The Street downgrade today is a complete hack job. Kramer is always preaching that you must do homework. Well the Street did not do their homework. The downgrade is primarily based on the backward looking bottom line earnings softness and it neglects the fact that the company has launched the OncoDx prostate line and incurred considerable staffing, marketing, validation study related costs for this new product. Costs have also been incurred to set up a beachhead in Europe. The company has projected mid 20% top line growth starting in 2015 and that the launch costs will subside and the company will return to profitability. This new opportunity is huge and definitely warrants the investment that GHDX has made.
The Street downgrade is totally backward looking, it is trying to create weakness that might provide a more attractive entry point.
I fear you're clutching at straws in suggesting the Street didn't do its homework. The trend in recent years has been increasing costs and decreasing profits:
Period ..... R&D / SG&A ... Nett profit / loss
2010 .......... 140 million .... 4 million profit
2013 .......... 230 million ... 12 million loss
Last 4 Qs ... 250 million ... 27 million loss
It should come as no surprise if the market now prices GHDX as a high-risk investment. Given the formidable competition, what makes you so sure of market penetration commensurate with such a massive outlay?
"In addition, companies offering capital equipment and kits or reagents to local pathology laboratories represent another source of potential competition. These kits are used directly by the pathologist, which facilitates adoption more readily than tests like ours that are performed outside the pathology laboratory.
In addition, few diagnostic tests are as expensive as our Onco type DX tests.
We also face competition from companies that offer products or have conducted research to profile genes, gene expression or protein expression in breast, colon or prostate cancer, including public companies such as, GE Healthcare ... Novartis AG ...
We face competition from commercial laboratories with strong distribution networks for diagnostic tests, such as Laboratory Corporation of America Holdings ...
We may also face competition from Illumina, Inc. and Thermo Fisher Scientific Inc., both of which have announced their intention to enter the clinical diagnostics market.
Other potential competitors include companies that develop diagnostic tests such as Roche Diagnostics ... , Siemens AG and Veridex LLC, a Johnson & Johnson company ...
In our newly established prostate cancer market, we face comparatively greater competition than in our breast cancer market, including competition from products which were on the market prior to our product launch and which are supported by clinical studies and published data."
Thanks for taking the time to formulate a thoughtful response. The ramp of R&D and SG&A in 2013 coincides with the launch of of OncoDX Prostate and the expansion in western Europe. The next year is critical in deciphering whether the costs are bearing fruit. GHDX says top line growth will increase to 20% in 2015 and the company will return to profitability in the 2nd half of 2015. This would appear to be heavily based on receipt of reimbursement coding for the prostate test. However, the validation studies by reputable top notch health institutions support the test. So I do not have any reason to suspect that GHDX will not win reimbursement approval. Do you?
How many other prostate specific tests have been approved for medicare reimbursement? Any of the potential competitors you have mentioned have approval for a test that helps make monitored surveillance of the disease a viable course of action? I think that MYGN has the first test. GHDX has inferred that some of these other tests are subject to false negatives due to sample heterogeneity. This could be detrimental to a patient. While I do not believe that GHDX has any patent protection that inhibits competitors (for the same reason that the supreme court struck down previous MYGN's attempts to patent its products), I believe the analysis of samples at only its facilities provide a degree of protection of their intellectual property. Here is where we differ. I believe that GHDX has a track record of developing superior tests. The OncoDX breast cancer test is the only one to be sanctioned by NICE for use in determining the benefits of chemotherapy. I'm waiting to see head to head testing that says that GHDX is superior to other tests in answering treatment questions. If I wait till this data is available the company will have a market Cap way north of $1B. There is very little float so GHDX will move quickly on news. Look at how Exact Sciences exploded when they received medicare coverage.
There are certainly a lot of unknowns and competition is a factor that no investor can afford to ignore. However, The Baker Brothers continue to make GHDX one of their largest holdings. So I have to believe that they have seen data that makes them believe that GHDX has an opportunity for GHDX to outmaneuver the competition you reference.
My entire point is that the Street downgrade is backward looking. We should have answers in the next year whether GHDX is moving along the path that will allow them to quadruple sales in the next 5 years and achieve sustained profitability.
flatlander_ 60048 - the poster arikaycerocks is a clown following me around and taunting GHDX. Ignore it.
Genomic Health could be wildly profitable tomorrow if they didnt spend so much R& D money ( Felix oversees this branch of he co) . Ducks in a row to the max ,until they hand off the company.
I don't have a problem in starting a conversation about competition. GHDX is in a rapidly evolving space so we have to stay aware of what competitors are doing. However, lumping the gene hardware makers with those that have identified a specific gene sequence that correlates to outcomes is different. If GHDX gets reimbursement approval in 2015, you can bet that competitors will be interested in acquiring GHDX due to the small market cap and huge potential addressable market.
Rather than worrying about that poster, I have created a chart that shows the the growth trjectory that the company has told us to expect. If sales do not ramp at 20% next year and the company return to profitability I will probably look to exit my position by early 2016. Much of this is contingent on getting reimbursement. I don't worry about the price of this test since the popential cost savings of an accurate test dwarf the cost of the test. The same thing was said about Exact Sciences colon test (it would be too expensive). The company is up 100% in half a year since reimbursement approval.
I guess I disagree on several points.
1) I do not believe that FMR has (had) a board of directors seat at GHDX therefore they are not privy to the same information reviewed by the BB.
2) Backward looking means a downgrade based on performance metrics developed on data from the past year that does not consider factors/guidance that the company has released for the upcoming year. You can harbor distrust for management but in the year I've been investing in GHDX I have found that they have provided guidance that they have been able to meet. They are now projecting increased revenue and a return to profitability in 2015 (Forward looking not the backward looking #$%$ dished out by the street). I'm inclined to believe this guidance since the market is certainly there for a product that saves overleveraged governments money. GHDX has a track record of developing tests that are superior to their competitors (i.e., the NICE guidance on ONCO DX Breast test). The Street fails to mention the traction in Europe or the 80% repeat sales of the prostate test to urologists that have tried the test. These are forward considerations that mean more than the fact that profitability slipped while they ramped up staffing to support future growth in a huge potential market.
I think you are more biased then me. I at least will admit that any investor in GHDX needs to determine their exit point if the company does not execute according to the guidance they have provided.
Most analysts are attributing today's selloff to pricing pressure exemplified by Abbievie winning Express Script support for its HCV drug over Gilead's superior drug. This sell off carried over to GHDX. However, GHDX may be in the part of the biotech sector that does well going forward. As I have previously hypothesized, products that squeeze costs out of the system will be well positioned in the future. Biogeneric drugs and genomic testing are two areas that should do well.
Any thoughts about the recent Myriad ruling. In the case of the BRA or BRA2 tests the court appears to be re-affirming that MYGN can not patent the use of this genetic sequence for breast and ovarian cancer diagnostic purposes. How does this differ from GHDX's model. Sounds like the BRA sequence is well known and that the analyses of the sequence may not be exclusive to MYGN's lab facility. This is probably the result of the BRA gene test development in conjunction with the Univ. of Penn. Is GHDX's model fundamentally different by the fact that they have not specifically detailed and published the exact genomic sequence used to diagnose say prostate cancer aggressiveness? Is the intellectual property better protected by restricting the analyses of the OncoDX prostate tests to a single lab facility? My read is that if another company does its own research and comes up with a similar or the same genomic sequence they are will free to exploit it without fear of patent infringement suits. This is probably a strong reason for GHDX to restrict the number of lab facilities and to hold employees to to very strict non disclosure requirements.
I'll look through Annual Reports for more discussion.
From the 2013 An Rept
Our ability to compete and to achieve sustained profitability is impacted by our ability to protect our proprietary discoveries and technologies. We currently rely on a combination of issued patents, patent applications, copyrights, trademarks, and confidentiality, material data transfer, license and invention assignment agreements to protect our intellectual property rights. We also rely upon trade secret laws to protect unpatented know-how and continuing technological innovation. Our intellectual property strategy is intended to develop and maintain our competitive position. Patents may be granted to us jointly with other organizations, and while we may have a right of first refusal, we cannot guarantee that a joint owner will not license rights to another party, and we cannot guarantee that a joint owner will cooperate with us in the enforcement of patent rights. .....
There have been several cases involving "gene patents" and diagnostic claims that have been considered by the U.S. Supreme Court. In March 2012, the Supreme Court in Mayo Collaborative v. Prometheus Laboratories, or Prometheus, found a patented diagnostic method claim unpatentable because the relationship between a metabolite concentration and optimized dosage was a patent-ineligible "law of nature." In June 2013, the Supreme Court ruled in ACLU v. Myriad Genetics , or Myriad, that an isolated genomic DNA sequence is not patent eligible while cDNA is eligible. Both the Prometheus and Myriad decisions affect the legal concept of subject matter eligibility by seemingly narrowing the scope of the statute defining patentable inventions.
To me these paragraphs confirm my earlier statement, that confidentiality an maintaining strict control over the testing procedures are the primary means of protecting the intellectual property/technology.
As the field of molecular diagnostics advances and new companies offering genomic-based
breast cancer tests emerge, a number of you have approached us with questions about how
these efforts compare to Oncotype DX® and our work at Genomic Health. We’d like to take this
opportunity to highlight the important distinctions that should be taken into consideration as you
evaluate these companies and their products.
The Oncotype DX Recurrence Score® was developed to answer the specific question of which
estrogen receptor positive (ER+) breast cancer patients need chemotherapy in addition to
hormonal therapy. To validate it for this specific purpose, Genomic Health and its collaborators
obtained practice-changing results from landmark clinical studies that included patients
randomized to treatment (so that both prognosis and prediction could be obtained) and followed
for long term outcomes. To date, it is the only test validated to predict who benefits from
chemotherapy, and the only test included in all major breast cancer guidelines (ASCO,NCCN)
for treatment decision making. As a result, it has been broadly adopted by the physician
community, widely reimbursed in the United States, and used to guide treatment in more than
350,000 breast cancer patients around the world.
Additionally, recent data presented at major medical meetings showed clinically meaningful
differences between patient results generated by the Oncotype DX breast cancer test and the
Mammaprint test, which unlike Oncotype DX was developed using a largely untreated patient
population that did not reflect the established standard of care of hormone therapy for patients
with estrogen receptor positive disease. Specifically, these results revealed that patients
stratified as high-risk by Mammaprint with high ER expression may lead physicians to
inappropriately offer treatment with chemotherapy.
We realize there is a lot of information in the market right now that can lead to confusion, and
we encourage you to ask the following questions when talking to companies who claim to offer
tests similar to Oncotype DX.
• What specific clinical question was the test developed to answer and is it relevant
to current practice?
• Were multiple randomized studies, including treated and untreated patients,
conducted to validate and reproduce the test’s ability to answer this question?
• What comprises test volume – is it commercial or research use?
• Are they getting paid routinely by private payors without appeal?
• For tests in kit form, like the one Nanostring is developing, what measures are
taken to ensure high, reproducible quality at local labs?
• Have they conducted prospectively designed, randomized trials with long term
clinical outcomes (i.e., 10 years or longer)?
• What is the pipeline opportunity and how is the company investing in it to drive
REDWOOD CITY, Calif., Sept. 25, 2013 /PRNewswire/ -- Genomic Health, Inc. today announced that the National Institute for Health and Care Excellence (NICE) in the United Kingdom has issued its final guidance recommending Oncotype DX® as the only multi-gene breast cancer test for use in clinical practice to guide chemotherapy treatment decisions for patients with early-stage, hormone receptor-positive, invasive breast cancer. Consistent with leading international breast cancer treatment guidelines, including ASCO®, NCCN®, ESMO ® and St. Gallen, NICE's recommendation recognizes the unparalleled evidence of the clinical validity of the Oncotype DX test and its ability to enable physicians and their patients to make more informed, individualized decisions.
That can be taken as a positive or a negative depending on your perspective. The Baker Bros continue to maintain control of around 45% of the share float. I don't believe they can exceed 50% without incorporating GHDX as a subsidiary. I suspect that they have control of more than 50% of the float which would make the small shareholder irrelevant for any major decision making. Thus far it has not been a problem since their interests appear to be aligned. However, what might happen if another company they had an interest in wanted to acquire GHDX? Sure there would be a long line of Class action attorneys lining up to sign up plaintiffs. However, that is almost always a good situation for the attorneys and not the share holders.
There is 0 evidence that this is a concern, just something to keep in the back of you mind.
As I have said numerous times, this is my favorite play for a likely deflationary environment. If GHDX executes this year in the manner they have guided us to expect, then we should be off to the races. Growth will be extremely hard to find if the deflationary forces accelerate. I suspect that is why the share price has held up reasonably the past couple of days. Of course the extremely high percentage of institutional and insiders probably limit the sell side volatility.
agree 100% . The Bakers are first and foremost M&A specialists who want to make money for their clients , like Stanford U - ) Good Luck
LDT regulations approaching - Following the enactment of the
In early 2015, GHDX & SQNM are expected to receive separate NGS codes for their Oncotype Dx and MaterniT21 tests, which, for SQNM in particular, should help facilitate reimbursement timelines.
While we expect 2015 should bring major developments in the FDA’s move to implement
risk based LDT regulations, though we believe established players a la GHDX, MYGN,
SQNM should be well positioned to comply with any additional reporting burdens. The
FDA is in the process of conducting public workshops (Jan 8-9, 2015) to discuss its
proposed regulations of LDTs.
not to spread speculation or anything - ) look at Foundations rev etc, Look at GHDX. Icahn always likes to say - we aint selling cheap - the Bakers never do.
Giant drug developer Roche, mastermind of four Bay Area deals over the past year, will make its next big play by buying a majority stake in Foundation Medicine for about $1.3 billion.
The Swiss-based parent of South San Francisco's Genentech Inc. said late Sunday night that it would buy about 15.6 million shares of Cambridge, Mass.-based Foundation Medicine (NASDAQ: FMI) — or roughly 56.3 percent — in a $780 million tender offer. That is a 109 percent premium over FMI's closing price on Friday.
Roche also will spend $250 million for 5 million newly issued shares.
What's more, Roche has gobbled up four other local companies in the past year, capped by its $8.3 billion deal in the fall for Brisbane drug developer InterMune Inc. It also bit off DNA sequencing system developer Genia Technologies Inc. of Mountain View in the summer for $350 million, Redwood City sequenc
Boy, was your analysis accurate. It is a little over a month after the Street Hack Job and ALKS has exploded upwards. Cramer is for entertainment, not investment advice.