Weak Pipeline at Genomic Health

Genomic Health Inc. (GHDX - Analyst Report) is an oncology-based biotech company focused on the development and commercialization of genomic-based clinical diagnostic tests for cancer that allow physicians and patients to make individualized treatment decisions. The company’s lead product is Oncotype DX, which is used for early stage breast cancer patients to predict the likelihood of cancer recurrence. Sales of Oncotype remain robust and we expect the company to deliver 40 percent more test results in 2008 compared to 2007.

However, we remain concerned about the company’s weak pipeline. We believe the company’s shares are fairly valued at the current level. We are optimistic about the growth of Oncotype. Clinical studies have validated the use of Oncotype for breast cancer patients. In recent months, Oncotype met the criteria set by Blue Cross and Blue Shield Association Technology Evaluation Center for women with breast cancer and its use in breast cancer treatment selection was recommended by the ASCO.

The recent positive developments validate the clinical utility of the assay and coupled with the company’s continuing marketing efforts, will help increase the awareness of Oncotype among patients, physicians and payers. We maintain our Hold rating on Genomic Health’s shares with a target price of $21. We arrive at our target price $21 per share by using a P/S multiple of 7.2x our 2011 sales figure of $247 million, discounted back at 25 per cent for three years.

Varun Parwal contributed to this report.

Read the full analyst report on GHDX.