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Genomic Health (GHDX): Q1 Results Strong, Costs Escalate

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On May 23, we issued an updated research report on Redwood City, CA-based Genomic Health Inc. – a global cancer company with a focus on advanced molecular diagnostics. The company currently carries a Zacks Rank #3 (Hold).

Genomic Health has had a satisfactory run so far this year with its first-quarter earnings improving year over year and the top line surpassing the Zacks Consensus Estimate. Moreover, Genomic Health’s Prostate cancer test raked in significant revenues in the quarter, while its legacy U.S. invasive breast cancer business as well as DCIS breast cancer and colon cancer businesses reflectedstrong growth.

During the first quarter of 2016, in node-positive breast cancer, the company expanded coverage of the Oncotype DX breast recurrence score to include almost 14 million additional lives through expanded coverage policies.

Genomic also witnessed meaningful improvement in its Prostate Cancer test business, which recorded year-over-year test volume growth of 18%. In terms of reimbursement, Genomic Health established a new private coverage arrangement for the Oncotype DX Genomic Prostate Score, reaching the total number of covered U.S. lives to approximately 60 million.

In the international market, the company witnessed strong uptake with regard to reimbursement.During the first quarter, Genomic Health won positive reimbursement decisions for the Oncotype DX breast cancer test in four additional regions of Spain, reaching the total number of international covered lives to 196 million.

On the flip side, higher cost of production continues to weigh on Genomic’s gross margin. In the first quarter, the company’s cost of product revenue increased 23.8% year over year to $15.8 million. Consequently, Genomic experienced an 80 basis point contraction in its gross margin. Operating expenses rose 5.5% to $73.9 million in the reported quarter, which in turn, resulted in an operating loss of $8.8 million.

On the other hand, Oncotype DX breast cancer test remains as Genomic’s lead revenue contributor. Though the company is consistently focusing on expansion of the market opportunity for its colon cancer test, the offering is yet to gain traction.

Other Stocks to Consider      

Better-ranked medical stocks include Baxter International Inc. (BAX - Free Report) , Boston Scientific Corporation (BSX - Free Report) and LeMaitre Vascular, Inc. (LMAT - Free Report) . While Baxter sports a Zacks Rank #1 (Strong Buy), Boston Scientific and LeMaitre carry a Zacks Rank #2 (Buy).

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