NEW YORK (GenomeWeb News) – An Oppenheimer analyst today called Life Technologies' shares "substantially undervalued" and reiterated an Outperform rating with a $58 price target, noting a return to normalcy in the firm's China business and the potential of the Ion Torrent sequencing platform.
Analyst David Ferreiro said in a research note that despite poorer-than-anticipated second-quarter results announced last month, "We continue to believe in the stability of the base business and potential upside drivers, namely the Ion Torrent, expansion in emerging markets, and molecular diagnostics."
Ferreiro said that during meetings with Life Tech this week, management dispelled recent reports of internal strife, as well as a loss of key talent within Life Tech, saying all personnel changes resulted from previously announced restructuring.
Last week, the company began laying off employees as part of a cost-saving initiative. But Ferreiro said that "contrary to the prevailing [Wall Street] opinion, workplace morale is not at a nadir."
He added that after a sales disruption in China during the second quarter — the result of Life Tech going to a direct sales strategy in addition to using its existing dealer network there —its China business "has returned to growth," and Life Tech expects it to grow 20 percent in 2012.
Ferreiro also was optimistic about the potential impact of Ion Torrent's Personal Genome Machine, saying it is "looking disruptive." Life Tech maintains that it will be able to increase throughput 10-fold every six months "implying 100 [gigabases per chip] throughput" in the 2012 fourth-quarter upgrade, and the company intends to file a 510(k) submission with the US Food and Drug Administration for the platform, which would help move it into the diagnostic space.
"If [Life Tech] hits these two milestones, we believe our 2015 PGM revenue estimate of $648 million will prove conservative," Ferreiro said.
Life Tech's global academic funding outlook remains the same. Although NIH funding is widely seen as being, at best, flat for 2012, management indicated to Ferreiro that universities are turning to other funding sources, which could make up for any decreases in NIH or other government-based funding.
Lastly, he noted that the CE business remains viable. The academic market once comprised 70 percent of Life Tech's $600 CE business, but that mix is now shifting toward the applied markets, and the mix now is 60/40 academic/applied markets. As that recalibration continues, it "should help offset declines in academic usage," Ferreiro said.