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Genomic Health Q1 Loss Wider than Expected, Revenues Lag - Analyst Blog

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Genomic Health Inc.GHDX reported first-quarter 2015 loss per share of 30 cents, a couple of cents wider than the Zacks Consensus Estimate. The bottom line also deteriorated substantially from the year-ago loss by 25%.

Net loss for the quarter was $9.5 million, reflecting a decline of 27.5% from the net loss of $7.4 million recorded a year ago.

Genomic Health Inc. - Earnings Surprise | FindTheCompany

Revenues in Detail

Total revenue in the quarter inched up 1.7% year over year to $68.2 million, but missed the Zacks Consensus Estimate of $69 million. Revenues increased 3% year over year at constant exchange rate (CER), in line with the company's expectations for low single-digit growth in the first half of 2015.

The company derived its quarterly revenues solely from product sales. Factors like double-digit growth in Oncotype DX test volume, a 4% increase in U.S. breast cancer business, increased international use by 7% and nearly triple the number of prostate cancer tests delivered contributed to the year-over-year improvement in total revenue.

During the first quarter, international product revenues (representing 15.2% of product revenues) declined by an estimated $1.2 million year over year to $10.4 million. International tests delivered in the reported quarter increased 7% compared to the prior year and represented approximately 20% of total test volume.

Genomic Health delivered more than 25,430 Oncotype DX test results, up 10% from the year-ago quarter.

Margin Trends

In the quarter under review, Genomic Health reported gross margin of 81.3%, reflecting a contraction of 70 basis points. The company's cost of product revenues increased 5.9% year over year to $12.8 million. However, excluding the prostate test volume, where there is no reimbursement in place, the company's gross margin would have been over 83% in the quarter.

On the other hand, Genomic Health incurred a 12.7% rise in operating expenses to $70.1 million owing to a solid 36.5% increase in research and development expenses of $19.1 million. Also, selling and marketing expenses were up 5.8% to $35.4 million, while general and administrative expenses spiked 5.8% to $15.6 million.

In the reported quarter, Genomic Health recorded operating loss of $14.7 million, reflecting a massive deterioration of 103.9% from the year-ago equivalent loss, owing to higher operating expenses.

Financial Update

Genomic Health exited the quarter with cash and cash equivalents, and short-term marketable securities (excluding the company's available-for-sale investment in InVitae) of $91 million, down from $103.7 million at the end of 2014.

Guidance

The company continues to expect full year 2015 revenues in the range of $292-$305 million and loss per share in the range of 53-75 cents. The current Zacks Consensus Estimate of revenues of $296 million and loss of 63 cents per share lie within the respective guidance ranges provided by the company.

Management also hopes to deliver Oncotype DX tests worth $102,000 to $109,000, which represents a growth rate of 7% to 14%.

Our Take

We are disappointed with Genomic Health's first-quarter 2015 financial numbers which missed the Zacks Consensus Estimate on both the top and the bottom line. The company's performance also fell short of expectation in the international market. However, management believes substantial investments to diversify Genomic's global business will continue to pay off across 3 large growth opportunities in DCIS breast cancer, prostate cancer and the continued expansion of our international business, delivering growth beyond the company's profitable U.S. invasive breast cancer business.

As management continues to believe that growth in Western Europe will drive success overseas, we expect the company to return to positive international product revenues in the coming quarters, in contrary to the negative growth observed in the reported quarter.

Genomic Health has been incurring losses over the past few quarters and expects the trend to persist in the current year, albeit on a narrower scale. Nevertheless, the company's conviction of delivering profits in the fourth quarter of 2015 buoys our optimism.

Zacks Rank

Currently, the stock carries a Zacks Rank #3 (Hold). Better-ranked med-biomed/generic stocks include Actelion Ltd. ALIOF , Horizon Pharma plc HZNP and Illumina Inc. ILMN . All the three stocks sport a Zacks Rank #1 (Strong Buy).

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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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