Genomic Grows on Breast Cancer Test, Margin Pressure Continues

Zacks Equity Research
July 3, 2014

On Jul 3, we issued an updated research report on Genomic Health Inc. (GHDX) – a global cancer company with core expertise in advanced molecular diagnostics. Genomic reported yet another quarter of healthy revenue growth. However, we are still concerned about the company’s strong dependence on a single product ­­– the Oncotype DX breast cancer test.

Genomic Health reported loss per share of 24 cents in the first quarter of 2014, deteriorating seven fold from the year-ago loss number and wider than the Zacks Consensus Estimate of loss of 18 cents. On the other hang, although revenues were up 6.2% to 67 million, the number missed the Zacks Consensus Estimate of $69 million by a whisker.

The number of Oncotype DX tests delivered by the company during the most recent quarter increased a significant 13% year over year with deeper penetration in new markets. We encouragingly note that, in the quarter, Genomic Health established international breast cancer coverage for an additional 5 million lives bringing total lives covered outside the U.S. to more than $115 million.

The commercialization of the Oncotype DX prostate cancer test has allowed the company to serve a global market size of more than $1.6 billion. The company is investing to further expand its U.S. urology field team in the second quarter, and support robust educational programs for physicians and patients.

On the other hand, though the colon cancer testis yet to make any significant contribution to the top line, it should eventually prove helpful in transforming Genomic Health’s identity from being a one-product U.S.-focused company to a multi-product company.

However, we are still wary about the company’s sole dependence on the breast cancer test on the revenue front.In the first quarter, Genomic Health derived substantially all of its product revenues from the sale of the Oncotype DX breast cancer test.

Moreover, Genomic Health‘s pursuance of several studies to expand its portfolio or increase acceptance of existing tests is driving operating expenses and creating margin pressure.

Other Stocks to Consider

Genomic Health currently carries a Zacks Rank #3 (Hold). While we prefer to remain on the sidelines regarding Genomic Health at present, better-ranked stocks outperforming in the sector include Affymetrix Inc. (AFFX), ANI Pharmaceuticals, Inc. (ANIP) and Biogen Idec Inc. (BIIB), all with a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on GHDX
Read the Full Research Report on ANIP
Read the Full Research Report on AFFX
Read the Full Research Report on BIIB


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