) reported mixed second quarter 2012 results with earnings per
share of 6 cents that were well above the Zacks Consensus
Estimates for a loss of 2 cents, but revenues of $57.6 million
While we are impressed with Genomic Health's progress with
respect to its Oncotype franchise, additional investments are being
made to fund its newly formed subsidiary, InVitae Corporation. The
company recorded a net loss of $800,000 related to InVitae
during the quarter, which is adversely affecting its bottom
In addition, margin continues to remain under pressure as
operating expenses have been increasing over the past few quarters
and are likely to increase in the second half of 2012. This
will primarily be due to Genomic Health's investment in the core
cancer business with new recruitments, initiation of new studies
and groundwork preparation for the prospective launch of a prostate
cancer test. As a result, we prefer to go back to our Neutral
recommendation as upside potential of the stock seems limited.
While the company currently has two products in its portfolio,
Oncotype DX breast and Oncotype DX colon cancer tests, the second
one is yet to make any significant contribution to the top line.
Penetration of the colon cancer test could improve gradually with
Genomic Health's efforts on securing reimbursement and the rise in
patient base with the inclusion of stage III patients being treated
with oxaliplatin-containing adjuvant therapy.
The company has come a long way from being a one-product U.S.
focused company in 2007, when 24,450 tests were delivered (with a
22% penetration), to the present when more than 66,000 Oncotype DX
test results (with 16% growth) were delivered in 2011. Genomic
Health also diversified its offering with the launch of the
Oncotype DX DCIS Score at the end of 2011.
The company recorded 16% year-over-year growth in test volume to
19,020 tests during the reported quarter on the back of deeper
penetration in new markets - DCIS, colon cancer and international.
It has been observed that the Oncotype DX breast cancer test
changed treatment decision in 37% of the early-stage breast cancer
patients resulting in hundreds of millions of dollars in healthcare
savings. Besides, we are encouraged with the progress made by the
company on the reimbursement front.
Having established a strong foothold in the U.S. market, Genomic
Health is targeting the international arena and is entering into
several agreements to meet this objective. The company's Oncotype
DX breast and colon cancer tests are available to patients in 86
and 75 countries, respectively through these collaborations.
Securing reimbursement outside the U.S. continues to be the major
driver of growth in the international business.
GENOMIC HEALTH (GHDX): Free Stock Analysis
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