Rayno Life Science Tools and DX: Performance Summary 3/6/13

Sector Drivers include Technology Innovation and M&A

The Life Science Tools and Diagnostics sector is important for diversification of any biotechnology portfolio.The stocks are less volatile than biopharmaceuticals and less driven by momentum players because the companies are more dependent on financial metrics especially revenue growth. Nonetheless many stocks in our portfolio outperformed the IBB  up 12% YTD, which is heavily weighted toward drugs. All of the earnings for 2012 have been announced so the stocks reflect Q4 2012 metrics.Sector growth rates are in the 7% range and 9% range for diagnostics,We will update the financials for the sector next week as we did in Q3 2012.

Molecular diagnostics is a major growth segment in a $5B market and our focus stocks are Cepheid (CPHD), Qiagen (QGEN) and Quidel (QDEL). Sequencing is expected to be an important area for innovation for genetic analysis and clinical applications are expected. Illumina (ILMN) is our top pick.

Here are some of the highlights for the portfolio as of Q1 2013 YTD:

  • The top performers YTD were Alere (ALR $23.4) a $1.9B market cap, point of care diagnostic value play and Quidel (QDEL) a growth stock and leading provider of rapid diagnostic test for infectious diseases.
  • ThermoFisher (TMO) was up 17.9% and has proven to be on of the best financial managers with revenues at $3.26B for 2012 and now seeking acquisitions in diagnostics.
  • Five of our focus companies have been acquired over the years and many of our picks have M&A potential.
  • Many of our smaller cap stocks have underperformed: EXAS, RGDX, SQNM. Exact Sciences (EXAS) will be presenting data on their colorectal cancer screening test next month.
  • Genomic Health (GHDX), a pure play in personalized medicine for cancer therapy was added last week. The stock has been a laggard but has a unique genomic based data platform  for personalized treatment decisions.
  • Cardiovascular Systems (CSII) is a small cap growth Company that offers treatment systems for PAD in cardiovascular disease. The stock has doubled since we added it two years ago.
  • Macro issues that may impact 2013 financials are : test reimbursement, regulatory such as LDTs, NIH funding and emerging market growth.

Disclosure: we are long ALR, CSII, CPHD,ILMN, QDEL, and RGDX.

2010-2013 Original Price Price % Price Price % RET Price %RET
Recomm Dec’10 Ret 10/2/12 1/2/13 1 yr 3/6/13 YTD
Abaxis ABAX 2/2/09 15 26.9 79 37.9 37.8 36.7 43 13.5
CardioV.Sys. CSII 11/5/10 7.15 11.7 63 11.45 13 29.7 16 23
Celera CRA 3/28/10 7 6.3 18 acquired
Cepheid CPHD 10/23/12 31.4 NEW 35.5 13 37 4.2
Exact Sci EXAS 12/10/10 5.6 5.98 6.8 11.36 11 36 10.86 -1.2
GenomicH GHDX 2/26/13 28.5 NEW 27.24 6.3 28.6 5.1
GenProbe GPRO 2/2/09 45 58.4 30 82.55 acquired
Illumina ILMN 2/2/09 29 63.3 118 51.2 55.4 81.8 53.7 -3
Immucor BLUD 4/5/10 20 19.8 0 acquired
Alere ALR 2/2/09 25 36.6 46 19.64 19 -18 23.5 23.7
MicroFluidics MFLU 7/6/10 0.77 1.34 74 acquired
NeoGen NEOG 7/2/10 26 41 58 42.8 45.6 48.8 46.15 1.3
Qiagen QGEN 3/15/10 21.5 19.6 -9 19 18.8 36 21 12.2
Quidel QDEL 6/16/10 12.4 14.5 16 18.65 19.9 31.3 24.7 23.6
ResponseG RGDX 2/3/12 1.5 NEW 1.3 1.4 -13 1.21 -14
Sequenom SQNM 11/18/09 3.75 8.03 114 3.5 4.93 10.8 4.44 -10
SeraCare SRLS 11/18/09 2.75 4.75 73 acquired
ThermoFish TMO 7/25/12 53.5 NEW 59.4 65 44.5 76.65 17.9

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