Genomic Health (GHDX) reported loss per share of 1 penny in the first quarter of fiscal 2011 compared to loss of 7 cents in the year-ago period driven by higher revenues. According to the Zacks Consensus Estimate, the company was expected to report an EPS of 1 penny during the quarter.
Total revenue in the reported quarter climbed 20.8% year over year to $49.8 million, marginally above the Zacks Consensus Estimate of $49 million. Product revenues (primarily from the Oncotype DX breast cancer test) climbed approximately 23% to $49.5 million in the quarter. Contract revenues accounted for the balance. In the reported quarter, Genomic provided more than 16,230 test results, as against more than 13,310 test results in the comparable period of 2010, representing a growth of 22%.
Genomic Health had launched the Oncotype DX colon cancer test earlier in 2010 although the test is yet to make any significant contribution to the top line. The company is in the process of securing reimbursements from different countries. During the quarter, Myriad secured reimbursement for estrogen-receptor positive breast cancer patients (with one to three positive nodes) with Excellus, a payor covering 1.8 million lives in New York. The company has also established a distribution agreement to provide the Oncotype DX breast and colon cancer tests in South Africa, Bostwana, Namibia, and Kenya.
Operating expenses during the quarter increased 20% year over year to $40.9 million driven by higher research and development (29% to $10 million), selling and marketing (14% to $20.5 million) and general and administrative (24% to $10.4 million) expenses. We believe the increases were primarily attributable to the growing international presence of the company and pipeline development.
Outlook
Genomic Health reiterated its outlook for fiscal 2011. The company expects to record $200−$210 million in revenues and net income of $3-$5 million. Moreover, around 63,000-66,000 tests results are expected to be delivered during the year. While Genomic Health continues to secure reimbursements for its colon cancer test, its breast cancer franchisee will be primarily responsible for top line growth.
Recommendation
Currently, the company is highly dependent on the success of Oncotype DX breast cancer test. Although the Oncotype DX colon cancer test has been launched, it will take some time to contribute significantly to the top line. However, the situation could improve gradually as the company is trying to receive reimbursement for this test, which should lead to increased adoption. We are also encouraged by the company’s increasing focus on the international market. Further, Genomic Health is conducting several studies to expand its portfolio or increase acceptance of the tests, though many of these are in their initial stages.
For the long term, we have a ‘Neutral’ rating on Genomic Health.
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