revenue potential.
Divan also noted that Myriad has strong cash flow generation, opening up the possibility for targeted M&A and share repurchases and a possible dividend payout in the future.
In morning trading, shares of Myriad were down a fraction of 1 percent at $26.88 on the Nasdaq.
Coverage of Sequenom was initiated with a $4 target price, and Divan said that while non-invasive prenatal genetic tests such as Sequenom's MaterniT21 Plus are a "tremendous advance" over traditional testing methods, competitive pressures could limit the commercial potential of Sequenom's test and cause the firm's stock to underperform.
MaterniT21 Plus was the first non-invasive test for Trisomy 21, as well as trisomies 18 and 13, to become commercially available. But since its launch in October 2011 several competitors, such as Verinata Health, Ariosa Diagnostics, and Natera have either launched similar tests or are preparing to do so. LifeCodexx, which licenses technology from Sequenom, has also launched its T21 test in parts of Europe.
Sequenom also is engaged in lawsuits with several of its competitors over IP related to MaterniT21.
According to Divan, any first-mover advantage Sequenom has may be tempered by an inability by clinicians and payors to differentiate MaterniT21 from similar tests offered by Verinata and Ariosa.
"While our due diligence suggests that Sequenom's test does appear to have some advantages over the competition (i.e., faster turn-around times, lower no-call rates), it appears that these differences are either not being seen in clinical practice (at least not yet) or the differences are too small to be clinically meaningful," he said.
Additionally, he said that competitors are offering their tests at lower prices.
"Given the relatively limited clinical differentiation that exists between the tests, we believe that pricing will be a key driver that should allow for Ariosa and Verinata to gain share," Divan said. "In addition, we expect insurance companies to use the lower price points as a guide, as they set their reimbursement levels for each of the various tests, affecting the revenue potential for all of the players in the market."
Lastly, he said that Sequenom may be unsuccessful in it IP battles with competitors. A federal court recently denied Sequenom's motion for a preliminary injunction against Ariosa preventing the company from selling its Harmony Prenatal Test, and last week Sequenom petitioned the US Patent and Trademark Office to re-examine US Patent 6,258,540 covering the MaterniT21 Plus test, as reported by GWDN's sister publication Clinical Sequencing News. The patent was issued to Dennis Lo of the Chinese University of Hong Kong and licensed to Sequenom.
Though Sequenom says that the '540 patent protects it against its competitors, "[a]n analysis of the situation with external counsel leads us to believe that it is unlikely that Sequenom's patent position will be successful in removing any of their competitors from the market," Divan said.
Another investment bank, Piper Jaffray, yesterday downgraded Sequenom's stock, citing concerns that the company's fight to stay ahead of its competitors could lead to higher costs, as well as a murky reimbursement picture.
Shares of Sequenom on the Nasdaq were down about 5 percent to $3.53 in Tuesday morning trading.