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Genomic Health: Cancer Test Business Strong, Q3 Dismal

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On Dec 6, we issued an updated research report on Redwood City, CA-based Genomic Health Inc.GHDX . The company is a global cancer company with focus on advanced molecular diagnostics. Genomic Health develops and commercializes genomic-based clinical tests for cancer diagnosis that allows physicians to offer individualized treatment options.

Over the last six months, Genomic Health gained 14.1% as compared to a decline of 10.0% for the Zacks categorized Medical-Biomed/Genetics sub-industry. The company also recorded a CAGR of 8.6% over the last five years for revenues, reflecting strong fundamentals.

Reportedly, Genomic Health is seeing meaningful progress in its cancer test businesses. The company's Oncotype DX breast cancer test prospects are helping physicians take prompt treatment decisions. Management believes that an increase in adoption and reimbursement in breast cancer tests should deliver growth beyond Genomic Health's profitable U.S. invasive breast cancer business. Also, during the third quarter of 2016, the company recorded 3% revenue growth on a year-over-year basis in the U.S. Prostate Cancer test business. Per management, the Oncotype DX Genomic Prostate Score can currently cater to 140,000 patients in the U.S. every year. We believe this indicates the huge potential for revenue growth Genomic Health's Prostate Cancer test holds in the U.S.

We are also upbeat about Genomic Health's focus on international market. Having established a strong foothold in the U.S., the company is currently making considerable expansion internationally. The company's Oncotype DX breast and colon cancer tests are available to patients in 86 and 75 countries, respectively, through various collaborations. During the third quarter, international revenue growth of approximately 20% came on the back of strong performance in Western Europe, particularly the U.K. and France.

On the flip side, growth in the cancer test business failed to boost Genomic Health's third-quarter results as both the top and the bottom line missed the Zacks Consensus Estimate. The company's cancer tests and studies are still in the early-to-mid stage of development and bear validation risks. Thus, the cancer test business failed to make any significant contribution toward the company's revenues.

We are also concerned about the company's rising operating expenses. Genomic Health has adopted several strategies to drive its top line including portfolio expansion and penetration in the international arena which has driven expenses. Additionally, currency fluctuations continued to hamper the stock, which is expected to remain a drag for the remainder of 2016.

Zacks Rank & Key Picks

Genomic Health currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the medical sector are NxStage Medical Inc. NXTM , Baxter International Inc. BAX and Bovie Medical Corporation BVX . NxStage Medical and Baxter International sport a Zacks Rank #1 (Strong Buy) while Bovie Medical carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

NxStage Medical surged 27.3% over the last one year compared to the S&P 500's 7.2% over the same period. The company has a four-quarter average positive earnings surprise of 50.00%.

Baxter International rallied 18.3% over one year, much higher than the S&P 500. It has a trailing four-quarter average positive earnings surprise of 27%.

Bovie Medical recorded a 124.3% gain in the past one year, way better than the S&P 500. The company has a trailing four-quarter positive average earnings surprise of 28.7%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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