Genomic Health, Inc. GHDX reported first-quarter 2018 adjusted earnings of 13 cents per share against the year-ago adjusted net loss of 8 cents, thereby reflecting a significant improvement. The bottom line also exceeded the Zacks Consensus Estimate of 2 cents.

Reported net loss came in at 11 cents per share, wider than a couple of cents a year ago.

Revenues in Detail

In the reported quarter, the company adopted the new ASC 606 accounting standard for calculating revenues using the modified retrospective method. Accordingly, the metric was $92.6 million, up 12.5% from the year-ago pre-606 adjusted revenues (if the new ASC 606 standard had been applied as of Jan 1, 2017) of $82.3 million. On an adjusted constant currency basis, the top line improved 12% year over year. The quarterly number also surpassed the Zacks Consensus Estimate of $89 million.

Genomic Health, Inc. Price, Consensus and EPS Surprise

Genomic Health, Inc. Price, Consensus and EPS Surprise | Genomic Health, Inc. Quote

 

Geographically, first-quarter product revenues in the United States rose 14% to $78.9 million from the year-ago pre-606 adjusted revenues. The U.S. product revenue growth was fueled by a 12% rise inU.S. invasive breast revenuesfrom Oncotype DX Breast Recurrence Score tests and a 75% surge in U.S. prostate test revenues from Oncotype DX Genomic Prostate Score (GPS) tests.

International product revenues totaled $13.8 million in the quarter under review, up 5% year over year (up 1% atadjusted constant currency) from the year-ago pre-606 adjusted tally.

During the first quarter, the company delivered more than 32,440 Oncotype DX test results, up 3% year over year.

Margin Trend

Genomic Health’s gross margin contracted 394 basis points (bps) year over year to 79.8% in the first quarter.

The company also witnessed a 7% rise in operating expenses to $78.3 million on a 12.9% escalation in research and development expenses to $16.8 million, 17.7% uptick in general and administrative expenses to $19.7 million and a 0.6% increase in selling and marketing expenses to $41.8 million.

In the reported quarter, Genomic Health’s operating loss came in at $4.4 million, wider than the year-ago operating loss of $2.8 million. Accordingly, the operating margin contracted 137 bps.

Financial Update

Genomic Health exited the first quarter of 2018 with cash and cash equivalents and short-term marketable securities of $130.4 million, highlighting an improvement from $129.6 million recorded at the end of 2017.

2018 Guidance

The company has reaffirmed its earlier-provided outlook for 2018. Genomic Health expects full-year revenues in the range of $366-$382 million, reflecting 10-15% growth. The Zacks Consensus Estimate of $373.4 million is within this guided range.

Our Take

Genomic Health exited first-quarter 2018 on a promising note with both adjusted earnings and revenues outpacing the respective consensus mark.

We are also encouraged by the year-over-year rise in revenues, driven by solid performances in the United States and internationally. Per the company, within prostate cancer space, the strengthened NCCN (National Comprehensive Cancer Network) prostate cancer guidelines and additional new data are increasing private coverage for the Oncotype DX GPS test. Moreover, the company is upbeat about the U.S. commercial launch of Oncotype DX AR-V7 Nucleus Detect, a liquid biopsy test for metastatic prostate cancer, which is expected to contribute to this business growth in 2018.

The company also witnessed a series of upsides for its Oncotype DX Breast Recurrence Score tests.

However, Genomic Health’s sole reliance on the Breast Oncotype DX test is a concern. Moreover, the company’s rising operating expenses pose a challenge.

Zacks Rank & Key Picks

Genomic Health carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical sector with solid results this earnings season are Intuitive Surgical ISRG, Chemed Corp. CHE and Baxter International Inc. BAX. While Intuitive Surgical sports a Zacks Rank #1 (Strong Buy), Chemed and Baxter carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical reported first-quarter 2018 adjusted earnings per share (EPS) of $2.44, which beat the Zacks Consensus Estimate by 22.6%. Revenues of $848 million also surpassed the consensus estimate by 10.6%.

Chemed posted first-quarter 2018 adjusted EPS of $2.72, outshining the Zacks Consensus Estimate of $2.37. Revenues came in at $439.2 million, beating the Zacks Consensus Estimate of $420 million.

Baxter released first-quarter 2018 adjusted EPS of 70 cents, which crossed the consensus mark by 12.9%. Revenues of $2.68 billion also edged past the Zacks Consensus Estimate of $2.62 billion.

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