Response Genetics, Inc. (NASDAQ:RGDX)

CRAZYCAPTAIN (98.43) Submitted: 7/16/2007 9:24:54 AM : Start Price: $7.13 RGDX Score: -69.07

Growing pharmacogenomics services. RGDX is leveraging its unique RGI-I and RGI-II technologies in addition to sample processing expertise and big pharmaceutical relationships to grow its pharmacogenomic testing services business.

Large new GSK contract driving near-term growth. The Company entered into a laboratory services agreement with GSK (NR) in Dec06 for gene expression services. It is associated with a large clinical trial that is expected to begin in late 2007, and could ultimately be worth $28 million to RGDX over three years.

Service business helping fund Dx. RGDX is developing a cancer diagnostics business which will partially be funded by the pharmaceutical services business and proceeds from its $21MM IPO.

ERCC1 marker data promising for Dx. Recent disclosure of prospective Phase III data suggest it may be feasible to determine a less toxic and more effective non-small cell lung cancer regimen based on ERCC1 expression data. This area could be worth greater than $200MM annually.

Valuation. The diagnostics opportunity, while difficult to quantify today, may represent a significant long-term growth driver for RGDX. Shares are currently trading at 4.1 times 2008 sales versus 5.6 times for the molecular diagnostic peer group. Our 12 month price target is $7.50 (suggests 30% upside from current levels), based on a 2008 sales multiple of 5.3 times, discounted slightly versus the peers for the lower margin services business concentration.