##{"id":58590,"date":"2011-08-02T14:38:42","date_gmt":"2011-08-02T04:38:42","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/08\/02\/blue-sky-potential-materialising-for-genetic-technologies\/"},"modified":"2011-08-02T14:38:42","modified_gmt":"2011-08-02T04:38:42","slug":"blue-sky-potential-materialising-for-genetic-technologies","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/08\/02\/blue-sky-potential-materialising-for-genetic-technologies\/","title":{"rendered":"Blue Sky Potential Materialising For Genetic Technologies"},"content":{"rendered":"

\n\t– Genetic Technologies a market leader in checking breast cancer risk
\n\t– BREVAGen<\/span> launched in US market in June, market seen as significant
\n\t– Genetic testing and non-coding DNA operations means Genetic Technologies is profitable
\n\t– RBS<\/span> Morgans<\/span> initiates coverage with a Buy rating<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tAustralian biotech junior Genetic Technologies Limited ((GTG<\/span>)) has a focus on cancer management and diagnostics, supported by cash generation from an active out-licensing and IP assertion program and a genetic testing and medical diagnostics business. <\/p>\n

\n\tIn June Genetic Technologies launched BREVAGen<\/span>, the market's first validated non-familial breast cancer risk check, in the US market. BREVAGen<\/span> helps provide a clearer clinical picture of an individual woman's chances of developing breast cancer.<\/p>\n

\n\tThis is done by detecting the absence or presence of certain common genetic variants associated with increased breast cancer risk through the analysis of these variants and widely used clinical factors. The BREVAGen<\/span> test therefore allows for physicians to offer appropriate, individualised<\/span> follow-up care for each patient.<\/p>\n

\n\tThe breast cancer testing market is significant, RBS<\/span> Morgans<\/span> noting in the US each year there are 1.6 million biopsies taken for breast cancer, of which around one million give indeterminate results from a disease management standpoint.<\/p>\n

\n\tA further 200-300,000 women each year self-identify as a risk of breast cancer given two or more first degree relatives with the disease. Even when these cases come back with negative BRCA<\/span> tests, there is scope for BREVAGen<\/span> to be used given it offers specialised<\/span> options for managing a patient's condition.<\/p>\n

\n\tTo reflect the upside potential of BREVAGen<\/span>, RBS<\/span> Morgans<\/span> has initiated coverage on Genetic Technologies with a Buy rating. Upside is considered likely as BREVAGen<\/span> penetrates the US market and delivers corresponding volume growth going forward.<\/p>\n

\n\tThe BREVAGen<\/span> launch in the US is a key milestone in RBS<\/span> Morgan's view, as Genetic Technologies is currently the only company to have a validated genetic, non-familial breast cancer test on the market. The market is estimated to be worth around US$600 million annually.<\/p>\n

\n\tAlong with BREVAGen<\/span>, Genetic Technologies offers and continues to develop BRCA1<\/span> and BRCA2<\/span> testing, which are breast and ovarian cancer tests, a familial test for colon cancer and epilepsy and diagnostic and targeted therapy tests for cancer. These provide additional future growth options.<\/p>\n

\n\tAs RBS<\/span> Morgans<\/span> notes, this year the Australian lab of Genetic Technologies gained certification under US Clinical Laboratories Improvements Amendments ((CLIA<\/span>)), the lab the only one in Australia and one of only a few outside the US to achieve this level of approval. Such approval is viewed as a positive with respect to future validation of new tests.<\/p>\n

\n\tFinancing the developments of tests such as BREVAGen<\/span> comes in part via the revenue Genetic Technologies generates from its intellectual property estate, which covers non-coding DNA. Currently Genetic Technologies has patents for its technology in 22 countries, the technology being licensed to biotech companies, genetic service providers and research institutes.<\/p>\n

\n\tRBS<\/span> Morgans<\/span> estimates annual licensing revenue of $8-10 million will be received over each of the next four years, while there remains potential for further licenses to be secured in coming years.<\/p>\n

\n\tAs well, Genetic Technologies offers services such as genetic testing for paternity, forensics and specialised<\/span> DNA profiling tests, with similar profiling, disease and trait tests also offered for various animal markets such as breeders and professional organisations<\/span>.<\/p>\n

\n\tThe revenues generated from such activities makes Genetic Technologies profitable, as the company delivered an interim net profit for FY11<\/span> of $4.2 million. Cash as at the end of June was $5.1 million, while RBS<\/span> Morgans<\/span> notes last month Genetic Technologies raised $11.7 million via a placement of 60 million shares at $0.195 per share.<\/p>\n

\n\tRBS<\/span> Morgans<\/span> is forecasting a solid increase in earnings in coming years, with earnings per share (EPS) estimates standing at 0.4c<\/span> this year, 0.7c<\/span> in FY12<\/span> and 2.9c<\/span> in FY13<\/span>. This would put the stock on a FY13<\/span> earnings multiple of just over six times based on the current share price.<\/p>\n

\n\tThe value this implies, especially given the potential of BREVAGen<\/span> to gain a leading position in a significant and growing market, underpins the Buy rating of RBS<\/span> Morgans<\/span>. Price target has been set at $0.46.<\/p>\n

\n\tGiven a market capitalisation<\/span> at current levels of just over $83 million Genetic Technologies is not large enough to attract much coverage. The FNArena<\/span> database shows no other brokers offering research on the company.<\/p>\n

\n\tShares in Genetic Technologies today are higher and as at 12.45pm<\/span> the stock was up 2c<\/span> at $0.20. This compares to a trading range over the past year of $0.02 to $0.35.
\n\t <\/p>\n

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