Piper Jaffray’s Top Picks for The Second Half of 2010 (CPHD, EXAS, GNMK)

Piper Jaffray is out with a research report this morning, where it highlights its top picks going into the second half of 2010: 1. Cepheid CPHD: they noted that, following a sold Q2 in which the company beat expectations and increased guidance, they anticipate a similar performance during 2H10. Their second half estimates are 195 GeneXpert placements (1,128 modules), representing a -14.5% yoy decrease in system placements (-15.2% sequentially) leaving room for potential upside. “Additionally, gross margin will begin to benefit from a reduced royalty burden as domestic Roche royalties (assay & system) expire in August 2010, creating potential upside to our 49.9% 2H10 product gross margin estimate. Customer adoption of C. diff. has been robust, with 40% of Cepheid's installed base using or validating the assay as of 2Q10 (up from 30% in 1Q10); we anticipate this momentum to carry over into 2H10. CPHD shares currently trade at 3.6x F2011 EV/Rev, 30% below our $22 price target.” 2. Exact Sciences EXAS: They believe that this company continues to make progress in their 3 pre-clinical studies and are encouraged with the recent data release from AACC, which “demonstrated perfect sensitivity and specificity for a four marker set in tissue.” “Although we certainly do not expect Exact to replicate the results in stool, we are nevertheless encouraged with the data thus far and believe they remain on track to exceed their stated clinical claims of >90% sensitivity for cancer and >60% sensitivity for pre-cancer. We are looking forward to the preclinical data presentation at the upcoming AACR meeting in late October and believe the shares may rally into that event.” 3. GenMark GNMK: The analysts noted that, in their first quarter as a public company, GenMark’s management nearly doubled Piper Jaffray’s revenue estimate and placed more systems than expected. As of the Q2 conference call, all the important pipeline tests remain on track and the PJ analysts believe GenMark is incrementally displacing competitive systems. “Although it is still an early-stage story, we have an upward bias to our 2H10 estimates and we believe management is working to maximize their limited test menu. Looking ahead, we believe such important products like the Plavix response assay and their 3rd generation system (the AD-8) will continue to drive solid long-term performance.”