Visible Genetics Receives Upgrade
by Matt Paolucci
On Wednesday, Warburg Dillon analyst Geoffrey Harris initiated
coverage of genomics company Visible Genetics Inc. (VGIN) with
a Strong Buy rating and a 12-month price target of $89 per
share. Shares of VGIN traded up $4 at $36.63 after the news.
Visible Genetics, Inc. develops, manufactures, and sells
commercial DNA sequencing systems that use genetic information
to improve disease management. The Company's DNA sequencing
system, OpenGene, is capable of identifying changes in the DNA
of genes (genetic mutations) associated with specific diseases
faster, more accurately and at a lower cost than other
commercially available systems.
The company's OpenGene system enables genetic sequencing to be
used widely by doctors, clinics and laboratories to diagnose
and treat patients, and will allow doctors to customize and
modify a patient's treatment on an ongoing basis.
VGIN has also developed kits for HLA typing (for matching
donor and recipient in organ transplantation) and is working
on the development of DNA tests for other diseases such as
hepatitis B and hepatitis C.
The molecular testing market for genetic disease is projected
to grow to over $2 billion by 2001. The company's primary
focus is currently on the HIV drug resistance testing market,
a market opportunity estimated at $300 million in annual
revenues.
In addition to its OpenGene and HLA typing products, Visible
develops proprietary disposable test kits, called GeneKits,
which include the materials necessary to perform genetic
sequencing tests on its system for genes associated with
specific diseases and medical conditions.
Harris mentioned that revenue growth for VGIN will be driven
by increased market penetration of this HIV GeneKit in the
clinical laboratories and by instrument placements in the
research market.
Shares seem quite compelling at current levels, down from its
recent 52-week high of $119.13.
Accounting for the decline was, most likely, the company's
announcement last month that it was commencing a follow-on
offering of 2 million additional shares, expanding the float
19 percent to 12.5 million shares.
Fundamentally, nothing has changed. In fact, the financials
for Visible look very good.
Visible reported fourth quarter sales of $5.0 million versus
$4.1 million in the prior year period. Net losses were 76
cents versus 54 cents last year. For the year ending December,
VGIN posted revenues of $13.6 million versus $10.9 million in
1998. Full year losses were $2.73 per share compared to $1.91
per share for 1998.
The company said that increases in the net loss for the fourth
quarter and the year of 1999 was due to increased expenses for
clinical trials and regulatory costs related to its TruGene
(TM) HIV-1 Genotyping kit, the continued growth of the
company's marketing, sales and support organizations, and $1.3
million in non-cash charges.
Future growth for VGIN should come from the development of new
selective therapeutic options and increased demand for
customized treatment. Warburg's Harris projected revenues of
$27.1 million for 2000, $80.6 million in 2001, and $114.7
million in 2002. Visible has $42.7 million in cash and no
debt.
Of the four analysts surveyed by Zack's Investment Research
who follow shares of VGIN, all four rate the stock either a
Strong Buy or Moderate Buy.
