Here's Why Genomic Health, Inc. Popped Today

By Brian

What: Genomic Health was up as much as 20% today after releasing third quarter financial data after the bell yesterday.

So what: Investors seem to be keyed in on one number: 17%.

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That's the year-over-year increase in the number of tests Genomic Health performed. Much of that growth is coming overseas, where the number of test results delivered grew 30% year over year.

Revenue only went up 6% because Genomic Health isn't being reimbursed for all of the tests it performs yet and because of the stronger dollar. At constant exchange rates, revenue growth would have been closer to 7.8%.

Genomic Health still lost money in the third quarter, but with Medicare coverage for its Oncotype DX prostate cancer test going into effect on October 13, the company thinks it can hit double-digit revenue growth in the fourth quarter and be close to break even.

Now what: Genomic Health has clearly hit its stride. The lesson here for investors is that it takes awhile to get enough data to convince doctors and payers of a test's usefulness.

Investors in Foundation Medicine are learning that the hard way today with shares down more than 20% today. Yesterday, Foundation Medicine reported a 25% increase in the number of clinical tests it performed in the third quarter, but investors are disappointed in the growth of its new FoundationOne Heme test. Foundation Medicine's management pointed to the upcoming publication of a paper validating the test as key to proving the value of its test.

Genomic Health's investors would be wise to keep this slow ramp for the launch of the company's next test and not let the stock price get ahead of the test's perceived value. Despite today's large increase, shares are still well off their all-time high.

The article Here's Why Genomic Health, Inc. Popped Today originally appeared on

Brian Orelli has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Genomic Health. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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