) reported net income of $1.8 million, lower than $2.3 million in
the year-ago period. The company incurred net loss of $0.8 million
related to its subsidiary, InVitae Corporation that was formed
earlier this year to provide clinically relevant genetic
information to physicians and patients. Genomic Health's reported
EPS of 6 cents was way above the Zacks Consensus Estimate of loss
of 2 cents, but was short of the year-ago quarter's 8 cents.
Total revenue in the reported quarter climbed 13% year over year
to $57.6 million, nominally missing the Zacks Consensus Estimate of
$58 million. Product revenues (primarily from the Oncotype DX
breast cancer test) climbed the same magnitude to $57.2 million in
the quarter while Contract revenues accounted for the balance. In
the reported quarter, Genomic provided more than 19,020 Oncotype DX
test results as against 16,390 in the comparable period of 2011,
representing a growth of 16%.
Gross profit increased 14.1% year over year to $48.6 million
coupled with a 50 basis point (bps) improvement in gross margin to
84.4%. Besides, a 16.2% rise in operating expenses to $46.8 million
led to a 150 bps contraction in operating margin to 3.2%. Genomic
Health reported operating income of $871 million during the
reported quarter The rise in operating expenses was based on higher
research and development (17.2% to $11.6 million), selling and
marketing (15.8% to $23.8 million) and general and administrative
(16.1% to $11.4 million) expenses.
Genomic Health's performance came on the back of strong growth
of its tests including greater penetration in new markets - DCIS
breast cancer, colon cancer and international. In the second half,
the company plans to step up its operating expenses to fund its
pipeline and other expansion plans, which is likely to keep margins
Although the company derives the majority of its revenues from
Oncotype DX breast cancer test, contribution from the colon cancer
test should gradually improve with additional reimbursement
decisions. Reimbursements for stage II colon cancer patients,
covering an additional 6 million lives were established through
several plans in Arkansas. We are also impressed with its success
on the international front that includes the first hospital
contract to provide colon cancer tests in Italy. The test is being
provided to patients across 75 countries through various
Genomic Health reiterated its outlook for fiscal 2012. The
company still expects to report revenues of $230−$240 million and
tests of 75,000−77,000. Moreover, the net income guidance of $5-$8
million is before an incremental loss of up to $1 million for the
We are encouraged with Genomic Health's second quarter
performance that exceeded our estimates as well as the company's
own guidance. The company's focus on its genetic subsidiary,
InVitae Corporation, is also impressive and should yield positive
results in the long term.
However, the expansion plans involve higher expenses, which in
turn will adversely affect the margin. Besides, over the recent
past, we have seen a lot of activity in the market targeting this
specific niche of genetic sequencing.
) are among the significant players in this business.
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