Q4 Loss Narrower Than Expected at Genomic, Revs Up Y/Y

Genomic Health Inc. (GHDX) reported fourth-quarter 2013 adjusted loss per share of 1 cent, narrower than the Zacks Consensus Estimate of loss of 2 cents. However, results significantly lagged the year-ago earnings of 6 cents per share.

Genomic Health reported net loss of $9.4 million in the fourth quarter of 2013 against net income of $1.9 million recorded in the year-ago period.

For full year 2013, adjusted net loss was $3.8 million a (loss of 12 cents per share), against net income of $8.2 million (or an earnings of 26 cents per share) in the previous year. The adjusted figure compares favorably with the Zacks Consensus Estimate of loss of 14 cents per share.

Revenue in Detail

Total revenues rose 13.8% year over year to $68.8 million, but marginally missed the Zacks Consensus Estimate of $69 million. The improvement can be attributed to the 11.7% year over year increase in product revenues to $67.0 million, accompanied by a robust rise in contract revenues to $1.7 million.

For full year 2013, revenues were $261.5 million, reflecting growth of 11.2% over the prior year.

During the reported quarter, international product revenues grew 16% year over year to $10.1 million. Genomic Health provided 22,720 Oncotype DX test results, up 21% from the year-ago quarter.

Margin Trends

The 14.2% rise in gross profit to $58.0 million, can be attributed to the significant development in the core business of the company. Accordingly Genomic Health posted gross margin of 84.3%, an expansion of 24 basis points.

On the other hand, Genomic Health incurred a 36.5% rise in operating expenses to $66.5 million, due to higher research and development (up 81.0% to $24.1 million), selling and marketing (up 21.4% to $29.0 million), and general and administrative (up 15.5% to $13.3 million) expenses.

In the reported quarter, Genomic Health recorded an operating loss of 8.4 million as compared to the year ago operating income of $2.0 million.

Financial Update

Genomic Health exited the fourth quarter with cash and cash equivalents, and short-term marketable securities of $105.3 million, from $99.1 million at the end of 2012.

Business Highlights

In the reported quarter, Genomic Health expanded its total breast cancer coverage outside the U.S. to more than 115 million, with an additional 7.5 million lives covered through contracts made with insurers in countries like Czech Republic, Mexico and Peru. Further it also received notice of allowance from the U.S. Patent Trade Office for patent claims related to the Oncotype DX prostate cancer test algorithm.

Besides, on Nov 25, 2013 Genomic Health entered into an exclusive in-licensing agreement with Almac Group for technology and intellectual property in order to develop a multi-gene test used for predicting benefits from DNA damage-based chemotherapy drugs. The test is expected to benefit high-risk breast cancer patients who are particularly eligible for anthracycline chemotherapy based on their Oncotype DX score.

Moreover, Genomic Health presented results from multiple studies at the 36th Annual CTRC-AACR San Antonio Breast Cancer Symposium, demonstrating the unique value of the Oncotype DX test in early-stage breast cancer.

In addition, results from multiple Oncotype DX colon cancer studies at the 2014 American Society of Clinical Oncology Gastrointestinal Cancer (ASCO GI), confirmed through clinical evidence, the real-life impact on patient and physician treatment decisions of Oncotype DX colon cancer test.

The Journal of Clinical Oncology also published positive results from the third successful validation of the Oncotype DX colon cancer test in patients with stage II disease and the first validation study in patients with stage III of the disease.

Guidance

Genomic Health provided both its revenue and EPS outlook for full year 2014. The company expects total revenue to vary in the range of $278 million to $286 million. The Zacks Consensus Estimate of $291 million remains within the predicted range.

However, the company anticipates a net loss in the range of 95 cents to 75 cents per share, on account of the increased investment in the U.S. prostate business. The current Zacks Consensus Estimate of 11 cents for EPS, remains far ahead of the guided band.

Genomic Health also plans to deliver 98,000 to 102,500 Oncotype DX tests for full-year ending Dec 31, 2014

Our Take

Despite the loss anticipated in 2014, management hopes to lead the genomics diagnostics industry on the back of increased investment to expand its U.S prostate business, successful core business and multiple commercial opportunities with the Oncotype DX tests. It intends to facilitate the cancer affected patients with promising product launches going forward.

We believe Genomic Health’s constant initiatives to capitalize on the $400 million opportunity in breast cancer in Europe and attempts to augment the prostate cancer investment in the more than $400 million strong U.S. market should act as major revenue drivers for the company.

Currently, Genomic Health carries a Zacks Rank #5 (Strong Sell). However, some of the well-placed stocks that are worth a look in the MedBio Gene industry include Biogen Idec Inc. (BIIB), Affymetrix Inc. (AFFX), and Actelion Ltd. (ALIOF). All the stocks carry a Zacks Rank #1 (Strong Buy).

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


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