"Goldman Sachs Downgrades Life Tech, Affymetrix; Upgrades Myriad, Qiagen July 02, 2012
NEW YORK (GenomeWeb News) – Goldman Sachs today downgraded Life Technologies and Affymetrix while it upgraded Myriad Genetics and Qiagen.
In a research note, analyst Isaac Ro made revisions to several life science tools and genomics-related firms to favor those "with high exposure to the US and strong [free cash flow] where capital allocation can improve." Changes were made also to reflect rising pressure in the European Union, continuing headwinds to the National Institutes of Health, and slower growth in China.
With the NIH budget for 2013 still a question mark, and the possibility of a 7.8 percent cut as a result of sequestration, there has been concern about its effect on life science tools firms, and Ro cited this in downgrading both Life Tech and Affymetrix.
Ro also downgraded Affy to Sell from Neutral, noting pressure in the academic and European end markets, and added that even with the addition of the recently closed e-Bioscience deal, Affy's business remains heavily weighted — about 70 percent, he estimated — toward the research-based end market.
To finance the eBioscience deal, Affy had to raise about $190 million in debt, resulting in "limited balance sheet flexibility" which will restrict the company's ability to reinvest in the business at levels sufficient for it to grow at above Goldman Sachs' or Wall Street's expectations, Ro said.
Lastly, he said that further portfolio revision is needed. Although Roche is leaving the microarray business with the divestiture of the NimbleGen franchise, Affy's "opportunities for near-terms share gain will be limited as Illumina and Agilent [Technologies] are both stronger competitors in those niche areas," he said in his note. "Long term, AFFX needs increased balance sheet flexibility to continue realigning the product portfolio around the new eBio assets."
He lowered the six-month price target on Affy to $4 from $4.30."