On Dec 18, 2014, we issued an updated research report on California-based Genomic Health, Inc. (GHDX).
This genomic-based clinical laboratory services provider, with a focus on advanced molecular diagnostics, reported mixed third-quarter 2014 financial results on Nov 4.
Genomic Health reported loss per share of 20 cents in the quarter, narrower than the Zacks Consensus Estimate of a loss of 23 cents by 13%. However, the bottom line deteriorated substantially from the year-ago earnings figure of 2 cents per share.
Despite an improvement in revenues, poor operational performance led to earnings slipping into loss on a year-over-year basis, in the reported quarter. However, management expects this loss to reduce in 2015 with Genomic Health's improved leverage in international, ductal carcinoma in situ (DCIS) and prostate cancer businesses.
On the contrary, revenues increased 4.7% year over year to $69.1 million, but missed the Zacks Consensus Estimate of $71 million. Positive test and revenue growth in the U.S. invasive breast cancer business coupled with double-digit international growth and triple-digit increase in prostate test volume led to the year-over-year increase in total revenue.
Although the company anticipates fourth-quarter 2014 revenue growth to be around 7% year over year, the full year revenues is expected to come at the lower end of its earlier announced top-line guidance.
Notably, Genomic Health's Oncotype DX is the first and only test to meet the American Medical Association's (AMA) Category 1 utilization and evidence requirement for risk of recurrence and chemotherapy prediction.
The company strongly believes that its Oncotype DX prostate cancer test will strengthen its advanced next generation sequencing (NGS) platform and accelerate the development of future tests. During the last reported quarter, Genomic Health presented positive results from an additional independent clinical validation study of the Oncotype DX prostate cancer test at the ESMO Congress.
Furthermore, the study — which covered 20% African-American men — demonstrated that Oncotype DX is similarly predictive of outcomes regardless of the patient's race or ethnicity. We expect this to boost the adoption and reimbursement of Genomic Health's prostate cancer test by in the coming quarters of 2015.
Moreover, the positive results from Genomic Health's second largest independent clinical validation study of Oncotype DX demonstrated, for the first time, that the DCIS Score can predict the risk of local recurrence in a group of patients treated with radiation therapy in clinical practice. Management believes this study will have positively influence physician adoption of this test.
However, we are worried about the company's over-dependence on the Oncotype DX breast cancer test for the bulk of its revenues. Also, the ongoing margin pressure fueled by increasing operating expenses poses a concern. Nevertheless, consistent positive study results for Genomic Health's diagnostics tests make the company a key player in the molecular diagnostics market.
The stock currently retains a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some better-ranked companies worth reckoning in the med-biomed/generic industry are Affymetrix Inc. (AFFX), Biogen Idec Inc. (BIIB) and ANI Pharmaceuticals, Inc. (ANIP). All the three stocks sport a Zacks Rank #1 (Strong Buy).
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