On Mar 17, we issued an updated research report on molecular diagnostics provider Genomic Health Inc. GHDX.
On Feb 10, this renowned developer of genomic-based clinical tests for cancer diagnosis delivered mixed financial results in fourth-quarter 2014 with a bottom-line beat and a revenue miss.
The company reported loss per share of 20 cents in the quarter, narrower than the Zacks Consensus Estimate of loss by a penny. The bottom line also improved substantially from the year-ago loss by a solid 33.3%.
However, management expects this loss to narrow down in 2015 on the back of Genomic Health’s improved leverage in international, DCIS and prostate cancer businesses. Moreover, the company's conviction of delivering profits in the fourth quarter of 2015 raises our optimism.
On the other hand, revenues rose 0.4% year over year to $69.1 million, but missed the Zacks Consensus Estimate of $72 million.
Positive unit and revenue growth in the U.S. invasive breast cancer business coupled with growing adoption of the prostate cancer test in the country drove the year-over-year improvement in total revenue. Notably, Genomic Health delivered more than 24,700 Oncotype DX test results, up 9% from the year-ago quarter.
Meanwhile, Genomic continued to witness accelerated adoption of its Oncotype DX prostate cancer test during the fourth quarter with a 160% volume increase from the prior-year quarter. Currently, Genomic Health is in active reimbursement discussions with numerous U.S. private payers and Medicare, which alone represents 50% of the prostate cancer market. To date, more than 1,400 physicians have used Genomic’s prostate cancer test in their treatment decision planning.
However, Genomic’s prostate cancer test is yet to receive a reimbursement rate and until that happens; it remains incapable of generating positive revenues for the company. Consequently, cost of product revenues have been increasing over the past few quarters. In turn, the gross margin has suffered over the past few years. According to management, the prostate cancer test will continue to weigh on Genomic’s gross margin until the first half of 2015 is over.
We are also concerned about the company’s strong dependence on the breast cancer test.
The stock currently carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Med-biomed/generic stocks such as Affymetrix Inc. AFFX, ANI Pharmaceuticals, Inc. ANIP and Cambrex Corporation. CBM are worth reckoning. All these three stocks hold a Zacks Rank #1 (Strong Buy).
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