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Genomic Health Stock Soars After TAILORx Data Clarifies Utility of Oncotype DX

NEW YORK (GenomeWeb) – Genomic Health's stock skyrocketed Monday on the news of a study in the New England Journal of Medicine that finally answered the question of how doctors should interpret and act upon an intermediate result from the firm's Oncotype DX breast cancer risk test.

The company's stock closed up more than 23 percent at $48.84 on the Nasdaq on Monday.

The data, which was also presented over the weekend at the American Society for Clinical Oncology annual meeting in Chicago, showed that women with Oncotype DX recurrence scores from a low-risk threshold of 11 up to a high-risk threshold of 25 appear to benefit equally when treated with endocrine therapy alone compared to hormonal therapy with added chemotherapy, as long as they are over 50 years of age. Though doctors had known from previous studies that a low-risk score could be prognostic and a high-risk score could be predictive, the intermediate scores were trickier to interpret.

Researchers presenting the study estimated that the new classification architecture means that the percentage of individuals with early-stage hormone-receptor positive, HER-2 negative tumors who can confidently avoid chemo is about 70 percent overall.

In a note to investors on Sunday evening, Canaccord Genuity analyst Mark Massaro reiterated his Buy rating for Genomic Health and raised his price target on the firm's stock to $45 from $41, noting that the TAILORx data "is at least 'good enough' to drive some incremental boost to Oncotype DX volumes globally, and perhaps more obviously, turn on reimbursement where coverage is limited (particularly in Germany)."

Genomic Health's management believes that capitalizing on the TAILORx data can help the firm hit the high end of its 2018 revenue guide, Massaro added, and the company is looking to create some targeted digital ads to drive new doctor ordering for the test. The firm is also expecting payor decisions from France this summer, from Germany in the fall, and from the UK in September that could be affected by the study's results.

Overall, Massaro is modeling 13 percent growth in revenues for Genomic Health in 2018, driven in part by the TAILORx results.

Cowen analyst Doug Schenkel in a note to investors on Monday added that the study "solidifies the utility of Oncotype in women with early-stage breast cancer, and it could drive increased ordering of Oncotype. Put simply, we see potential material upside to our volume and revenue per test forecasts in the US and abroad over the next several years."

Schenkel also noted that Genomic Health believes it now has some power with insurers to improve reimbursement prices for its test, which could be important when its commercial contracts come up for renewal.

"We are currently forecasting that the Invasive Breast average revenue per test will increase by 3 percent in 2020 relative to 2018 levels. Based on company commentary and the disproportionate number of patients that are commercially covered (about 80 percent), we believe this forecast is very achievable if not beatable," he wrote. "An increase in the reimbursement rate of 10 percent compared to today's levels would lead to a $30 million increase in our 2020 estimated revenues, with all other assumptions unchanged."