Rayno Life Sciences Diagnostics and Tools Update: Volatile Stocks and Slower Growth Ahead

10/7/15 Update…Still in No Man’s Land…Nothing to Do

See recent posts on bear market in biotech. We need to wait for Q3 earnings to find trades and longer term value in Dx and Tools. Most stocks in the sector have been hit hard since August.

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Slower Growth with Same Themes: Sequencing (NGS) and Molecular Testing Platforms

Turnaround and restructuring stories still big winners

The life science clinical diagnostics and tools sector underperformed in the third quarter and many stocks have not fully recovered from the August correction. In 2015 value stocks have outperformed growth stocks with some huge winners and several big losers. NexGen (NGS) sequencing and molecular diagnostics are prevailing growth sectors with new testing platforms being introduced in 2016. Earnings are less important than revenue growth and potential for M&A. Indeed most of these companies have weak earnings as measured by PEG (Price earnings to growth). We will await third quarter earnings then try to make more value calls for a strong Q4 finish. Many of the losers were strong trades nonetheless before the August correction took its toll. Here are five top winners YTD:

  • Hologic,Inc. (HOLX) up 52.9%. Restructuring and turnaround focused in women’s health.
  • Alere, Inc. (ALR) up 41.6%. Value play with ongoing restructuring.
  • Qiagen NV (QGEN) up 15.7%. Value play with broad product line in diagnostics and tools.
  • Illumina, Inc. (ILMN) up 12.1%. Leading company in Next-Gen (NGS) sequencing.
  • Neogen Corp.(NEOG) up 9.84%. Growth and value in food and animal safety products and services.

Top losers YTD are: PACB down 43.9%, EXAS down 27%, CSII down 21%, GHDX down 21%. Note the volatility and range of these stocks because all were much higher and near their 52 week highs. As momentum waned these stocks could not hold up without revenue growth.

Here are three emerging companies with unique platform technologies and strategies poised for revenue growth and product growth in 2016. They are not on our focus list but we will track product news over the coming months.

  • Accelerate Diagnostics, Inc. (AXDX). Rapid diagnostics platform for detection of infectious pathogens.Revenue estimates of $2.6M in 2016.
  • GenMark Diagnostics, Inc. (GNMK).New platform for molecular diagnostics with revenue forecast of $53M in 2015.
  • T2 Biosystems, Inc. (TTOO).Magnetic resonance platform for detection of candida is sepsis with revenue forecast of $20M in 2016.

We will review Q3 financial results and ongoing product news to discern growth trends and themes for 2016. Niche testing areas for future growth are rapid microbiology tests such as Antibiotic Susceptibility and Bacterial identification (AST/ID) and non-invasive pre-natal testing (NIPT) for fetal aneuploidies (trisomies 13,18 and 21).

2010/15 Original Price 5 Yr Rayno 9/15/2015 Market Price/ PEG Sales Q/Q
Dx and Tools Symbol Start $ High $ % Perf P $ Cap Sales %
9/15/2015
Abaxis ABAX 2/2/2009 15 66.89 327 49 1.1 5.21 2.45 20.4
Alere ALR 2/2/2009 25 55.99 215 53.7 4.5 1.77 -2.8
Cepheid CPHD 10/23/2012 31 63.7 68 52.21 3.7 7.23 13.7
Foundation Med FMI 11/17/2014 25.86 54.28 -6.1 24.19 0.886 11.48 55.2
Genomic Health GHDX 2/26/2013 29 37.74 -13.8 25.92 0.822 3.04 0.1
GenProbe ** 2/2/2009 45
Hologic HOLX 4/9/2013 22 43 86 41.14 11.6 4.35 9.45 9.7
Illumina ILMN 2/2/2009 29 242.37 709 205.7 29.9 14.37 2.99 20.5
Neogen NEOG 7/2/2010 26 62.7 209 54.5 2 7.17 3.61 16.8
Nanostring NSTG 11/21/2013 12 17.62 45 17.43 337 6.43 20.2
Qiagen QGEN 3/5/2010 22 28.42 23.4 27.15 6.31 4.44 5.51 -3.5
Quidel QDEL 6/6/2010 12 29.38 73 20.78 0.697 3.47 10.8
PacBio PACB 8/11/2014 5.75 8.78 -21 4.55 0.341 4.26 118.4
ThermoFisher TMO 7/25/2012 54 141.25 231 125 49.85 2.96 2.64 -48
Vermillion VRML 5/5/2013 2.5 14 -22 1.95 0.103 29.8 66.7
**acquired by HOLX
iShares Russell IWM 3/1/2009 42 129 276 116 25.6
(benchmark)

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