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Mizuho Securities Initiates Coverage on MDx Firms

By a GenomeWeb staff reporter

NEW YORK (GenomeWeb News) – Investment bank Mizuho Securities USA has initiated coverage of the diagnostics industry with an initial focus on the molecular diagnostics market.

The research is led by Peter Lawson, formerly an analyst with Thomas Weisel Partners.

This week, Lawson initiated coverage of several firms in the molecular diagnostics space including Beckman Coulter, Becton Dickinson, Cepheid, Gen-Probe, PerkinElmer, and Qiagen.

He wrote in a report that growth for the diagnostics industry is likely to come from three key areas: molecular diagnostics, decentralized and point-of-care testing; and geographical expansion into emerging markets, such as Brazil, India, and China. He said that the bank recommends investors focus particularly on molecular diagnostics firms that offer products that can lower healthcare costs, have a broad menu for the initial wave of centralized testing, and also can decentralize diagnostic tests.

"We believe molecular diagnostics are uniquely positioned to help balance the counter forces of healthcare quality, improved access, and cost," Lawson wrote.

In his initial coverage reports, he started Beckman Coulter with a Neutral rating and a price target of $50. Lawson said that while Beckman's valuation appears attractive, catalysts are lacking right now.

He cited three potential catalysts for Beckman's stock including expansion when new management is added and diagnostic end markets accelerate (Scott Garrett recently resigned as chairman, president, and CEO, and the firm appointed an interim president and CEO as it searches for a replacement); product launches, such as the anticipated launch of its DxN molecular diagnostic platform; and a lowered bar for expectations, following Garrett's departure and difficulties with a product that led to a withdrawal from the market.

He initiated coverage of Becton Dickinson with a Neutral rating and an $80 price target. He said BD is a "relatively safe, diversified way to play the acceleration of hospital, diagnostic, and life science end markets," and cited the firm's new BD Max molecular diagnostics platform as a catalyst for the stock.

Lawson initiated coverage of Cepheid with a Neutral rating as well with a $20 price target.

"We believe after building a significant presence from hospital acquired infections screening, Cepheid could become a significant player in decentralized molecular testing in healthcare," he wrote. "We are still grappling with valuation and high Street estimates that make us unable to initiate beyond a Neutral rating at this time."

Gen-Probe was initiated with an Outperform rating and a $55 price target. Lawson said the rating was due to Gen-Probe's first-mover advantage in the market, with significant IP and "an industry leading install base." He also noted that the firm "boasts superior profitability, balance sheet strength, and earnings leverage."

The bank initiated coverage of PerkinElmer with a Neutral rating and a $24 price target. Lawson said that while the bank likes PerkinElmer's emerging market opportunity and peer-growth potential, it believes "earnings estimates still have to settle post-divestiture of $300 million in revenues."

Lawson initiated coverage of Qiagen with a Buy rating and a $23 price target. "We believe Qiagen is uniquely positioned as a dual beneficiary of both life science and diagnostic tailwinds," Lawson wrote. He said that the Buy rating was due to Qiagen's "superior product pipeline … superior growth profile and profitability versus peers," and its potential in emerging markets.

Lawson said in the report that the bank believes the $3 billion molecular diagnostics market has a sustainable long-term growth profile in the low to mid teens.

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