Genomic Health: Can The Liquid Biopsy Test Boost Margins?

On Jun 24, we issued an updated research report on Redwood City, CA-based Genomic Health Inc. (NASDAQ:GHDX) – a global cancer company with focus on advanced molecular diagnostics. The company currently carries a Zacks Rank #3 (Hold).

Last week, Genomic Health launched a next-generation sequencing blood-based mutational panel – Oncotype SEQ Liquid Select. This non-invasive panel test can identify actionable genomic alterations of around 17 genes to facilitate personalized treatment of stage four solid tumor cancer including lung, breast, colon, melanoma, ovarian and gastrointestinal stromal cell tumor.

Management believes that Oncotype SEQ will cater to more than 350,000 late-stage cancer patients every year in the U.S. With the growing uptake of the liquid biopsy test and opportunities in breast cancer, prostate cancer as well as international markets, the launch of Oncotype SEQ is expected to expand Genomic’s footprint in the multi-million dollar worth molecular diagnostics market.

Having already established a strong foothold in the U.S., Genomic Health is now making considerable progress internationally. Going forward, management expects to rake in more revenues from tests in international markets, based on contract pull through in the U.K. and expected growth in key markets.

On the flip side, Genomic Health’s revenue growth is largely dependent on its Oncotype DX breast cancer test. Though the company is consistently working toward expanding market for its colon cancer test, the offering is yet to gain traction.

Moreover, the company has been witnessing escalating cost of production that has been a drag on its gross margin. Further, any interruption in the studies that are being conducted by Genomic might hurt its reputation to a great extent.

Key Picks in the Sector

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