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Genomic Health-Cleveland Diagnostics Deal to Boost Test Suite

Zacks

Genomic Health, Inc. GHDX recently announced an exclusive licensing agreement with biotechnology company Cleveland Diagnostics, Inc.

Per the agreement, Genomic Health will be authorized to develop and market early- and late-stage new prostate cancer diagnostics tests based on Cleveland Diagnostics' proprietary IsoPSA reagent and SIA technology. The company aims to provide initial access to urology labs in the United States in 2020 and start additional development and clinical validation of the first high-PSA reflex test in 2018.

This study is expected to be completed in the first half of 2018. Genomic Health will be initially targeting to develop a high-PSA (prostate-specific antigen) reflex test, capable of precisely predicting the presence of high-grade cancer (Gleason score > 7), without the patient undergoing prostate biopsy. The company claims to reduce unnecessary healthcare expenditures, for more than four million men, having a PSA score between 2 and 10 each year in the United States.

Management informed that, results of 75% of prostate biopsies performed are either negative or indicate a low probability of high-grade cancer, thereby driving healthcare costs.


Genomic Health is entitled to make a convertible note investment in the principal amount of $2 million in the fourth quarter of 2017 in Cleveland Diagnostics. In addition, the company is liable to make a contingent additional payment of $5 million and a $3-million convertible note investment after achieving positive results from a follow-on multicenter study. Based on national reimbursement, some annual net sales targets and other licensing rights, Genomic Health will have to make additional payments on achievement of certain milestones along with royalties on test sales.

Recent Developments

Per a report by Grand View Research, the global prostate cancer therapeutics market is expected to see a CAGR of 4.8% between 2014 and 2025. Considering the huge potential of the market, we believe the latest agreement is a strategic fit.

Genomic Health’s U.S. prostate cancer business consistently accelerated over the last few quarters. The company has continued to make progress delivering actionable results to increase adoption of this test while further strengthening evidence to support private reimbursement. Third-quarter revenues in this business more than doubled on a year-over-year basis with the U.S. product revenue growth being driven by a 139% rise in Prostate test revenues.Per management, the company continues to be a leader in the low-risk and intermediate-risk prostate cancer market on solid test volume performance over the last several quarters. The company is currently focusing on its partnership with Epic Sciences to launch Oncotype DX AR-V7 for prostate cancer by the end of 2017.

In urology, Genomic Health announced expanded Medicare coverage of the Oncotype DX Genomic Prostate Score (GPS) test post issuance of a positive final Local Coverage Determination (LCD) by Palmetto GBA, a Medicare Administrative Contractor (MAC). Per management, after the successful implementation of the final LCD in October, the total number of Medicare patients eligible for GPS test will increase by around 20,000.

Share Price Performance

Over the past three months, Genomic Health has been trading above the broader industry. The stock has lost 4.5%, narrower than the broader industry’s 9.2% decline.

Zacks Rank & Key Picks

Genomic Health currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader medical sector are PetMed Express, Inc. PETS, Myriad Genetics, Inc. MYGN and Luminex Corporation LMNX. While PetMed and Myriad sport a Zacks Rank #1 (Strong Buy), Luminex carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed has a long-term expected earnings growth rate of 10%. The stock has rallied roughly 79.1% in a year.

Myriad Genetics has a long-term expected earnings growth rate of 15%. The stock has gained 8.5% over the last three months.

Luminex has a long-term expected earnings growth rate of 15.2%. The stock has rallied 14.9% over the last three months.

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