Fulgent Genetics 'Blazing a Different Path'; Piper Initiates At Overweight

Piper Jaffray initiated coverage of Fulgent Genetics Inc FLGT with an Overweight rating and $13 price target, saying private payer reimbursement and OUS joint ventures should lead to higher multiples.

Fulgent offers the broadest genetic testing menu with 18,891 single-gene tests and 241 pre-defined panels. The company’s proprietary technology, focus on rare, low volume conditions and cost advantages should allow it gain share versus peers.

“We estimate Fulgent's variable cost of running genetic tests is ~20% lower than competitors,” analyst William Quirk wrote in a note.

Related Link: Fulgent Is 'Making A Splash' In The Genetics Pool

In addition, Fulgent gets higher rate of cash collections per test than peers as it sells directly into medical institutions under direct pay agreements and bypasses insurance. But, it also has significant opportunity in the physician market.

“We believe there is significant room to expand into the larger physician/reimbursed market segment (~85% of requisitions; ~$2.0B),” Quirk highlighted.

Moreover, the analyst believes Fulgent would remain profitable despite shifting into the physician/reimbursed setting due to its low test costs versus peers.

That said, Quirk thinks the company may need to produce peer-reviewed clinical data and/or gain incremental reimbursement to meaningfully penetrate the physician market.

“Looking ahead, we believe Fulgent will further leverage their broad menu and attractive price structure to expand their private payer coverage. They have already entered into a national agreement with a major payer as well as several regional payers,” Quirk added.

At time of writing, shares of Fulgent rose 1.88 percent to $9.05. The $13 price target, represents 46 percent upside potential over Friday’s close.