GHDX: Q2 Earnings Preview

Genomic Health Inc. (GHDX) is expected to release its second quarter results on August 4. We expect the company to post a net loss of $1.5 million, compared to $4.1 million in the relevant period of 2008. Basic and diluted net loss per common share is expected to reduce to $0.05 from $0.15 in the second quarter of 2008.

Total revenue for the quarter is expected to be $36.8 million, which would reflect a 32% year over year increase. In the second quarter of 2009, product revenue from the Oncotype DX breast cancer assay -- the company’s growth engine -- should increase by 39% to $36.5 million from $26.3 million in the comparable quarter of 2008. Total revenue is expected to be in the range of $148 - $160 million in 2009. Cash position is not a matter of great concern.

Currently, the company relies on Oncotype DX for its major revenue source with minor revenue from contract research. The company has not yet generated any positive cash flow since its inception.

Cash and cash equivalents and short-term investments at March 31, 2009 were $53.4 million, as against $56.7 million at December 31, 2008 and $68.4 million at December 31, 2007. Current cash may last through 2010 when the company is expected to become profitable and generate positive cash flow. Net cash burn was $ 0.82 million in 2008. So, currently cash burn is not a concern since our long-term model shows that the company will be profitable in 2010 when operations can generate positive cash flow for the company.

Label Expansion Needed

The company relies heavily on Oncotype DX for both short term and long term growth. This provides some operational risks. Therefore, we feel the company needs to diversity its product mix in order to sustain long term growth. We would like to gain more visibility on how Genomic Health diversifies its product offerings and how it expands internationally before we become bullish on the shares. Currently, we are neutral.

Read the full analyst report on GHDX