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Analyst Downgrades Genomic Health to Underperform

NEW YORK (GenomeWeb News) – Saying that Genomic Health's growth could fall short of consensus expectations, financial services firm Raymond James today downgraded shares of the Redwood City, Calif.-based firm's stock to Underperform from Market Perform.

In a research note, analyst Nicholas Jansen said that while the company's recently launched Oncotype DX test for prostate cancer represents a longer-term opportunity, and an expected decision by the UK's National Institute for Health and Care Excellence for use of the Oncotype DX test for breast cancer could provide incremental volume, "2014 growth could disappoint versus current consensus … alongside incremental competition, the anniversarying of several large international coverage wins, and more modest revenue contribution from new product indications [such as the Oncotype DX test for patients with ductal carcinoma in situ], which will likely keep an overhang on shares until better visibility into prostate uptake/reimbursement outlook emerges."

For 2014, Jansen lowered his estimate for total revenues by $7 million to $281 million. His estimate of a loss of $.01 per share on a GAAP basis was unchanged.

Jansen said that while Genomic Health's DCIS test has Medicare coverage as well as coverage by some private insurers, the test is not anticipated to contribute meaningfully to revenue growth until a second study, currently underway, could result in positive data which could, in turn, drive up test adoption.

Of the prostate cancer test, he noted that Genomic Health "has been pretty adamant" that it anticipates only minor revenue contributions in 2014, with major reimbursement not expected until 2015 and 2016.

And while Genomic Health is the dominant player in the US in molecular diagnostic testing for breast cancer, the market is already 60 percent penetrated and Genomic Health has 90 percent share of the market, "making outsized gains going forward unlikely," Jansen said.

Also, competition from Agendia, as well as NanoString Technologies, whose Prosigna Breast Cancer Prognostic Gene Signature Assay received US Food and Drug Administration approval earlier this month, could result in erosion of Genomic Health's market share in the breast cancer market, Jansen said.

"With possible risk to 2014 numbers and an uncertain prostate trajectory, we believe shares could be underperformers over the near-term, particularly against increasing competitive noise," he said.

In afternoon trading on the Nasdaq, shares of Genomic Health were down nearly 5 percent at $30.96.

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