Newsletter Watch: Genomic Health, Inc.
This week, a newsletter advisor examines Genomic Health, Inc. (Nasdaq: GHDX), a speculative play on a developing new science and its application in breast cancer treatment.
"The era of personalized medicine is arriving; this will allow physicians to select a therapy based on the genetic characteristics of a particular patient," says Dave Dyer, of the Dave Dyer Newsletter.
Genomic Health, Dyer explains, is one of the first companies to provide both "a successful product and an investment opportunity." He says its current product, Oncotype DX, predicts the likelihood of breast cancer recurrence and the likelihood of chemotherapy benefit in early-stage breast cancer patients.
"For 70% of people with early stage breast cancer, minimally invasive surgery and radiation is all that is needed. The other 30% have a more aggressive type of cancer and would benefit from also receiving chemotherapy," Dyer says. "An objective, quantifiable test based on the genetic characteristics of a specific patient can determine with very high probability which group a patient belongs to."
Dyer says the firm's product is backed by extensive clinical testing, and that insurance companies and Medicare are willing to pay for it—their management seems to understand that they are running a business, not an academic institution.
"It is easy to understand why a patient facing the tough choices around chemotherapy would want this information. The side effects of chemotherapy can be extremely uncomfortable, but the side effect of not getting it when you need it can be death," he says.
The one-time test, he says, costs $3,460 and is used to determine if the patient is put in a high, medium or low risk group for reoccurrence of breast cancer without chemotherapy. He says that the score provides valuable predictive information for people trying to make difficult decisions.
After visiting Genomic Health’s booth at the San Antonio Breast Cancer Symposium last December and speaking with some of their sales people, Dyer says, "The company has invested heavily in a 40 person direct sales force to call on clinicians, hospitals and clinical pathology labs. That is a big investment for a company of slightly more than 200 people."
There is also recent good news on the insurance front, according to the advisor.
"The Medical Advisory Panel of the Blue Cross and Blue Shield Association's Technology Evaluation Center, a technology assessment group, recently announced that Oncotype DX meets the panel's criteria for clinical effectiveness and appropriateness," he says.
This decision reversed a 2005 conclusion and the endorsement by the largest health insurance company in America, he says, should dispel any lingering doubts about payment.
But there are risks. "While the Oncotype DX test is patented, other companies and universities are certainly working on similar genetic tests for other types of cancer," He says. "This is a hot research area because such tests improve the effectiveness of current therapies, and this is easier than getting approval for a new therapy."
However, Dyer says, "FDA regulation of genetic tests had been a gray area until last September when they decided to regulate them. This could be good for GHDX, who has had its product to market since 2004, since it tends to create a barrier for competitors."
GHDX went public in the fall of 2005 and is up more than 70% from the IPO price, he says, explaining that the company has had "excellent sales growth," but no profits yet.
"Sales for the most recent quarter were $14.7 million, up 75% from the same quarter last year,” he says. “Sales for the prior quarter were $14.1 million, up 178%. If a company is not yet profitable, it is important to see large sales increases such as these.”
Dyer also points out that Genomic Health is working on tests for prostate, kidney, lung and colorectal cancers, as well as melanoma. A successful second test, he says, could establish their position as the "clear leader in a hot new field."
"Management owns about 50% of the stock and there has been some insider buying since the IPO. With a market cap of only $577 million, they would be an easy take-over target for any number of larger companies," Dyer says.
On Thursday, shares of Genomic Health (GHDX) closed at $24.10. Over the last 52 weeks, shares have ranged between $14.73 and $25.68.
