Genomic Beats Estimates

Zacks

Genomic Health (GHDX) reported fourth-quarter 2012 net income of $2.0 million, down from $2.6 million in the year-ago period. The company’s reported earnings per share (EPS) of 6 cents surpassed the Zacks Consensus Estimate of 3 cents, but were 2 cents lower than the year-ago quarter results. Fiscal 2012 EPS came in at 26 cents, ahead of the Zacks Consensus Estimate of 21 cents and flat compared with the year-ago result.

Total revenue in the reported quarter climbed 13.2% year over year to $60.4 million, beating the Zacks Consensus Estimate of $59 million. Product revenues climbed $12.9 million to $59.9 million in the quarter, while Contract revenues accounted for the balance. The improvement in product sales was mainly on the back of significant international growth with diversification of business and successful utilization of an important global opportunity.

In the reported quarter, Genomic provided more than 18,820 Oncotype DX test results, up 10% year over year. For the full year 2012, total revenue increased 14% to $235.2 million compared with the prior-year result and surpassed the Zacks Consensus Estimate of $234 million.

Gross profit increased 10.3% year over year to $50.8 million. However, there was a 219 basis points (bps) improvement in gross margin to 84.0%. On the other hand, a 12.6% rise in operating expenses to $48.8 million led to a 178 bps contraction in operating margin to 3.3%. The rise in operating expenses was based on higher research and development (29.6% to $13.3 million), selling and marketing (6.7% to $23.9 million), and general and administrative (8.5% to $11.5 million) expenses.

Outlook

Genomic Health provided its guidance for fiscal 2013. The company expects net earnings/loss per share in the range of a loss of 12 cents to EPS of 8 cents on revenues of $258–$266 million. Also, the company expects to deliver 82,000–84,000 Oncotype DX tests.

Recommendation

Genomic reported another quarter of healthy growth. The number of Oncotype DX tests delivered by the company during the reported quarter along with deeper penetration in new markets is quite encouraging. Further, Genomic is conducting several studies to expand its portfolio or increase the acceptance of the tests, thus driving operating expenses. While we are concerned about the company’s dependence on the breast cancer test, we look forward to the launch of the Oncotype DX prostate cancer test, which is expected in the second quarter of 2013. Another significant player in this business, which increases competition in the market, is Life Technologies (LIFE).

While we prefer to remain on the sidelines for Genomic Health, other medical device stocks worth a look are Cyberonics Inc. (CYBX) and ResMed Inc. (RMD). All these stocks carry a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on LIFE

Read the Full Research Report on RMD

Read the Full Research Report on GHDX

Read the Full Research Report on CYBX

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