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Genomic Health Inc. (GHDX - Analyst Report) continues to make strides towards establishing coverage for its Oncotype DX breast cancer test. The company disclosed that the assigned contractor for its Oncotype DX breast cancer test Palmetto GBA has expanded coverage policy for all eligible Medicare patients to include those for ductal carcinoma in situ (DCIS) diagnosis, effective May 8, 2013.

This will lead to a sizeable increase in the number of lives covered for Genomic Health’s breast cancer test. The decision was based on the recent publication of the Oncotype DX breast cancer test’s DCIS Score in the peer-reviewed Journal of the National Cancer Institute.

DCIS is pre-invasive tumor with reduced risk of recurrence. The Oncotype DX DCIS Score is a prognostic index to assess 10-year local recurrence, DCIS or invasive carcinoma in patients. The DCIS Score is established on a patient’s characteristic intrinsic tumor biology, irrespective of whether adjuvant tamoxifen is given to the patient. Besides usual clinical factors such as the size and grade of the tumor, surgical margins and menopausal status of the women with DCIS, the DCIS Score yields other crucial information.

Our Take

We are encouraged with the progress made by Genomic Health on the reimbursement front. Presently, over 95 million lives across the globe are covered for the company’s gamut of tests. Following the market opportunity for tests to detect early-stage prostate cancer and invasive breast cancer, the patient needs for DCIS breast cancer presents the third largest market opportunity among Genomic Health tests.

The prevalence of DCIS is alarmingly high in the U.S. with over 50,000 patients diagnosed annually. In light of this fact, the expanded coverage policy is likely to improve adoption rates in a highly underpenetrated market.

With the DCIS reimbursement in the U.S., one of the priorities of Genomic Health for 2013 has been accomplished. We look forward to the company’s effort to expand private coverage for its Oncotype DX colon cancer test.

On the flip side, Genomic Health’s financial results continue to be highly affected by the performance of the Oncotype DX breast cancer test as the Oncotype DX colon cancer test has failed to make any sizeable contribution to revenues. Nonetheless, the market availability of its lead pipeline product – Oncotype DX prostate cancer test, announced on May 8, 2013, is a major upside for the company. The commercialization of the prostate cancer test will allow Genomic Health to serve a global market size of more than $1.6 billion.

The stock carries a Zacks Rank #3 (Hold). Other medical sector stocks such as Myriad Genetics Inc. (MYGN - Analyst Report) and Conceptus Inc. , carrying a Zacks Rank #1 (Strong Buy) warrant a look. Celgene Corporation (CELG - Analyst Report), carrying a Zacks Rank #2 (Buy) is also worth considering.

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