Positive Data from Genomic Health

Genomic Health (NasdaqGS:GHDX - News) recently announced positive data from three new studies of its flagship product Bracanalysis. The studies evaluated cost effectiveness of the test within the healthcare systems of Germany and Hungary. Another study from Israel dealt with the significance of the test on deciding treatment decisions in early-stage invasive breast cancer patients with lymph-node positive status. The company will present these data at a breast cancer conference, currently underway in Vienna, Austria. 

Results from the study, conducted in Germany, with 366 patients found that the Oncotype DX test changed initial recommendations in 33% of the cases resulting in increased survival rates. Besides, the test was found to be cost effective in both the studies conducted in Germany and Hungary. The study carried out in Israel demonstrated that the use of the Oncotype DX test in patients with estrogen receptor-positive, node-positive, breast cancer is likely to reduce use of chemotherapy.

While Genomic currently has two products in its portfolio, Oncotype DX breast and Oncotype DX colon cancer tests, the latter has yet to make any significant contribution to the top line. Banking on its several strategies directed toward an increasing acceptance of the Oncotype DX test, Genomic is well placed to make most of the huge market potential.

Genomic Health also diversified its offering with the launch of the Oncotype DX DCIS Score at the end of 2011. Besides, we are encouraged by the progress made by the company on the reimbursement front. Consequently, we expect the growth momentum to continue for the time being. However, the company faces tough competition from players such as Myriad Genetics (NasdaqGS:MYGN - News) and Cepheid (NasdaqGS:CPHD - News), among others.

Given the huge market opportunity in DNA sequencing, we are impressed with Genomic’s decision to set up a wholly owned genetics subsidiary by this month. This decision will involve an investment worth $20 million over the next two years. Genomic was drawn to the sequencing business in the wake of reduced costs for sequencing a genome and the frontiers that can potentially open up in medical applications influencing millions of lives. Genomic expects this business to be a long-term contributor to its growth profile.

We currently have a Neutral recommendation on Genomic Health. The stock retains a Zacks #3 Rank (“hold”) in the short term.

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Genomic Health 4Q profit grows; plans new division

REDWOOD CITY, Calif. (AP) — Cancer test maker Genomic Health Inc. reported a larger fourth-quarter profit on Monday, and said it will start a new genetics business.

Genomic Health said its income grew to $2.6 million, or 8 cents per share, from $1.7 million, or 6 cents per share. Its revenue rose 13 percent, to $53.4 million from $47.1 million. The company said it delivered 17,080 test results with its Oncotype DX test, up 13 percent from a year ago. The Oncotype DX test is designed to predict the risk that a patient's breast or colon cancer will recur.

Analysts expected the company to report a profit of 10 cents per share on revenue of $53.8 million, according to FactSet.

The company said its new subsidiary will focus on commercial applications of the human genome. It will invest $20 million in the business over the next two years.

It will establish the business by March 1 and offer its first commercial service by 2013. Randy Scott will step down as chairman of Genomic health to become CEO of the new venture on March 1, and company President and CEO Kim Popovits will become chairman of Genomic Health. Julian Baker has been named lead independent director.

In 2011, the company's profit climbed to $7.8 million, or 26 cents per share, from $4.3 million, or 14 cents per share. Revenue grew 16 percent, to $206.1 million from $178.1 million. Genomic Health said it returned more than 66,600 Oncotype DX test results.

In 2012, the company expects adjusted income of $5 million to $8 million, excluding its losses related to the new subsidiary. It forecast $230 million to $240 million in revenue and 75,000 to 77,000 Oncotype DX test results.

Analysts expect the company to report a profit of $13.4 million, or 44 cents per share, on $235.9 million in revenue.

Shares of Genomic Health lost $1.45, or 5 percent, to $27.40 in extended trading following the release of the earnings report. They had ended the regular trading session down 49 cents at $28.85.

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