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Investment Firm Jefferies Resumes Coverage on Eight MDx, Genetic Testing, Tools Firms

By a GenomeWeb Staff Reporter

NEW YORK (GenomeWeb News) – Investment firm Jefferies today resumed coverage on eight molecular diagnostics, genetic testing, and life science tools firms.

Companies that Jefferies rated with a "Buy" are Myriad Genetics with a share price target of $26; Cepheid with a price target of $30; Gen-Probe with a price target of $75; Complete Genomics with a price target of $13; and Exact Sciences with a price target of $7.50.

Three firms received a "Hold" rating: Genomic Health with a price target of $29; Sequenom with a price target of $7; and Nanosphere with a price target of $3.50.

In a research note on Myriad, Jon Wood, an analyst at Jefferies, wrote that the company faces headwinds including a "unilateral reimbursement reduction of 10 percent for its BRACAnalysis franchise" due to a new coding structure that will begin in the first quarter of 2012, and stagnant BRACAnalysis penetration rates.

He added, however, that "in spite of slowing trends in the sub-segment of the market over the past several quarters, Myriad has taken concerted efforts to drive volume growth in the Ob/Gyn market segment."

The company's strategy to drive test use among its target patient population and studies to expand test indications for its BRACAnalysis product "will likely boost stagnant volumes in FY 2011 and FY 2012," Wood said.

In late afternoon trading on the Nasdaq, shares of Myriad were up more than 1 percent to $18.78.

Wood wrote that Cepheid has placed almost 2,000 of its GeneXpert systems, and he forecast rapid growth of more than 20 percent for its installed based during the next two years "as hospital customers increasingly adopt the platform on the merits of its ease of use, scalability, and rapidly expanding menu of assays."

Cepheid's pipeline of tests for hospital-acquired infections, women's health, oncology, and genetics could add another $1 billion to its aggregate addressable market opportunities by 2015, he added.

Shares of Cepheid were up around 1 percent at $26.41 on the Nasdaq.

Gen-Probe's launch of its Panther platform for the low- to medium-throughput market is anticipated to be welcomed by potential customers, Wood wrote, and "[w]e envision Panther as the new go-to molecular platform, reinvigorating equipment sales and providing Gen-Probe with sustainable leverage to consumable sales in STDs, blood screening, virology, and cancer."

Gen-Probe shares, traded on the Nasdaq, were at $64.98, up less than 1 percent.

Complete Genomics reported a six-fold hike in fourth quarter revenues on Thursday, and said that it expects to ship more than 500 genomes in the first-quarter of 2011. Wood said that he expects the company to ship 570 genomes during the quarter, and added that its turn-around time of 73 days, an improvement on the 83 days disclosed in January, suggests the company is tracking ahead of the 60 days commitment it earlier had said it would reach by the end of 2011.

Complete Genomics shares, also traded on the Nasdaq, were down a fraction of 1 percent at $7.45.

Wood called Exact Sciences' Cologuard stool-based DNA technology a game-changer with the potential to "fundamentally alter the current colorectal cancer screening paradigm." He added that a validation study of the test announced in October, "underscores the test's significant potential clinical utility."

Assuming Exact Sciences' pivotal clinical trial will last one year, Wood said Cologuard could receive approval from the US Food and Drug Administration by the second half of 2013.

Shares of the company's stock on the Nasdaq were up a fraction of 1 percent to $5.30.

Wood's "Hold" rating on Genomic Health is based on his view that the majority of the addressable stage 1 and II, ER-positive, and node-negative breast cancer populations in the US are already penetrated. He also expressed concerns about the company's ability to increase use of its Oncotype Dx in Europe and to gain more widespread reimbursement for the test there.

"While we believe Genomic Health is executing on a viable strategy to expand the test’s clinical utility among breast cancer patients, in the absence of additional publications and incremental reimbursement contracts, we don’t foresee a substantial acceleration in the franchise's trajectory as imminent," Wood wrote.

Shares of Genomic Health on the Nasdaq declined more than 1 percent to $25.46

Regarding Sequenom, Wood said that although the company's "Locked Assay" study suggested potential for its SensiGene T21 test, it also suggested a need for incremental improvements in the test's workflow.

He added that the sequencing approach to detect T21 "should be a viable screening test in the long run," but the possibility that FDA will regulate lab-developed tests "could complicate Sequenom's ability to commercialize an LDT before its [pre-market approval] strategy matures."

Sequenom's shares were up 3 percent at $5.73 on the Nasdaq.

Lastly, Wood said that Nanosphere's Verigene system "holds significant potential to participate in the shift towards decentralized molecular testing." But, he noted, the company lacks a broader commercially available test menu, which could adversely affect new system placements in the near-term.

The company is pursuing genomic and protein-based assays, Wood said, but he does not expect significant regulatory milestones for Nanosphere until 2012. Though he anticipates FDA approval of the firm's Plavix (clopidogrel) assay during the second quarter of 2011, a broader menu is needed in order to make Verigene a "clinically viable platform," he said.

Nanosphere shares were up 1 percent at $3.14 on the Nasdaq.

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