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Goldman Sachs Initiates Coverage of Four MDx Firms

By a GenomeWeb staff reporter

NEW YORK (GenomeWeb News) – Goldman Sachs today initiated coverage of six diagnostic firms, including Cepheid, Gen-Probe, Myriad Genetics, and Qiagen.

The investment firm also initiated coverage of Alere and Hologic.

In a research report, Isaac Ro, an analyst at Goldman Sachs, said that as a whole the life science tools and diagnostics space benefits from "strong demand drivers and healthy innovation." But, he added, operating costs within the space continue to rise and the regulatory landscape is mixed.

As a result, he is favoring companies such as Cepheid with acquisition potential, or "expanding franchises with valuation support," such as Hologic. He gave companies such as Myriad, which have single product risk, and Qiagen, which is facing increased competitive pressures, a "Sell" rating.

Ro gave Cepheid a "Buy" rating and a six-month share-price target of $30. He cited expanded use of the company's GeneXpert molecular diagnostic platform, and said that new product launches recently have put Cepheid's portfolio of high-margin molecular assays well-positioned to take advantage of attractive areas such as hospital acquired infections. In Wednesday afternoon trade, shares of Cepheid were up 2 percent at $25.22 on the Nasdaq.

Myriad's "Sell" rating, and six-month price target of $17, is based on what Ro called "limited opportunities for growth" for the company's BRACAnalysis franchise. He added that recent failures in the PARP inhibitor drug class have limited the long-term market opportunity for the BRACAnalysis test, which drives 88 percent of total sales.

Last month, Sanofi-Aventis announced that in a Phase III trial its PARP inhibitor iniparib (BSI-201) did not meet clinical trial endpoints. Myriad's BRCA test has been shown to identify patients likely to respond to PARP inhibitors.

While Sanofi-Aventis did not use BRACAnalysis to select patients for its trial, news of the misstep, nonetheless, had a negative effect on Myriad's stock. The day after the trial results were announced, Myriad's shares tumbled about 14 percent and have continued to slide since then. In afternoon trade, the firm's shares were down 4 percent at $17.97 on the Nasdaq.

Ro added that Myriad's pipeline of tests in development will not "offset what we view as a mature and decelerating growth franchise." And as gene patents expire and competition heats up, the company's pricing structure is at risk, he said.

Ro initiated coverage of Qiagen also with a "Sell" rating and a six-month price target of $18. Increased competitive pressure in the human papillomavirus test market, Qiagen's largest growth driver, "will impair the company's ability to maintain its historic organic growth profile," he said.

Gen-Probe's advantages in automation and Roche's larger sales force is expected to eat into Qiagen's 90 percent market share in the HPV market, and "[w]hile we expect Qiagen to see strong growth in its applied testing and ex-HPV diagnostics business, we believe the company's academic and pharma end markets are unlikely to drive upside to current estimates," Ro said.

He also said that Qiagen's emerging companion diagnostics franchise "will be a multi-year build out process."

Qiagen's shares were down a fraction of a percent at $20.39 in afternoon trade on the Nasdaq.

Ro initiated coverage of Gen-Probe with a "Neutral" rating and a six-month price target of $72. He noted the firm's "dominant" position in sexually transmitted diseases and blood screening, and said that acquisitions, such as Prodesse and GTI, have "augmented its technology portfolio and expanded its reach to new markets."

Gen-Probe was down around 1 percent at $61.60 in afternoon trade on the Nasdaq.

Ro initiated coverage of Hologic with a "Buy" rating and six-month price target of $25, and noted recent approval from the US Food and Drug Administration of its next-generation digital mammography technology, called tomosynthesis. Hologic's shares were down 1 percent at $19.90, also in afternoon trade on the Nasdaq.

Ro gave Alere a "Neutral" rating with a six-month price target of $41, and noted that new product launches in the coming years will grow the company and create a broader market for point-of-care diagnostic testing. Shares of Alere, formerly Inverness Medical Innovations, were down 1 percent at $36.71 in afternoon trade on the New York Stock Exchange.

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