We reaffirm our long-term 'Neutral' recommendation on
) following the third quarter results. Despite an impressive
growth trajectory, the financial results of this molecular
diagnostic company continue to depend on the Oncotype DX breast
cancer test which is the crux of Genomic's growth profile.
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Why the Reiteration?
While Genomic surpassed the Zacks Consensus Estimate for earnings
per share in the third quarter of 2012, revenues trailed the
Zacks Consensus Estimate for the second time in a row.
However, revenues increased 13% on a year-over-year basis to
Following the third quarter results (November 7, 2012), most of
the estimates have been revised upwards for 2012 in the last 60
days. However, estimates for 2013 have declined over the same
Volume for Oncotype DX tests - the company's flagship product,
improved 7% year over year on the back of deeper penetration in
new markets. Yet, test volume declined on a sequential basis due
to lower-than-expected invasive breast cancer test volume in the
U.S., fewer patient visits and increasing competition.
Based on these facts, Genomic lowered its forecast for test
volume for 2012. Nevertheless, we expect the test to record solid
growth in the future as Genomic continues to gain additional
reimbursement in the domestic as well the offshore market.
While we are wary about the company's reliance on the Oncotype DX
breast cancer test, we derive comfort from the pipeline
development. Genomic expects to launch its lead pipeline
candidate - Oncotype DX prostate cancer test in the first half of
We anticipate that the expected launch of the prostate cancer
test will increase operating expenses for the company. Moreover,
Genomic is expected to incur higher costs associated with
clinical studies for further portfolio expansion. These expenses
are expected to weigh heavily on the company's margins and
As a result, we remain on the sidelines for Genomic that carries
a Zacks #3 Rank which translates into a short-term Hold rating.
On the other hand, medical device stocks such as
) carry a Zacks #1 Rank (Strong Buy).