Genomic International Growth Continues to Impress

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On Tuesday, after the markets closed, Genomic Health announced first quarter results that were slightly below expectations, driven in part by bad weather (weather reduced revenue by $1 million and volume by 1% to 2%). Reported revenue of $67.0 million (up 6% year-over-year) was below our estimate of $69.6 million (up 10%) and Street consensus at $68.7 million. Net loss per share was $0.24, in line with our estimate of a $0.24 loss and below the Street estimate of an $0.18 loss. Despite the weather, there was no change to guidance for the year, which is for revenue of $278 million to $286 million (6% to 9% growth). The company continues to have more than 90% market share in invasive breast cancer testing and has not seen a meaningful change in competitive dynamics.

International revenue grew 35% year-over-year (grew volumes by 43%) and was up 14% sequentially, representing roughly 17% of total revenue (20% of total volumes). Volume growth was greater than revenue growth given that the company books revenue on cash accounting until accrual recognition requirements are met for payers. In most countries, Genomic Health is less than 10% penetrated for invasive breast cancer tests, which represents a large market opportunity. Management believes the company should be able to grow international revenues by 30% over the next several years, driven by increased adoption through guideline inclusion and publications, as well as garner reimbursement from both public and private payers.

Revenue grew 6% year-over-year, but was below our estimate of 10% driven by bad weather and test mix (more international volume, which carries lower ASP). The company delivered 23,080 Oncotype DX tests in the quarter (up 13%), below our estimate of 23,494; excluding weather, volume growth would have been 15%. Prostate cancer tests represented 3% of total volume (or roughly 692 tests), which is basically flat sequentially (more than half of prostate cancer tests ordered were from repeating physicians). Genomic Health has tripled its urology sales reps from 10 reps at launch to 30 reps and should see prostate test volumes pick up in the second half of the year (management guided prostate tests to be 10% of volume by the end of the year).

 

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