We reiterate our Neutral recommendation on
) following its first-quarter 2011 results, with both revenue and
earnings sailing past the corresponding Zacks Consensus
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
the most of the huge market potential. It has been observed that
the Oncotype DX breast cancer test changed treatment decision in
37% of early-stage breast cancer patients thereby resulting in
hundreds of millions of dollars in healthcare savings.
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.
Meanwhile, to improve adoption of the colon cancer test, Genomic
Health is working with public and private payors and health plans
to secure coverage based on favorable clinical evidence. Adoption
of the test is expected to improve with Medicare's decision to
cover the Oncotype DX colon cancer test. During the reported
quarter, the company secured its first Veterans Affairs contract
and coverage for an additional 3.9 million lives with two state
Blue Cross Blue Shield plans.
Given the huge market opportunity in DNA sequencing, the
company's setting up of a wholly owned genetics subsidiary, InVitae
Corporation, in March 2012, is considered to be a positive move.
This decision involves $20 million of investment over the next two
years, the impact of which has been considered in the financial
outlook for 2012. We expect this business to be a long-term
contributor to the growth profile. During the reported quarter, the
company established a strategic alliance with OncoMed
Pharmaceuticals for biomarker research to accelerate the clinical
development of novel antibody cancer therapeutics.
However, Genomic Health forewarned that the heavy investments
made in its varied developmental and pipeline programs would lead
to the company incurring a loss in the second quarter. Escalating
operating expenses would continue to put pressure on the company's
net income near term. In fact, the new genetics subsidiary is
likely to result in full-year net loss of up to $8 million in 2012.
To add to it, Genomic Health faces tough competition from players
), among others.
Our recommendation is backed by a Zacks #3 Rank ("Hold") in the
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