Biotech Values

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have you looked at trov

Trovagene, Inc. (TROV - $3.41)
Buy
Target Price: $10.00
Ur'ine for improved oncology testing
Summary:
We are initiating coverage of Trovagene, Inc., an emerging molecular diagnostics company developing urine-based tests used for the detection and monitoring of diseases, with a Buy recommendation and a 12-month target price of $10.

Details:
We estimate that TROV penetrates 4% of the U.S. metastatic cancer market in 2018. There are an estimated 15.6M people in the U.S. with cancer, 1.7M new cases each year, and almost 600K annual deaths, a proxy for metastatic cancer. TROV has already introduced two LDTs (KRAS and BRAF V600), and it anticipates introducing eight more over the next two years. These assays target five different cancers that represent 50% of the metastatic cancer opportunity. Assuming that TROV successfully launches all of these multiplexed oncogene mutation assays, we estimate that the company could generate volume of 94,218 tests, or 4% of the total U.S. metastatic cancer market opportunity. Further upside could be provided by the penetration of the 15.6M people living with cancer in the U.S. (recurrence monitoring), as well as penetration of the global market (32.5M people living with cancer, 14.1M new cases each year, and 8.2M annual deaths).
Urine-based technology differentiates TROV's approach to molecular diagnostics. Urine can be collected at home (or in a hospital, physician's office, or clinic) in large volumes and at relatively low costs. These benefits enable more frequent, non-invasive monitoring of oncogene mutation status, disease progression, and disease recurrence. Other monitoring modalities (imaging, tissue biopsy, or blood-based tests) require medical professional collection, lack sensitivity, require invasive procedures, and/or involve expensive analyses.
Strong collaborations. In addition to introducing new assays, TROV is focused on building its body of clinical evidence in the near term in order to drive long-term clinical uptake and reimbursement. To do that, the company has been signing collaboration agreements with leading cancer centers, including MD Anderson Cancer Center, USC Norris Cancer Center, and Memorial Sloan-Kettering, as well as pharmaceutical collaborations. These partnerships should provide TROV with numerous publications and posters over the next couple of years. Moreover, we anticipate that TROV will announce additional collaborations as more organizations become aware of the benefits of the company's urine-based testing technology.
Recent pullback is a buying opportunity. Shares are trading near a 52-week low, down ~70% from a high of $10.27. In addition to trading down along with other high-growth healthcare stocks, shares are down due to a more conservative revenue outlook as assay launches and commercialization plans have been delayed, largely due to the company's platform transition to next generation sequencing (NGS), from droplet digital PCR. We expect the company's BRAF V600 assay to shift over to NGS and for future assay introductions to also be developed on NGS. We are confident in our outlook and believe that now is an attractive entry point, ahead of near- and medium-term catalysts.
Compelling valuation. Shares of TROV currently trade at 2017 and 2018 EV/revenue multiples of 1.1x and 0.6x, compared to peer average 2014 and 2015 EV/revenue multiples of 26x and 6.1x. Our 12-month target price of $10 is based on TROV trading at an EV/revenue multiple of 5.0x our 2018 revenue outlook and discounted back to 2015, which we believe is warranted given the global market opportunity and potential penetration rate of urine-based diagnostic tests.
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Bryan Brokmeier, CFA
Life Sciences Tools & Diagnostics
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