We maintain our Neutral recommendation on Genomic Health Inc. (GHDX) with a target price of $20.00.
Genomic Health, founded in 2000 and headquartered in Redwood City, California, is an oncology-based biotech company focused on the development and commercialization of genome-based clinical tests to diagnose cancer that allow physicians and patients make individualized treatment decisions.
The company’s first product, Oncotype DX launched in January 2004, is used for early stage breast cancer patients to predict the likelihood of cancer recurrence, patient survival within 10 years of diagnosis and the likelihood of chemotherapy benefit. All tumor samples are sent to the company’s laboratory in Redwood City, California, for analysis. Upon generation and delivery of a Recurrence Score report to the physician, the company generally bills third-party payers for Oncotype DX.
The company delivered more than 49,030 Oncotype DX test results in 2009, compared to more than 39,640 in 2008. Genomic Health has delivered more than 135,000 Oncotype DX test results as of December 31, 2009, since the launch of the breast cancer assay.
In January 2010, the company expanded its portfolio when it announced the global commercial availability of its Oncotype DX colon cancer test. The 12-gene diagnostic test aims to predict individual recurrence risk in stage II colon cancer patients after surgery. We believe that Genomic Health can be a useful player in the colon cancer market in addition to the breast cancer market where its Oncotype DX breast cancer assay is already available. The launch of Genomic’s colon cancer test will reduce its dependence on the breast cancer assay for generating revenues.
Estimate Revisions Trend
We have not witnessed any of the 12 analysts following the stock for the first quarter of 2010 (ending Mar 31, 2010) revising earnings estimates (in either direction) over the last 30 days. This implies that there is no directional pressure on the performance of the stock over the short-term.
Similarly, none of the 13 analysts covering the stock for fiscal 2010 (ending Dec 31, 2010) revised their earnings estimates over the last 30 days. This implies that there is no directional pressure on the performance of the stock over the long-term as well. As a result of the absence of strength and magnitude in estimate revisions, our short-term as well as long-term recommendations on the stock remain Hold (Zacks Rank #3) and Neutral, respectively
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