We recently upgraded
) to 'Outperform' from 'Neutral' on the basis of robust growth in
its Oncotype DX franchise, a trend that is expected to continue
given the various strategic initiatives undertaken by the company.
These strategies aim at increasing acceptance of its flagship
product, Oncotype DX test. Genomic we believe 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. Adoption of the test is expected to improve with Medicare's
decision to cover the Oncotype DX colon cancer test. Accordingly,
we expect the growth momentum to remain on a steady keel.
We are also encouraged by the company's decision of setting up a
wholly owned genetics subsidiary, InVitae Corporation, in March
2012. 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 given the huge market
opportunity in DNA sequencing.
During the most recent quarter, the company established a
strategic alliance with OncoMed Pharmaceuticals for biomarker
research to accelerate the clinical development of novel antibody
cancer therapeutics. Although setting up of the genetic subsidiary
will involve substantial investment (that could result in a net
loss in the second quarter), we expect the company to benefit from
its focus on sequencing. Despite the tough competitive landscape
with the presence of players such as
), we expect Genomic Health to grow over the long term.
Our recommendation is backed by a Zacks #1 Rank (Strong Buy) in
the short term.
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