Recently we reiterated our Neutral recommendation on Genomic Health (GHDX) with a target price of $26.00.
Genomic Health reported an EPS of 8 cents in the second quarter of fiscal 2011, way above both the Zacks Consensus Estimate of 2 cents and EPS of 3 cents in the year-ago period driven by higher revenues.
Total revenue in the reported quarter climbed 17% year over year to $50.8 million, in line with the Zacks Consensus Estimate. Product revenues (primarily from the Oncotype DX breast cancer test) climbed approximately 19% to $50.5 million in the quarter.
In the reported quarter, Genomic provided more than 16,390 test results, as against more than 14,050 test results in the comparable period of 2010, representing a growth of 17%.
The company is currently focused on high throughput ‘next generation’ sequencing (NGS) programs. Recently, the company completed its first study in more than 130 patient specimens using high throughput NGS for whole transcriptome profiling analysis.
The Oncotype DX colon cancer test launched in 2010 is yet to make any significant contribution to the top line. Genomic Health is trying to secure reimbursement for the colon cancer test but nothing significant is expected to come through till 2012.
In June 2011, at the American Society of Clinical Oncology annual meeting, results from a second large validation study was presented, which confirmed that Oncotype DX colon cancer test independently predicts individualized recurrence risk for stage II colon cancer patients. Consequently, we believe contribution from this test to increase over time based on better awareness that favors greater penetration.
Having established a strong foothold in the US market, Genomic Health is targeting the international arena. The company already has a European subsidiary established in February 2009. Investments in the international market along with increased traction in Canada, Spain and South America resulted in doubling of international revenues during the reported quarter.
Revenues from the international market now represent 10% of total product revenues and were responsible for one-third of total revenue growth. The company expects its international product revenue to make a major contribution to revenue growth in 2012.
However, the company operates in a highly competitive industry with the presence of players such as Laboratory Corporation of American Holdings (LH) and Quest Diagnostics (DGX). Although Genomic Health is conducting multiple studies in the field of colon cancer, prostate, renal cell and lung cancers, these tests are in the early-to- middle stages of development and are several years away from commercialization.
QUEST DIAGNOSTC (DGX): Free Stock Analysis Report
GENOMIC HEALTH (GHDX): Free Stock Analysis Report
LABORATORY CP (LH): Free Stock Analysis Report
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