Genomic Health (GHDX), an oncology based biotech company, has presented positive results from a clinical validation study of its flagship product, Oncotype DX, at the San Antonio Breast Cancer Symposium. The study, conducted by the Eastern Cooperative Oncology Group, evaluated the test in patients with DCIS (ductal carcinoma in situ of the breast).
It was observed that a pre-specified Oncotype DX DCIS Score is more effective than traditional clinical and pathologic measures to predict the risk of local recurrence. Encouraged by positive results, Genomic Health plans to launch the Oncotype DX DCIS Score to physicians and their DCIS patients on December 28, 2011, in line with the company’s guidance. This will enable physicians to better assess the risk of a particular patient, facilitating the selection of the appropriate treatment option.
The multi-gene test will be able to differentiate between lower risk DCIS patients who can be treated with surgery alone and the higher risk category where adjuvant treatment is essential following surgery. The successful development of the test will be of immense benefit to a huge patient population as DCIS is an increasingly detected subgroup of breast cancer with more than 45,000 patients diagnosed with DCIS each year in the US alone.
Genomic delivered 16,980 Oncotype DX test results during the most recent quarter, up 15% year over year. The company has come a long way from a one-product US focused company in 2007, when 24,450 tests were delivered with a 22% penetration. In 2010, the company transformed itself into a two-product international company delivering 57,000 tests with a 26% penetration rate. Banking on its several strategies directed toward an increasing acceptance of the test, Genomicis well placed to make most of the huge market potential. The stock retains a Zacks #2 Rank (Buy) in the short term.
Moreover, having established a strong foothold in the US market, Genomic Health is targeting the international arena. During the most recent quarter, revenues from the international market jumped 80% and now represent 10% of total product revenues. However, securing reimbursement outside the US is a major deterrent to expanding the overseas business. The company expects revenue from the international market to be an important driver of top-line growth in 2012. We believe favorable data from the various ongoing studies might help the company in securing reimbursements.
In order to reduce its dependence on Oncotype DX breast cancer test, Genomic Health is conducting multiple studies in the field of colon cancer (stage III), prostate (expected launch 2014), renal cell (expected launch 2013) and lung cancer. However, these tests are in the early- to- middle stages of development and are several years away from commercialization. Apart from increased competition from players such as Myriad Genetics (MYGN), Cepheid (CPHD), operating expense is on an uptrend due to higher investments in international expansion, pipeline development and product launches. Over the long term, we are Neutral on the stock.
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