Balanced View on Genomic Health - Analyst Blog

On Apr 4, we issued an updated research report on Genomic Health Inc. GHDX – a global cancer company with core expertise in advanced molecular diagnostics. Genomic reported another quarter of healthy revenue growth. However, we are still concerned about the company's dependence on the breast cancer test.

Genomic Health reported adjusted loss per share of a penny in the fourth quarter of 2013, lagging the year-ago quarter's earnings of 6 cents per share but narrower than the Zacks Consensus Estimate of loss of 2 cents. Although revenues of $68.8 million were up 13.8%, the top line missed the Zacks Consensus Estimate of $69 million by a whisker.

The number of Oncotype DX tests delivered by the company during the most recent quarter increased a significant 21% year over year with deeper penetration in new markets. We encouragingly note that, in the quarter, Genomic Health established international breast cancer coverage for an additional 7.5 million lives bringing total covered lives outside the U.S. to more than $115 million.

In 2013, the NICE in the U.K. issued final guidance recommending Oncotype DX as the only multi-gene breast cancer test to guide chemotherapy treatment decisions for patients with early-stage, hormone receptor-positive, invasive breast cancer. With the NICE guidelines, the company expects to address up to 17,000 patients diagnosed with early-stage node-negative disease in the U.K. alone, and is now working with NHS healthcare providers and commissioners to provide broad access to the test in 2014.

On the flip side, Genomic Health‘s pursuance of several studies to expand its portfolio or increase acceptance of existing tests is driving operating expenses and creating margin pressure. We are also concerned about the company's sole dependence on the breast cancer test.

Other Stocks to Consider

Genomic Health currently carries a Zacks Rank #4 (Sell). While we prefer to avoid Genomic Health at present, better-ranked stocks that are outperforming in the broader medical sector include St. Jude Medical Inc. STJ, Meridian Bioscience, Inc. VIVO and SurModics, Inc. SRDX, all with a Zacks Rank #2 (Buy).