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Piper Jaffray Initiates Coverage of Meridian Bioscience with Underweight Rating

NEW YORK (GenomeWeb News) – Piper Jaffray today initiated coverage of Meridian Bioscience with an Underweight rating, saying that its nascent molecular diagnostics business faces multiple challenges from competitors.

The investment bank gave Meridian a $14 target price on its stock, and estimated 2011 sales at $159.8 million, resulting in net earnings of $28.5 million, or $.69 per share.

The Cincinnati-based firm entered the molecular diagnostics space in the summer of 2010 when its illumigene C.difficile molecular amplification assay received 510(k) clearance from the US Food and Drug Administration.

In a research note today, Piper Jaffray analyst William Quirk said that molecular testing for C. difficile is about a $235 million worldwide opportunity, and that continued conversion of Meridian's legacy immunoassay customers to the illumigene test "will be critical to meet forward expectations."

He said that with about 500 placements of the illumigene systems — Meridian is not charging its customers for the system — about 35 percent of the company's C. difficile business has converted to the molecular platform.

Quirk noted, though, that utilization of Meridian's molecular assay "has lagged," and added that traffic to Meridian's booth at recent industry conventions have been "sluggish … suggesting modest interest in the current illumigene offering."

Other assays planned for the illumigene platform include Group B streptococcus, currently being reviewed by the FDA; Mycoplasm pneumoniae slated for a launch outside the US in Q2 2012; and Bordatella pertussis/parapertussis, the cause of whooping cough, anticipated to launch during the second half of 2012.

Quirk said that while he anticipates continued conversion of Meridian's legacy immunoassay products to its molecular diagnostic format, competition from other companies operating in the molecular diagnostics space, including Cepheid, Becton Dickinson, and Gen-Probe, as well as future competitors such as Danaher's Beckman Coulter could negatively affect Meridian.

He also noted shortcomings in Meridian's technology.

"Given current and future C. difficile competition, limited instrument menu and LAMP [Loop-Mediated Isothermal Amplification] technology limitations (cannot multiplex), and relatively low throughput (10 results in [approximately one hour]), we see risk to future illumigene adoption rates and consensus revenue projections," Quirk said.

During its fiscal third-quarter earnings announcement in July, Meridian lowered its full-year 2011 sales guidance to a range of $160 million to $163 million from an earlier forecast of $165 million to $170 million. It also lowered EPS guidance to between $.68 and $.71 from an earlier guidance of $.77 to $.82.

The company provided guidance last month for FY 2012, saying EPS is expected to fall to between $.85 and $.89 on net sales of between $183 million and $192 million. The guidance excludes reorganization costs in 2011.

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