Genomic Health (GHDX) Misses Q1 Earnings & Sales Estimates

Genomic Health, Inc. (NASDAQ:GHDX) reported first-quarter 2017 loss per share of 7 cents, reflecting an improvement from the year-ago quarter’s loss figure of 19 cents. The quarter’s number is however wider than the Zacks Consensus Estimate of a loss of 6 cents.

Net income in the reported quarter was $1.4 million against net loss of $2.7 million in the year-ago quarter.

Revenues in Detail

Total revenue in the quarter rose 3.8% year over year to $84.0 million but missed the Zacks Consensus Estimate of $86 million. Growth across the U.S. and international markets drove the top line.

Geographically, first-quarter product revenues in the U.S. improved 0.1% to $70.6 million. The U.S. product revenue growth was fueled by invasive breast cancer revenue growth of 1.1% as well as 26.9% contribution from Prostate test revenues. International product revenues were $13.4 million in the reported quarter, up 29%, and 33% on a CER basis.

During the quarter, the company delivered more than 31,580 Oncotype DX test results, up 7% year over year.

Margin Trend

In the quarter under review, Genomic Health’s gross margin expanded 369 basis points (bps) year over year to 83.7%. Apart from significant top-line growth, the improvement in gross margin was a result of a 15.4% decline in cost of product revenues to $13.6 million.

Genomic Health also witnessed a 0.5% fall in operating expenses to $73.1 million owing to a 9.1% decrease in general and administrative expenses to $16.8 million and a 4.7% fall in research and development expenses to $14.8 million. However, selling and marketing expenses rose 5.1% to $41.5 million.

In the reported quarter, Genomic Health recorded an operating loss of $2.8 million, wider than an operating loss of $0.8 million incurred in the prior-year quarter.

Financial Update

Genomic Health exited first-quarter 2017 with cash and cash equivalents and short-term marketable securities (including a corporate equity investment) of $94.4 million, reflecting a slight improvement from $87.7 million recorded at the end of Dec 31, 2016.

Our Take

Genomic Health exited the first quarter of 2017 on a dismal note with both earnings and sales beating the Zacks Consensus Estimate. We are concerned about the company’s rising operating losses as well.

Nevertheless, we are encouraged about the decline in cost of sales combined with gross margin expansion, on account of higher revenue growth.

Management noted that strong demand for Genomic Health’s Oncotype tests in the first quarter of 2017 was partly on account of growth across its U.S. prostate and global invasive breast business.Specifically, in invasive breast cancer, the Oncotype DX test proved to be the company’s only test to predict all major short- and long-term outcomes.

Zacks Rank & Key Picks

Genomic Health currently has a Zacks Rank #3 (Hold). Better-ranked medical stocks include Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) , Bio-Rad Laboratories, Inc. (NYSE:BIO) and Baxter International Inc. (NYSE:BAX) . Regeneron Pharmaceuticals and Bio-Rad Laboratories sport a Zacks Rank 1 (Strong Buy), while Baxter International carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Regeneron Pharmaceuticals gained 18% in the last one year, in comparison to the S&P 500’s 16.0%. It has a trailing four-quarter average positive earnings surprise of 0.45%.

Bio-Rad Laboratories surged 55.7% in the past one year, better than the S&P 500 mark. It has a four-quarter average earnings surprise of 13.10%.

Baxter International rose 23.1% in the last one year, in comparison to the S&P 500. It has a four-quarter average positive earnings surprise of 17.14%.

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