Shares of Genomic Health, Inc. GHDX dropped 3.9% on Friday subsequent to the company’s revelation of its fourth quarter and full year 2015 preliminary results, which missed analysts’ as well as the company’s estimates. However, the results depicted a year-over-year improvement. This possibly induced some optimism among the investors, reflected in the 2.2% rise in the stock’s price in after-market trading.
Along with the preliminary results, the company also announced its initial revenue guidance for full year 2016.
For full year 2015, Genomic expects to deliver revenues in the range of $285–$286 million, up 4% from revenues of $275.7 million achieved in 2014. However, this current revenue expectation is lower than the company’s earlier provided guidance range of $289–$302 million. The current Zacks Consensus Estimate for revenues is pegged at $291 million for 2015, higher than the preliminary revenue guidance range.
Moreover, Genomic claims to have delivered more than 106,850 Oncotype DX tests in 2015, reflecting a year-over-year increase of 12%. On a brighter note, this meets the company’s expectation to deliver at the high end of its earlier guided range of 102,000–109,000 tests.
For the fourth quarter of 2015, Genomic expects to deliver revenues in the range of $73–$74 million, representing a year-over-year improvement of 6%. This revenue growth expectation also falls short of the company’s earlier projection of double-digit revenue growth in the fourth quarter. The current Zacks Consensus Estimate for revenues is pegged at $79 million for the fourth quarter, higher than the recently released preliminary revenue outcome.
Further, the company expects the number of tests delivered in the fourth quarter to exceed 27,520, reflecting a year-over-year increase of 11%.
According to management, Genomic Health’s fourth quarter test volume and consequently revenues were adversely impacted by a disruption in order and test processing that arose due to a mid-quarter implementation of a new enterprise-wide platform (ERP). Notably, the ERP aimed at adding enhanced capabilities and scale to Genomic’s growing business.
Since this transition required a new ordering process for over 10,000 customers, test volume came in lower than the company’s expectation during the fourth quarter, which in turn reduced the quarter’s revenues by more than $3 million.
Alongside, revenues from Genomic’s prostate cancer test in the quarter also missed expectation due to delays in collecting patient data required by Medicare for revenue recognition.
However, management seems pleased with Genomic’s test performance in the fourth quarter, which the company achieved in the face of multiple challenges. We are encouraged to note that Genomic still retains confidence to facilitate double-digit revenue growth in 2016, through successful activation of the majority of customers within its new ERP system and by implementing more efficient mechanisms for collecting prostate cancer patient data.
2016 Initial Outlook
For 2016, Genomic has provided its initial 2016 revenue guidance in the range of $320–$335 million, with year-over-year growth of 12–17%. The current Zacks Consensus Estimate is pegged at $327 million, within the current guided range.
Zacks Rank
Currently, Genomic carries a Zacks Rank #3 (Hold). Some better-ranked med-biomed/generic stocks are Arena Pharmaceuticals, Inc. ARNA, Atara Biotherapeutics, Inc. ATRA and Baxalta Incorporated BXLT. All the three stocks sport a Zacks Rank #1 (Strong Buy).
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