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Genomic Health (GHDX) Posts Wider-than-Expected Loss in Q2

Genomic Health, Inc. GHDX reported second-quarter 2017 loss per share of 8 cents, reflecting an improvement from the year-ago quarter’s loss of 18 cents. The quarter’s number is however wider than the Zacks Consensus Estimate of a loss of 6 cents.

Net loss in the reported quarter was $2.7 million, as compared with net loss of $6.1 million in the year-ago quarter.

Revenues in Detail

Total revenue in the quarter rose 4.3% year over year to $85.5 million, slightly below the Zacks Consensus Estimate of $86 million. Growth in the U.S. and international markets drove the top line.

Geographically, second-quarter product revenues in the U.S. improved 4.02% to $72.4 million. The U.S. product revenue growth was fueled by invasive breast cancer revenue growth of 1.9% as well as 78.3% rise in Prostate test revenues. International product revenues were $13.1 million in the reported quarter, up 6%, and 10% on a CER basis.

During the quarter, the company delivered more than 31,550 Oncotype DX test results, up 9% year over year.

Genomic Health, Inc. Price, Consensus and EPS Surprise


Margin Trend

In the quarter under review, Genomic Health’s gross margin expanded 300 basis points (bps) year over year to 83.9%. Apart from significant top-line growth, the improvement in gross margin was led by an 11.5% decline in cost of product revenues to $13.8 million.

Genomic Health also witnessed a 4.6% rise in operating expenses to $74.8 million owing to a 7.4% increase in selling and marketing expenses to $40.7 million and a 6% rise in research and development expenses to $15.8 million. However, general and administrative expenses declined 0.5% to $18.4 million.

In the reported quarter, Genomic Health reported an operating loss of $3.1 million, showing a 40.4% year-over-year improvement from an operating loss of $5.2 million a year ago.

Financial Update

Genomic Health exited second-quarter 2017 with cash and cash equivalents and short-term marketable securities (including a corporate equity investment) of $109.8 million, reflecting a slight improvement from $94.4 million recorded at the end of the first quarter.

Our Take

Genomic Health exited the second quarter of 2017 on a disappointing note. We are concerned about the company’s rising operating expenses as well.

Nevertheless, we are encouraged by the decline in cost of sales which led to solid gross margin expansion.

Management noted that strong demand for Genomic Health’s Oncotype tests in the second quarter of 2017 was partly on account of growth in its U.S. and International prostate and global invasive breast business. Specifically, in invasive breast cancer, the Oncotype DX test proved to be the company’s only test to predict all major short- and long-term outcomes. In this context, in Jun 2017, the company announced results from eight studies based on its Oncotype DX tests at the 2017 American Society of Clinical Oncology (ASCO) Annual Meeting in Chicago. Per management, results confirm the efficiency of the Oncotype DX tests in predicting clinically meaningful endpoints and outcomes across multiple cancer types. We are also looking forward to the company’s newly initiated Clinical Utility Program for select centers in the U.S. to prepare for the commercial launch of the Oncotype DX AR-V7 Nucleus Detect test in collaboration with Epic Sciences.

On the flip side, management has not issued any guidance, which is discouraging. Moreover, the company’s sole reliance on the Breast Oncotype DX test is a concern.

Zacks Rank & Key Picks

Genomic Health currently carries a Zacks Rank #4 (Sell). A few better-ranked medical stocks are Edwards Lifesciences Corporation EW, INSYS Therapeutics, Inc. INSY and Align Technology, Inc. ALGN, with a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

INSYS Therapeutics has a long-term expected earnings growth rate of 20%. The stock has gained around 2.5% over the last three months.

Align Technology has an expected long-term adjusted earnings growth of almost 26.6%. The stock has added roughly 26.3% over the last three months.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.2%. The stock has rallied around 4.7% over the last three months.

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