) reported earnings per share ("EPS") of 3 cents in the first
quarter of fiscal 2012, better than loss per share of a cent in the
year-ago period and the Zacks Consensus Estimate of a loss of 3
cents per share.
Total revenue in the reported quarter climbed 17% year over year
to $58.5 million, ahead of the Zacks Consensus Estimate of $56
million. Product revenues (primarily from the Oncotype DX breast
cancer test) climbed approximately 17% to $57.9 million in the
quarter while Contract revenues accounted for the balance. In the
reported quarter, Genomic provided more than 18,630 Oncotype DX
test results as against 16,230 in the comparable period of 2011,
representing a growth of 15%.
Genomic Health's improved performance, to some extent, benefited
from payments by Medicare for colon tests. However, the company
continues to expect net loss in the second quarter due to seasonal
patterns impacting test volumes and revenues along with planned
increases in operating expenses.
Gross profit increased 20.6% year over year to $49.14 million
coupled with a 220 basis point improvement in gross margin to $871
million. Despite the 17.8% rise in operating expenses to $48.3
million, Genomic Health reported operating income of $871 million
during the reported quarter compared to an operating loss of $232
million in the year-ago period. The rise in operating expenses was
based on higher research and development (18.2% to $11.9 million),
selling and marketing (18.6% to $24.4 million) and general and
administrative (15.6% to $11.9 million) expenses.
Genomic Health did not provide any update regarding its outlook
for fiscal 2012. As per the guidance provided along with fiscal
2011 results, the company expects to report revenues of $230−$240
million and tests numbering 75,000-77,000. Moreover, the net income
guidance of $5-$8 million is before an incremental loss of up to $8
million for the new subsidiary.
Focus on NGS
In 2012, Genomic Health established a wholly-owned domestic
subsidiary, InVitae Corporation, to provide clinically relevant
genetic information to physicians and patients from 2013. Although
loss incurred by the subsidiary was insignificant during the
quarter, the company still expects a net loss of $8 million in the
The company also entered into a strategic alliance with OncoMed
Pharmaceuticals to use next generation sequencing ("NGS") to
identify biomarkers that can aid the development of the latter's
antibody cancer therapeutics.
At present, Genomic Health is highly dependent on the success of
the Oncotype DX breast cancer test. Recent achievements made by the
company in this regard include the launch of Oncotype DX DCIS Score
to patients in New York and some development on the reimbursement
front for the node-positive breast cancer patients. The company
also established distribution agreements to provide Oncotype DX in
Mexico and Russia. Securing public reimbursement contract with
hospitals in UK's two regions along with reimbursement in Spain
through a public payor contract with the Madrid Regional Authority
Meanwhile, the colon cancer test, launched in January 2010, is
yet to make a significant contribution to the top line. However,
the situation could improve gradually as the company tries to get
reimbursement for this test, which should lead to increased
However, the several studies that would expand Genomic Health's
portfolio are still in their initial stages. Though encouraged by
the company's decision to form a subsidiary solely focused on
genetic sequencing, we also see a lot of activity in the market
targeting this specified niche.
) are significant players in this business. The strategic alliance
with OncoMed is also a significant step in the goal toward
strengthening its foothold in the NGS space. These developmental
steps will involve higher expenses, which in turn will adversely
affect the bottom line.
For the long term, we have a Neutral rating on Genomic Health.
The stock retains a Zacks # 3 Rank ("Hold") in the short term.
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