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Piper Jaffray Initiates Coverage of Quidel with Overweight Rating, Noting Firm's MDx Shift

NEW YORK (GenomeWeb News) – Piper Jaffray on Thursday initiated coverage of diagnostics firm Quidel with an Overweight rating, noting the San Diego-based company's move into the molecular diagnostics space.

The investment bank has a $26 price target on Quidel's stock.

Historically, Quidel has depended on its flu and respiratory virus business, and in a research note analyst William Quirk estimated that in 2011 that business made up 48 percent of total revenues.

Moving ahead, though, Quidel is diversifying its business, and in the near term its recently launched Sofia platform, a lateral flow-based instrument for doctors' offices and hospitals, will be a growth driver. More important to the long-term diversification plan, however, is Quidel's incipient entry into molecular diagnostics, Quirk said.

"Quidel is currently in the early stages of a strategic shift," he said in his note. "As the diagnostics market transitions to molecular assays (some assays faster than others), Quidel sees the need to shift its focus as well. In our opinion, Quidel is more aggressively changing its tactics compared to competitor Meridian Bioscience and will be better positioned as the market transitions away from rapid assays (for certain tests), and higher sensitive technologies become more prominent in the hospital and physician office."

Quidel has two molecular systems under development, the handheld AmpliVue instrument and the Wildcat project. AmpliVue is the company's initial offering in the MDx space, and in the second quarter it launched a C. difficile assay for the instrument in Europe. In his note, Quirk said that Quidel submitted the assay to the US Food and Drug Administration during the second quarter and clearance could come before the end of the year.

Quidel's plans are to try to covert the 3.7 million enzyme immunoassays that are performed each year to AmpliVue, "suggesting [an approximately] $75 million domestic opportunity," Quirk said. "[W]e view AmpliVue as a competitive threat to Meridian [Bioscience's] illumigene C. difficile assay and anticipate solid traction converting [enzyme immunoassay]-based customers to this new platform."

Quidel is also developing three additional assays for the instrument, including one for methicillin-resistant Staphylococcus aureus, and two of the assays were scheduled to begin clinical trials in the second-half of 2012. Additionally, the company has said that it plans to develop a next-generation of the instrument, designed to simplify the assay workflow.

More important to Quidel's molecular diagnostic ambitions is the Wildcat platform, being developed in collaboration with Northwestern University and the NU Global Health Foundation. Quidel is currently validating the benchtop molecular testing platform's cartridge-based technology and expects feasibility by the end of this year, Quirk said.

Quidel plans to the launch the platform in mid-2014 for HIV and tuberculosis testing in Africa. The company, Quirk said, anticipates the platform will also have "solid demand" in developed markets.

Quidel has an agreement to develop assays for Life Technologies' 7500 family of PCR instrument, and, Quirk noted that the firm anticipates that the assays being developed for Life Tech will be applicable to the Wildcat platform.

As GenomeWeb Daily News' sister publication PCR Insider reported recently, Quidel is developing real-time PCR-based assays for a molecular diagnostic version of Life Tech's QuantStudio 12K Flex Real-Time PCR system. Quidel CEO Doug Foster said on the firm's second-quarter earnings conference call that many of the assays being developed for that system will also be portable to Wildcat.

"We view Wildcat as key for Quidel's diversification strategy, and while the molecular diagnostics market will be progressively more crowded by the estimated 2015 domestic launch, we view the anticipated instrument menu (at least 20 assays) as a strong differentiating feature," Quirk said.

Another investment bank, Cowen & Co. also initiated coverage of Quidel this week, giving it a Neutral rating. While noting the company's diversification of its operations, analyst Shaun Rodriguez said that Quidel will remain hostage to an unpredictable flu season "for at least the next couple of seasons."

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