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Evercore ISI Initiates Coverage of Nine Life Science Tools and Diagnostic Firms

NEW YORK (GenomeWeb) – Investment bank Evercore ISI said today it has initiated coverage of nine life science tools and diagnostic firms with Illumina, Qiagen, Danaher, and Thermo Fisher Scientific among its top picks.

In a note to investors, Ross Muken, senior managing director and head of Evercore's healthcare services and technology research team, wrote that the bank is "broadly positive" on the life science tools and diagnostics market, though it may be late in a favorable cycle for stocks in the sector. "While some might point to elevated valuations across the universe and a lack of tax reform benefit, we still see favorable core growth drivers which will likely help to sustain multiples," he said.

Among its top picks, Evercore initiated coverage of Illumina with an Outperform rating and target price of $250 per share, Thermo Fisher Scientific with an Outperform rating and target price of $220 per share, Qiagen with an Outperform rating and a price target of $35 per share, Danaher with an Outperform rating and a price target of $106 per share, and Agilent with an Outperform rating and target price of $75 per share. Everocre also started coverage of Waters with an In Line rating and a target price of $198 per share, PerkinElmer with an In Line rating and a price target of $77 per share, Bruker with an In Line rating and a price target of $36 per share, and Mettler-Toledo with an In Line rating and a price target of $625 per share.

Muken said that 2017 was a "turning point in core growth" for Danaher, despite some challenges in its dental business. In addition, he added that the firm expects the pace of mergers and acquisitions to pick up in 2018. Among its acquisitions in recent years were molecular diagnostics firm Cepheid and research products and diagnostics firm Beckman Coulter.

In regards to Illumina, Muken wrote that the total addressable market in the clinical space is expanding for the firm, and sales of its NovaSeq platform continue to spur instrument growth. In 2018, Evercore expects "a broadening out of NovaSeq adoption, with the launch of the S4 chip crucial to getting high volume [HiSeq X] users onto the new system." In addition, Muken added that there are a "plethora of new opportunities on the clinical front, with oncology clearly the star and the promise of liquid biopsy ever present."

Among the key things to watch with regards to Qiagen are HPV testing and companion diagnostic development, he said. Declines of HPV tests "have proven to be more stubborn than anticipated," Muken wrote. On the other hand, the firm has announced more than 25 companion diagnostic collaboration agreements with biopharmaceutical companies that accounted for around $110 million in revenue in 2016. And, in 2017, there was an acceleration of such deals, including a deal with Bristol-Myers Squibb this summer to develop a next-generation sequencing-based gene expression diagnostic for immune-oncology drugs.

Muken wrote that Thermo Fisher's acquisition of contract development and manufacturing organization (CDMO) Patheon last May was "highly strategic" and believes that the firm "acquired the company ahead of a material inflection in CDMO growth." The acquisition should contribute to a low-teens growth in earnings per share, he added.