Genomic Health Gets a Boost

On June 26, 2009, Genomic Health Inc (GHDX - Analyst Report) reported that the St. Gallen International Consensus Panel on the Primary Therapy of Early Breast Cancer recommended the usage of validated multigene assays, such as Oncotype DX, as an adjunct to standard measures in determining the benefits of chemotherapy for early-stage breast cancer patients.

We believe that these recommendations go a long way in expanding the scope of Oncotype DX further in breast cancer treatment in the European market.

As a reminder, Oncotype DX, backed by clinical evidence, has the ability to predict the likelihood of breast cancer recurrence and the likelihood of chemotherapy benefit for early stage breast cancer patients. Since its launch in January 2004, Oncotype DX has been used in more than 100,000 patients in over 40 countries worldwide for breast cancer treatment planning. More than 90% of the U.S. insured lives are covered by health plans that provide reimbursement for Oncotype DX through contracts, agreements or policy decisions. This further demonstrates the utility of the assay in the fields of clinical practice and decision making. We expect the sales for Oncotype DX to grow further in the coming years.

In 2008, approximately 205,000 people in the United States and 1.3 million people worldwide were diagnosed with breast cancer.

Genomic Health is also developing Oncotype DX for colorectal cancer. It plans to make the colon cancer version of the test available to patients and physicians in early 2010.

Competitive landscape and weak pipeline concerns us

The company’s principal competition comes from existing diagnostic methods used by pathologists. In addition, companies offering capital equipment and kits to local pathology laboratories represent another source of potential competition. These kits are used directly by the pathologist, which facilitates adoption more readily than tests like Oncotype DX that are performed outside the pathology laboratory. Further, Oncotype DX, priced at $3820, is a relatively expensive diagnostic test.

The company also faces competition from companies like Celera Corporation (CRA - Analyst Report) that offer products or have conducted research on profile gene expression in breast cancer.

The company relies heavily on Oncotype DX for both short-term and long-term growth. This provides some operational risks. Consequently, the company needs to diversify its product mix to sustain long term growth.

Currently, we have a Hold rating on GHDX.