Genomic Health, Inc. GHDX recently entered into a definitive agreement with cancer diagnostics major Exact Sciences Corp. EXAC wherein the latter will buy the former for a deal value of $2.8 billion. Genomic Health with a market cap of $2.71 billion expects this consolidation to form a high-growth entity in the field of cancer diagnostics.
Since the news of the company’s sell-off plan surfaced on Jul 29, shares of Genomic Health climbed 6.3% to $72.99 at yesterday’s close.
Under terms of the deal, shareholders of Genomic Health will receive $27.50 in cash and $44.50 in Exact Sciences stock for a total consideration of $72 per share.
Notably, the merger will combine two of the strongest brands in cancer diagnostics, Cologuard and OncotypeDX, providing platform for growth. The transaction, which has been unanimously approved by both companies’ boards, is expected to be completed by the end of 2019.
A Strategic Fit for Genomic Health?
According to Genomic Health, the integration will establish a best-in-class commercial, R&D and clinical organization to provide global infrastructure for accelerating availability of new innovative cancer diagnostics to patients.
Genomic Health, Inc. Price, Consensus and EPS Surprise
Genomic Health, Inc. price-consensus-eps-surprise-chart | Genomic Health, Inc. Quote
Per Surveillance, Epidemiology and End Results (SEER) data, colorectal, breast and prostate tumors represent nearly 40% of all solid tumor incidences in the United States. Post consolidation, Exact Sciences and Genomic Health with their Cologuard (addressing the colorectal cancer) and Oncotype DX will address $20-billion global colorectal, breast and prostate cancer markets.
Integration Synergy at a Glance
On an adjusted basis, the combined company is expected to generate revenues of $1.6 billion and a gross profit of $1.2 billion in 2020. Annualized cost synergies of approximately $25 million are expected within the third year from the closure date of the deal, primarily via reduction of public company costs and purchase optimization.
A Look Into Genomic Health’s Q2 Results
In a separate press release, Genomic Health announced second-quarter 2019 financial results.
The company delivered second-quarter 2019 earnings per share (EPS) of 42 cents, registering an 82.6% surge from the year-ago result. The bottom line also surpassed the Zacks Consensus Estimate by 20%.
Revenues in Detail
Total revenues in the second quarter rose 19.4% year over year to $114.1 million, beating the Zacks Consensus Estimate by 2.8%. On adjusted constant currency (cc) basis, revenues shot up 20.1%.
Growth in the United States and international markets drove the company’s top line. A solid U.S. invasive breast cancer revenue uptick was also recorded.
Geographically, second-quarter product revenues in the United States rose 17.9% to $96 million. The U.S. product revenue rise was fueled by a 13.4% ascent in U.S. invasive breast revenues from Oncotype DX Breast Recurrence Score tests and a 42.3% surge in U.S. prostate test revenues from Oncotype DX Genomic Prostate Score (GPS) tests.
International product revenues totaled $17.8 million in the reported quarter, up 27.7% year over year (up 32.7% at adjusted cc).
During the second quarter, the company delivered more than 37,470 Oncotype DX test results, up 14.5% year over year.
2019 Guidance Revised
The company has raised its 2019 revenue guidance to $448-$452 million (earlier-expected range was $436-$448 million), indicating growth of 14-15% (past-projected growth rate was 11-14%) from the prior-year reported figure. The Zacks Consensus Estimate of $449.5 million remains close to the lower end of the guided range.
Full-year EPS estimate has also been lifted to $1.44-$1.54 ($1.23-1.38). The Zacks Consensus Estimate of $1.50 falls within the guided range.
We believe, the consolidation with Exact Sciences will prove perfectly strategic for Genomic Health.Built on two of the strongest and fastest growing brands in the cancer diagnostics industry — Cologuard and Oncotype DX — the combined business will gain an even stronger platform for continued growth of both companies’ marketed products and the development of their robust pipelines.
Meanwhile, Genomic Health exited the second quarter on a solid note with better-than-expected earnings results. The company has demonstrated strength across its entire business, driven by impressive performances in the United States and internationally. Within the prostate cancer space, the company is witnessing a robust improvement in volume as Oncotype DX GPS test results consistently lead the market in low- and intermediate-risk prostate cancer test adoption. The company also saw buoyant global demand for Oncotype DX Breast Recurrence Score test usage. Moreover, it progressed in terms of reimbursement update in Germany for Oncotype DX Breast Recurrence Score test.
Zacks Rank and Other Key Picks
Genomic Health currently holds a Zacks Rank #2 (Buy). Some other top-ranked stocks boasting solid results this earnings season are Stryker Corporation SYK, Baxter International Inc. BAX and Intuitive Surgical, Inc. ISRG.
Stryker delivered second-quarter 2019 adjusted earnings per share of $1.98, beating the Zacks Consensus Estimate by 2.6%. Further, revenues of $3.65 billion surpassed the Zacks Consensus Estimate by 1.4%. The company carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Baxter delivered second-quarter 2019 adjusted earnings of 89 cents per share, outpacing the Zacks Consensus Estimate of 81 cents by 9.9%. Additionally, revenues of $2.84 billion outpaced the Zacks Consensus Estimate of $2.79 billion by 1.9%. The company has a Zacks Rank of 2.
Intuitive Surgical reported second-quarter 2019 adjusted earnings per share of $3.25, topping the Zacks Consensus Estimate of $2.85. Also, revenues of $1.1 billion exceeded the Zacks Consensus Estimate of $1.03 billion. The company sports a Zacks Rank #1.
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