Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Shares of Genomic Health Dropped Today

By Brian Orelli, PhD – May 8, 2019 at 1:37PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

After Genomic's stellar first quarter, investors are getting jittery about growth in the second half.

What happened

Shares of Genomic Health (GHDX) are down 13% at 12:52 p.m. EDT following the release of the genetic test-maker's first-quarter earnings after the closing bell yesterday.

From the decline, you'd think the company had missed its goal, pulled back guidance, or done something equally awful. But revenue in the first quarter was up 17.4% year over year, far exceeding management's guidance released in February for 2019 revenue growth in the 11% to 14% range.

With management deciding not to raise that guidance, investors seem to have concluded that growth in the second half will be substantially slower, which will bring down the average into the guided range. With shares up more than 80% over the last year through yesterday, there's probably a little profit-taking happening today, as well.

Doctor working on a computer.

Image source: Getty Images.

So what

This slowdown in growth in the second half of the year shouldn't come as a big surprise. Genomic Health's chief financial officer, G. Bradley Cole, highlighted the issue when guidance was released in February. "We expect greater year over year revenue growth in the first half of 2019 when compared to our expectations for the second half of 2019," he said.

The reason for the slowdown comes from the midyear release of data from the Trial Assigning Individualized Options for Treatment (TAILORx) study, which showed Genomic Health's Oncotype DX Breast Recurrence test can predict whether women with breast cancer need to also receive chemotherapy. The results produced a quick increase in sales of the test, resulting in revenue growth of 21% and 22% in the third and fourth quarters of last year, respectively. Those are tough year-over-year comparisons to go against without another extraordinary growth driver.

Now what

Europe is behind the U.S. in terms of adoption and reimbursement, so there's certainly some growth left in the breast cancer market. A reimbursement decision in Germany is expected this quarter, which could help the company hit or even exceed the top of management's revenue-growth guidance. France is expected next year.

Looking further ahead, growth will come from a pair of prostate cancer tests. Sales of the Oncotype DX Genomic Prostate Score test grew 47% year over year, but it's growing off a small base of less than 8% of total sales. Management didn't even break out sales of the newer Oncotype DX AR-V7 Nucleus Detect, although the launch is off to a good start with the company securing the first private insurance company reimbursement for the test during the quarter.

Brian Orelli has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Genomic Health. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Genomic Health, Inc. Stock Quote
Genomic Health, Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.