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Oppenheimer Starts Coverage of Genomic Health, Thermo Fisher Scientific, Fluidigm

NEW YORK (GenomeWeb News) – Investment bank Oppenheimer has initiated coverage of Genomic Health, Thermo Fisher Scientific, and Fluidigm.

In a research note issued after the close of the market on Tuesday, analyst David Ferreiro placed a Perform rating on Genomic Health and a 12- to 18-month price target on its stock of $20. He estimated the firm's 2011 EPS at $.11 on revenues of $204.6 million.

Ferreiro said that the company relies heavily on its Oncotype DX franchise for revenues, and though he sees upside potential for the portfolio of tests he warned of potential slow growth in the node-negative breast cancer segment, Oncotype DX's core market.

In a separate research note, Nicholas Jansen of Raymond James Equity Research yesterday said that the National Centre for Pharmacoeconomics in Ireland earlier this week approved the Oncotype DX test for certain breast cancer patients, two months after it originally rejected reimbursement for the test at Genomic Health's originally submitted price. Jansen said that the decision would expand the customer base for the test by about 300 women.

"While relatively small, we believe the increased coverage is still important, nonetheless, as management seeks additional wins to drive growth," Jansen said.

Ferreiro also said in his note that revenues for Oncotype DX for other indications, such as ductal carcinoma in situ and colon cancer, may see a slower build "based on less compelling data and the need to secure reimbursement."

During the fourth quarter of 2011, Genomic Health expects to publish its QUASAR study for colon cancer in the Journal of Clinical Oncology and to present a study on DCIS. "Both publications are crucial for expansion in these indications," Ferreiro said.

Genomic Health also is developing a prostate cancer test to distinguish indolent and aggressive cancer, and Ferreiro called prostate cancer a "long-term call option," adding that a diagnostic that can be used to guide treatment would have "enormous potential."

Oppenheimer also initiated coverage of Thermo Fisher with an Outperform rating. Ferreiro provided a 2011 EPS estimate of $4.21 and revenue estimate of $11.84 billion. Ferreiro's price target on the company's stock is $63.

He noted Thermo Fisher's "strong base" of recurring revenues and "diverse global array of customers," and said that the company's scale, customer diversity, and business mix "position it well in today's challenging economy and will enable organic growth in line with the broader underlying markets."

In a research note, Ferrerio also noted Thermo Fisher's use of its balance sheet for acquisitions and share repurchases and said that the company has outpaced its peers by returning $1.5 billion to shareholders through its buybacks in the past year. That trend is expected to continue and Ferreiro is modeling $900 million of buybacks for 2012 in addition to the $475 million that remains in the current buyback authorization.

He also called the firm's Asia-Pacific business a "major" growth driver. Thermo Fisher derives about 13 percent of its revenues from the region and has implemented several initiatives to build on that business, including the opening of a new plant in Suzhou and aligning products to meet China's environmental needs.

The firm's diverse geographic base and customer base, Ferreiro said, should protect it in a challenging macro environment. Academic funding comprises about 26 percent of Thermo Fisher's total revenues and Ferreiro said that the firm is relatively protected from cuts in funding to that end market. In particular, he noted that only 5 percent of its revenues are linked to National Institutes of Health funding, which faces potential cuts in funding.

Lastly, Oppenheimer started coverage on Fluidigm with an Outperform rating and a $19 price target. Ferreiro estimated a 2011 loss per share of $.85 and revenues $42.8 million.

Ferreiro said the company has "positioned itself nicely" in markets totaling more than $4 billion, including the front and back end of next-generation sequencing, agbio, and the traditional genotyping and gene expression spaces.

"Given the potential market opportunity and the company's technological position, we expect [Fluidigm] to outperform its peers despite broader macro headwinds," Ferreiro said.

He estimated the installed base for Fluidigm's Access Array to climb to 143 this year with sales reaching $24 million by 2016. He forecast sales of the firm's BioMark platform to reach $55 million by 2016, saying the instrument has implications for cancer biology and diagnostics development.

In agbio, Fluidigm offers the EPI system for genotyping, and Ferreiro estimated sales of the system to reach $37 million by 2016.

Ferreiro noted that Fluidigm's PCR technology offers researchers "relatively cheap" alternatives for developing high-throughput diagnostic tests, and, "Ultimately, we see the potential for [Fluidigm] to tap into the $4.5 billion molecular diagnostic market."

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