Recently, we reiterated our Neutral recommendation on Genomic Health (GHDX) with a target price of $26.00.
The year 2010 has been one with remarkable success for Genomic Health as it marked the first full year of profit on the back of the Oncotype DX breast cancer test. Revenues climbed 19% to $178.1 million during the year driven by strong growth in the number of tests delivered.
Genomic delivered 57,270 Oncotype DX test results during the year, up 17% despite an anticipated slowing of test volume due to the completion of the TAILORx trial in the third quarter. Historically, TAILORx represented 3−4% of total test volume.
Although the Oncotype DX colon cancer test, launched in 2010, is yet to make a significant contribution to the top line, the situation could improve gradually as the company tries to receive reimbursements. In July 2010, the company obtained the first reimbursement coverage for Oncotype DX colon cancer test.
Clalit Health Care, the largest insurer in Israel covering 65% of the population, established a reimbursement coverage policy for the colon cancer test. The company has also secured reimbursement from select private insurers in the US including Kaiser Permanente, a plan covering 11 million lives, and Group Health Cooperative, a plan covering 600,000 lives.
Genomic is conducting several studies to establish the significance of Oncotype DX colon cancer test. Favorable data from these studies should result in increased penetration. Consequently, we believe contribution from this test to increase over time based on more awareness that favors greater penetration.
Having established a strong foothold in the US market, Genomic Health is targeting the international arena and had established a European subsidiary in February 2009. The company believes that international sales of its Oncotype DX tests depend on the availability of reimbursement. In this regard, the company has secured reimbursement coverage for more than 26 million lives outside the US for breast cancer patients.
Further, Genomic Health is conducting several studies to expand its portfolio or increase acceptance of the tests, though many of these are in their initial stages. Moreover, we remain concerned about the competitive scenario.
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