Genomic Health (GHDX) reported an EPS of 6 cents compared to the prior-year period’s loss per share of 1 cent driven by higher revenues and meeting the Zacks Consensus Estimate. For the full year, EPS came in at 14 cents, missing the Zacks Consensus Estimate by a penny, although way above the previous year’s loss per share of 33 cents.

Total revenues in the reported quarter climbed 19% year over year to $47.1 million, in line with the Zacks Consensus Estimate. Product revenues from the Oncotype DX breast cancer test climbed approximately 18% to $46.3 million in the quarter. Contract revenues accounted for the balance. For the full year, revenue increased 19% to $178.1 million and was in line with the Zacks Consensus Estimate as well.

The year 2010, being the first full year of profit has been significant for Genomic Health. Moreover, the year marked the launch of the second test under the Oncotype franchisee – the Oncotype DX colon cancer test. In the quarter, Genomic provided more than 15,180 test results, as against more than 13,340 test results in the comparable period of 2009, representing a growth of 14%. For 2010, the company came out with results for 57,270 tests, up 17% from the previous year.

Genomic Health had launched the Oncotype DX colon cancer test earlier in 2010 although the test is yet to make any significant contribution to the top line. However, we note that the company secured reimbursement from Clalit, the largest insurer in Israel covering 65% of the population. The company has also secured reimbursements from some selected private insurers in the US.

Operating expenses during the quarter increased 18.3% year over year to $37.1 million driven by higher research and development (6.8% to $9.3 million), selling and marketing (20% to $18.5 million) and general and administrative (28% to $9.3 million) expenses. We believe the increases were primarily attributable to the growing international presence of the company and pipeline development.

Outlook

Genomic Health also provided outlook for fiscal 2011. The company expects to record $210-$210 million in revenues and net income of $3-$5 million. The Zacks Consensus Estimate of $209 million is towards the upper end of this range. Moreover, around 63,000-66,000 tests results are expected to be delivered during the year. While Genomic Health continues to secure reimbursements for its colon cancer test, its breast cancer franchisee will be primarily responsible for top line growth.

Recommendation

Genomic Health has presented encouraging data from seven studies for its Oncotype DX test in the recent past. Currently, the company is highly dependent on the success of Oncotype DX breast cancer test. Although the Oncotype DX colon cancer test has been launched, it will take some time to contribute significantly to the top line. However, the situation could improve gradually as the company is trying to receive reimbursement for this test, which should lead to increased adoption.

For the long term, we have a ‘Neutral’ rating on Genomic Health. The stock retains a Zacks #3 Rank (Hold) for the short term.

 
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