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On Monday, Lake Street Capital Markets adjusted its outlook on Personalis (NASDAQ:PSNL), a company specializing in advanced genomic sequencing, by doubling its price target to $8 from the previous $4 while retaining a Buy rating on the shares. The firm's decision reflects a positive view of the recent investment by Tempus, a technology company focused on personalizing cancer care.
The investment by Tempus is seen as a significant endorsement of Personalis' NeXT Personal Dx technology, which is used for minimal residual disease (MRD) detection. This technology has demonstrated the ability to detect cancer at ultra-sensitive levels, less than 100 parts per million, a sensitivity not achievable by current incumbent technologies.
Lake Street Capital Markets noted that about 30% of early access program test reports using NeXT Personal Dx fall into this ultra-sensitive range. This capability is expected to improve the detection of cancer, potentially leading to better patient outcomes.
While the revenue conversion for Personalis is contingent upon reimbursement, the analyst firm believes that the investment from Tempus signals confidence in the company's long-term opportunity. The investment is anticipated to support an acceleration of commercial efforts, which should enhance broader awareness and acceptance of Personalis' next-generation MRD technology.
The new price target of $8 is based on applying a 4.5x enterprise value/revenue multiple to Personalis' projected 2025 revenue of $83.5 million. This valuation multiple is consistent with that of comparable companies, albeit at a roughly 50% discount to Natera (NASDAQ:NTRA), another player in the genomic testing space. The adjustment in price target is also attributed to the de-risking associated with the announced transaction, the acceleration of commercial efforts, and the improved cash position of Personalis.
In other recent news, Personalis Inc . has seen a series of significant developments. TD Cowen, BTIG, and H.C. Wainwright have all maintained a Buy rating for Personalis, with BTIG raising the company's stock price target to $7.00, and H.C. Wainwright increasing it to $9.00. The adjustments followed the company's strong performance, which included a 35% year-over-year revenue increase to $22.6 million for the second quarter, mainly due to a 117% expansion in its biopharma business.
The company's partnership with Tempus AI, Inc. has also been growing. Tempus invested approximately $36 million into Personalis, which increased Tempus's ownership stake in Personalis to 19.3%. This substantial investment is expected to further the commercialization of Personalis's minimal residual disease (MRD) test, NeXT Personal.
The two companies plan to intensify their joint efforts due to the strong demand for the NeXT Personal test. This includes Tempus ramping up its commercialization initiatives, and Personalis expected to increase the volume of patient samples analyzed in the first two years of the product's introduction, projected to be in 2025 and 2026. Personalis plans to submit applications for reimbursement approval for NeXT Personal products to the Centers for Medicare & Medicaid Services towards the end of 2024 or the beginning of 2025.
InvestingPro Insights
In light of the recent optimism surrounding Personalis (NASDAQ:PSNL) and the significant investment from Tempus, it's important to consider the company's financial health and market performance. According to InvestingPro data, Personalis holds a market capitalization of $326.01 million, which suggests a moderate size in the biotechnology market. Despite challenges in profitability, with a negative P/E ratio of -3.54, the company has shown a strong revenue growth of 19.2% over the last twelve months as of Q2 2024. This growth is further emphasized by an impressive quarterly revenue growth of 35.22% in Q2 2024, indicating a robust upward trend in the company's sales.
InvestingPro Tips highlight two critical factors that investors should consider: Personalis holds more cash than debt on its balance sheet, which provides a cushion against market volatility and financial uncertainties. Additionally, the company's liquid assets exceed its short-term obligations, suggesting a solid position to meet immediate liabilities. However, analysts have flagged that Personalis is quickly burning through cash and do not anticipate the company will be profitable this year. Despite these concerns, the stock has experienced significant returns over the past week, month, and three months, with a one-week price total return of 38.98% and a one-month return of 55.58%, reflecting strong investor confidence in the short term.
For readers interested in a deeper analysis or additional InvestingPro Tips on Personalis, including earnings revisions and stock price volatility, more insights are available at https://www.investing.com/pro/PSNL. In total, InvestingPro offers 14 tips that provide a comprehensive view of the company's performance and prospects.
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