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Credit Suisse Upgrades Myriad Genetics, Downgrades Genomic Health

NEW YORK (GenomeWeb News) – Credit Suisse today upgraded Myriad Genetics' stock and raised the price target on its shares, while it downgraded Genomic Health and lowered the price target on that firm's shares.

In a research note, analyst Vamil Divan upgraded Myriad to a Neutral rating from a previous Underperform rating and increased its share price target to $29 from $18. He downgraded Genomic Health to Neutral from Outperform and reduced the price target on its shares to $28 from $36.

In his note, Divan took particular note of Myriad's planned acquisition of autoimmune diagnostics firm Crescendo Bioscience for $270 million, which he said will add "much needed accretion and diversification" to Myriad.

One of Divan's concerns about Myriad, he said, has been it dependence on a BRCA testing market that is undergoing "significant" pricing and competitive pressures. The firm has successfully navigated the challenges of the space so far, but more important to Myriad's prospects moving forward is the possibility that Crescendo could provide a "significant boost in sales."

By 2020, Crescendo's Vectra DA molecular diagnostic test for rheumatoid arthritis could post sales of about $130 million, Divan estimated.

"From an earnings perspective the acquisition of Crescendo will be dilutive in FY 2015, but we expect significant earnings accretion in FY 2016 and beyond," he said.

He forecast Vectra DA, Prolaris, and Myriad's other tests in the pipeline, as well as its companion diagnostic services, will comprise around 40 percent of the firm's total sales in 2020, with the myRisk Hereditary Cancer NGS test making up the balance.

Myriad earlier this week reported revenues in its Fiscal Year 2014 second quarter increased 37 percent year over year.

The company's shares were up 5 percent at 32.18 in afternoon trading today on the Nasdaq.

On Genomic Health — which this week said that revenues in its fourth quarter rose 14 percent year over year but missed the consensus analysts' estimate on the top and bottom lines — Divan said that long term, the company remains attractive as it further expands its footprint in the breast cancer space "and more importantly, [moves] into prostate cancer."

But as the firm ramps up its commercialization of the Oncotype DX prostate cancer test, Divan said that 2014 will be a transition year for Genomic Health.

On the company's earnings call, a company official noted that Genomic Health's spending in 2014 will increase as it accelerates investments to drive up adoption of the test. "Our investment in the prostate cancer opportunity is the primary driver of the planned loss in 2014," Genomic Health CFO Dean Shorno said.

"[W]e see few catalysts that we feel could drive the stock materially higher in the near term," Divan said in his note.

In afternoon trading on the Nasdaq today, Genomic Health's shares were down a fraction of 1 percent at $26.59.