Sector Snap: Diagnostic test makers

NEW YORK -- Analysts for Cowen and Co. started coverage of a group of companies that make tests used to diagnose infectious diseases, assigning top ratings to companies including Cepheid, Hologic Inc., and Meridian Bioscience Inc.

The analysts said sales of the tests could top $3 billion a year in the U.S. alone as caregivers try to more quickly diagnose conditions like respiratory viruses, HIV, hepatitis, and hospital-acquired infections. Faster testing and diagnosis means patients are treated faster and more successfully, reducing health care costs. The analysts added that hospitals have come to see testing as a source of revenue and are doing more of their own tests instead of sending them to laboratory companies. That creates more opportunities for diagnostic system companies to sell their devices to hospitals.

The analysts wrote that diagnostic testing is a relatively small part of health care spending but test results have large effects on patient care. They estimated the market for HIV testing at $400 million per year, compared to $350 million for chlamydia and gonorrhea testing and $300 million to $350 million for human papillomavirus testing alone.

Analyst Shaun Rodriguez set an "Outperform" rating on Cepheid shares, saying sales for its Xpert testing system has been strong and Cepheid's focus on hospital-acquired infections has helped the Sunnyvale, Calif., company set up a customer base in hospitals.

Rodriguez also started covering Meridian Bioscience with an "Outperform" rating, pointing to strong sales of the Cincinnati company's illumigene tests for diseases like C. difficile, a bacterium that can cause diarrhea and colon inflammation, and other conditions.

Analyst Doug Schenkel started covering Hologic at "Outperform," saying the Bedford, Mass., company is a leader in chlamydia and gonorrhea testing, and its recently-approved Panther system could boost its sales.

The analysts began covering shares of Genomic Health Inc., PerkinElmer Inc., OraSure Technologies Inc. and Quidel Corp. with "Neutral" ratings.

In afternoon trading Cepheid shares rose 53 cents to $35.01 while Hologic stock added 19 cents to $20.59 and Meridian shares gained 35 cents to $19.35. OraSure Technologies stock declined 31 cents, or 2.8 percent, to $10.89, and PerkinElmer shares lost 11 cents to $29.30. Shares of Genomic Health rose 75 cents, or 2.1 percent, to $36.64 and Quidel shares fell 35 cents to $18.61. The broader markets were mixed.