NEW YORK (GenomeWeb) – JP Morgan today initiated coverage of Natera with a Neutral rating and a December 2019 price target of $26.
In a report to investors, analyst Tycho Peterson noted the company's leadership role in the reproductive health testing market and its success in commercializing tests for noninvasive prenatal testing and expanded carrier screening. But while the investment bank is encouraged by market trends such as supportive guidelines and expanding reimbursement for Natera's tests — as well as the firm's pipeline of upcoming products for cancer recurrence monitoring and kidney transplant rejection, and its place among its competitors — Peterson also said that he prefers to remain on the sidelines for the time being as he sees further upside for Natera's stock from current levels.
"Our forecast calls for robust top-line growth over the medium term. However, with the stock up [approximately] 160 percent [year to date] and shares trading at [approximately 4.4 times the company's 2019 enterprise value-to-sales metric], we see limited upside relative to the rest of our coverage universe and wait for a more opportunistic entry point," Peterson wrote. "In addition, we note that the company has a relatively more modest top-line growth profile (low-to-mid 20's [year over year]) relative to high-growth diagnostic peers."
Peterson noted that Natera is making the right moves in terms of its pipeline, particularly as the firm's Signatera ctDNA assay will allow it to enter the high-growth liquid biopsy market. Natera is also planning to launch a CLIA version of the assay for cancer recurrence monitoring in the first half of next year. JP Morgan is modelling a Signatera contribution of about $18 million to Natera's revenues in 2019, growing to about $43 million in 2021.
In the longer term, Peterson added, the firm's kidney transplant rejection test should help further diversify Natera away from reproductive health. Earlier this year, the company showed data from a head-to-head comparison with CareDx's AlloSure, demonstrating better sensitivity (92 percent versus 59 percent) and comparable specificity (73 percent versus 85 percent), Peterson wrote, adding, "We model a modest [approximately] $15 million contribution from the kidney test in 2020, ramping to [about] $96 million over the next five years. Importantly, we note that the company expects to hire only [about] 10 to 15 additional sales reps for commercialization of both these opportunities, by leveraging its expertise in user experience and logistics, with the Constellation platform also an advantage when pursuing a distributed model."
Natera's stock rose a fraction of a percent to $21.40 in afternoon trading on the Nasdaq.