Genomic Health (GHDX) 2/4/10 Molecular Diagnostics and Genomics

Public Company- Market Cap $482M Stock Price $16.5-17.5


Genomic Health is a life science Company focused on the development and commercialization of genomic-based clinical laboratory services for cancer that allow physicians and patients to make individualized treatment decisions (Personalized Medicine, Pharmacogenomics). In 2004 Genomic Health launched the Oncotype DX breast cancer test, which has been shown to predict the likelihood of chemotherapy benefit as well as the recurrence in early-stage breast cancer. The Oncotype gene expression assay analyzes the expression level of 21 genes in a women’s breast cancer tumor sample. Over 100,000 tests have been delivered since introduction. In addition to the widely adopted Oncotype DX breast cancer test Genomic Health is preparing to launch its Oncotype DX colon cancer test in early 2010.

Contracts with insurance companies such as Anthem as well as Medicare have been initiated in selected states so the test is being accepted for reimbursement.

Platform Technology

The OncoType DX Test is a clinically validated, high complexity, multianalyte reverse transcription- PCR test genomic test that predicts the likelihood of breast cancer recurrence in early-stage, node-negative, estrogen receptor-positive breast cancer

(ER+, N-). The assay utilizes a pooled RNA sample from fixed paraffin-embedded (FPET) tissues to evaluate the analytical performance of a 21gene panel. The proprietary technology permits analysis of large stores of frozen tissue samples. The assay can also be used to identify patients who may be successfully treated with tamoxifen and may not require adjuvant chemotherapy.

Products and Pipeline

Genomics is the study of complex sets of genes, how they are expressed in cells and what role they play in biology. A genomic test such as Oncotype DX looks at groups of genes and how active they are to determine how a cancer is likely to grow and respond to treatment. The Company also is investigating the value of new genes beyond the current 21 for predicting the benefit of specific chemotherapy drugs or drug classes or the benefit of specific targeted therapies. Studies will be initiated for ductal carcinoma in situ (DCIS) breast cancer in late 2009.

Development is underway for extending the Oncotype DX products for colon, lung, renal, prostate, melanoma and Non-Small Cell Lung cancers. The Colon Cancer test is at the most advanced stage of development targeting Stage II, III and Erbitux Response. In April 2009 Genomic Health announced a successful validation study in an evaluation of 1400 -colon cancer patients with 760 candidate genes. A similar study was performed in collaboration with Bristol Myers identifying a small number of genes that could predictive response with Erbitux. A renal cancer gene identification study has been completed.

However over the next year the colon cancer test is not expected to be more than 10% of total revenues until reimbursement is firmed up. The Oncotype DX colon cancer test was launched worldwide in January 2010.The 12–gene test is clinically validated to predict individual recurrence risk in stage II colon cancer patients.

Revenues and Balance Sheet 2009 Year End Results

Current revenues are running at the rate of ~$40M/qtr, with 2010 estimates by analysts for 2010 are $183-200M or a 25-29% growth rate primarily for breast cancer testing.

Achieving this 2010 revenue number implies a 3x-3.5x P/S at a stock price of ~$20.

More than 49,000 Oncotype DX tests were sold in 2009. Test volume guidance for 2010 is 58k-61k tests.

The Company lost $9.4M in 2009 or $0.33/sh. The profitability is as high as $0.33/sh or $2M is expected for 2010.

The Company has a strong balance sheet with over $50M in cash and $68 M in Stockholder Equity. Long term debt is minimal.


There are no similar players in the prognostic genomic testing market for breast cancer.

Oncotype DX looks at groups of genes and how active they are and how a cancer is likely to grow and respond to treatment. Genetic tests, such as those based on BRCA genes for breast cancer, look at a person’s genetic make-up and how they predispose one to a certain type of cancer such as breast or ovarian. Myriad Genetics (MYGN) is the leader in predictive medicine products with BRAC analysis and Colaris tests to assess the risk of breast or colon cancer.


Piper Jaffrey, Jefferies, Thomas Weisel, Think Equity, Leerink Swann, and Oppenheimer.

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