UPDATE: Goldman Sachs Downgrades Genomic Health Inc. (GHDX) to Sell

June 25, 2013 8:53 AM EDT Send to a Friend
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Price: $33.65 +1.72%

Rating Summary:
    6 Buy, 6 Hold, 5 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 24 | Down: 28 | New: 14
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(Updated - June 25, 2013 1:01 PM EDT)

Goldman Sachs downgraded Genomic Health Inc. (NASDAQ: GHDX) from Neutral to Sell and cut their price target from $27 to $26, suggesting 24% downside to Monday's close.

While shares have outperformed year-to-date in anticipation of the new prostate product cycle, analyst Isaac Ro said the stock will now (post launch) be driven by commercial uptake.

Ro is taking a below-consensus view on revenues/EPS for four reasons: (1) We are not convinced that the test will be sufficiently compelling to become a standard of care. (2) We believe commercial uptake of the prostate cancer test will be sluggish, as the economic benefit of this product is not clear. (3) We believe the Street underestimates the R&D and marketing costs required to drive this product cycle, where the hurdles to success will be higher than in breast. (4) While GHDX's Oncotype DX remains the "gold standard" in breast cancer, we see incremental costs associated with defending this position and modest risk of share loss as new entrants arise.

Three catalysts for investors to consider include: anticipated disappointing ramp in prostate cancer test revenues over the next two years; anticipated downward EPS revisions starting with 3Q opex increases to support the prostate test launch; Competition in breast cancer will intensify beginning in 2H13.

Looking at possible reasons to buy shares, the firm said strong economic and patient benefit studies for prostate, faster reimbursement, better operating leverage, better growth in breast, more pipeline visibility, would make them more positive.

The firm cut FY 2014 EPS estimates from $0.23 to $0.20, and FY 2015 EPS estimates from $0.48 to $0.45.

For an analyst ratings summary and ratings history on Genomic Health Inc. click here. For more ratings news on Genomic Health Inc. click here.

Shares of Genomic Health Inc. closed at $34.23 yesterday.


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