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Shares of Diagnostics Firms Perk up in October

NEW YORK (360Dx) – After a sluggish summer, the 360Dx Index showed signs of life in October, moving up almost 2 percent from September.

The rebound followed three consecutive months when the index was essentially flat on a sequential basis. However, several companies in the index saw large drops in their share prices last month, compared to the month before. Overall, 13 firms' stock values rose month over month, while 12 firms saw their share prices fall.

The index trailed the Dow Jones Industrial Average and the Nasdaq Composite, each of which rose about 4 percent in October. But, it outpaced the Nasdaq Biotechnology, which contracted 6 percent.

The gainers were led by Exact Sciences (+17 percent) and Foundation Medicine (+12 percent).

Exact's stock price got a boost at the end of the month after the company announced its third quarter revenues more than doubled year over year and beat the consensus Wall Street estimates on both the top and bottom lines. Exact also said that it planned to increase its lab capacity to meet demand for its Cologuard colon cancer test.

Analysts greeted the company's results enthusiastically. Doug Schenkel at Cowen increased his price target on Exact's stock to $60 from $55. Meanwhile, Brian Weinstein at William Blair wrote in a research note that he continues to see Cologuard as "a game-changing alternative for colon cancer screening. We see a pathway to well over 1 million tests in 2019 and well over 2 million in 2021, which would drive over $1 billion in revenues."

Foundation Medicine started the month by announcing it received approval from New York State for its FoundationACT blood-based circulating tumor DNA assay. Notably, there was little news or announcements about lawsuits being pursued against the company. During the summer, there was a steady flow of legal action targeting the firm and alleging Foundation made false and misleading statements about its reimbursement process for its cancer genomic tests, including the likelihood of Medicare coverage.

The month included a number of firms that saw significant drops in their stock values, including GenMark Diagnostics (-23 percent), NeoGenomics (-22 percent), and Oxford Immunotec (-21 percent).

There were no obvious reasons for the decline in GenMark's stock price, and last month, it appeared the company had quelled any negative impressions that investors had in the company's plans.

In August, the company's stock declined after its Q2 revenues missed the consensus Wall Street estimate. At the time, Schenkel attributed the decline to "details on revenue mix, orders, and margins" that heightened uncertainty among investors. Canaccord Genuity's Mark Massaro added that investors might have been spooked by concerns that GenMark would have difficulty hitting the mid or high end of its 2017 revenue guide; lower than expected gross margins in Q2; and "likely" higher than expected increases in operational expenses for the second half of the year.

The firm's share price in that month was down 17 percent month over month, but last month it recovered as its stock slipped 1 percent.

In recent weeks, a number of firms have reported that the recent hurricanes and other natural disasters that struck the US and other parts of the world had or were expected to have a negative impact on their operations. Included in that group is NeoGenomics, which said in mid-October that hurricanes Harvey and Irma would depress revenues for the third quarter by about $1 million.

That triggered a sell-off of its stock: The day after it announced its preliminary Q3 financial estimates, NeoGenomics' shares contracted 15 percent and have continued to fall ever since, though there has been a slight rebound following the release of its full Q3 earnings last week.

Oxford Immunotec saw most of its share value decline after it announced a 17 percent increase year over year in its Q3 revenues. While the results were slightly above analysts' average estimate, the company narrowed its revenue guidance for full-year 2017 and reduced the high end of its guidance.

Cowen's Schenkel said in a research note that investors overreacted to the new guidance and some pipeline updates "that were viewed as disappointing. It wasn't pristine (and pristine is typically the norm for [Oxford]), but it wasn't that bad." He added that with the shares trading at a discount, "we view this as a buying opportunity."

Alere was removed from the index following its acquisition by Abbott earlier this month.