NEW YORK (GenomeWeb News) – Investment bank Cantor Fitzgerald today initiated coverage of Cancer Genetics with a Buy rating and a $21 price target on its shares.
In a research note, analyst Sung Ji Nam said that challenges await companies developing and commercializing genomic tests, but Rutherford, NJ-based Cancer Genetics has strengths in leveraging clinical development collaborations with leading healthcare partners. Additionally, Nam said, the company has one of the most comprehensive sets of diagnostic services targeting cancer types.
Among Cancer Genetics' collaborators are Memorial Sloan Kettering Cancer Center, the Dana-Farber Cancer Institute, the Cleveland Clinic, the National Cancer Institute, and India's Kamineni Hospitals, Nam said. In particular, she noted the firm's joint venture with the Mayo Clinic called Oncospire Genomics to develop next-generation sequencing-based cancer diagnostic panels.
"Given access to patient samples is one of the biggest hurdles and bottlenecks in diagnostic test development, we think this partnership provides a meaningful competitive advantage for Cancer Genetics in terms of potentially accelerating product development and validation," Nam said.
While the JV may take longer to realize any benefits, the company's SelectOne program and its FHACT cervical cancer test represent potential growth opportunities in the nearer term, she said.
SelectOne, launched in early 2012, provides genomics tests and services to biopharmaceutical companies for clinical trials and companion diagnostics development. Nam said that the program has a backlog of about $14.5 million from a handful of clients that include Gilead and Roche Servicios, and added that Cancer Genetics "is in active dialog with and pursuit of partnerships with leading biopharmaceutical companies."
FHACT is a genomic test for triaging cervical cancer patients, which according to Nam could be a "significant growth driver near- to medium-term," given an addressable market of about 1 million to 1.5 million colposcopy referrals in the US for Pap test results of atypical cells of undetermined significance and low-grade squamous intraepithelial lesion cytology.
Cancer Genetics' test, she said, is the only one that evaluates four genomic markers associated with cervical cancer lesion.
"The biggest value proposition is in potentially reducing unnecessary (and costly) colposcopy and invasive biopsy procedures," Nam said. "FHACT has been validated in over 500 patient samples, and Cancer Genetics is expecting to work with NCI to test a cumulative number of over 1,000 specimens including for HPV-associated anal and oropharyngeal cancer validations."
Risks to the company's shares include the amount of time and resources required for the adoption of genomic tests, and despite its partnerships, Cancer Genetics may not be able to accelerate the diagnostic development process, Nam cautioned.
"The current reimbursement environment for novel, complex diagnostics remains challenging. While hurdles remain relatively low for commercial launch (especially through CLIA), the burden remains on the diagnostic developers to provide sufficient clinical and economic evidence for a diverse group of payers," she added.
In afternoon trading on the Nasdaq on Tuesday, shares of Cancer Genetics were up 3 percent at $15.52.