Genomic Health, Inc. Waits for Reimbursement

By Brian Orelli Markets Fool.com

Genomic Health (NASDAQ: GHDX) reported first-quarter earnings last week with revenue inching up slowly while the cancer test company decreased its loss on the way to profitability.

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Genomic Health results: The raw numbers

Metric

Q1 2017

Q1 2016

Year-Over-Year Change

Revenue

$84.0 million

$80.9 million

3.8%

(Loss) from operations

($2.8 million)

($8.8 million)

N/A

(Loss) per share

($0.02)

($0.19)

N/A

Data source: Genomic Health.

What happened with Genomic Health this quarter?

  • While revenue increased less than 4% year over year, the number of tests delivered increased 7%. The deviation came from the prostate cancer test adoption, which grew 40% by volume, but saw just 26% revenue growth compared to the year-ago quarter. As the company increases reimbursement, the increased usage now will benefit the revenue number down the line.
  • Investors can witness that paradigm outside the U.S. for its breast cancer test, which has trailed the U.S. in adoption and reimbursement. Internationally, tests delivered increased 17% while revenue increased 29% year over year.
  • With a lot of fixed costs, Genomic health is able to exert operating leverage on its way to profitability. The company turned a $3.1 million increase in revenue into a $6 million improvement in operating income.
  • Draft guidance was issued that recommended Genomic Health's prostate cancer test be reimbursed by the Centers for Medicare and Medicaid Services (CMS) for intermediate-risk patients.

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Image source: Getty Images.

What management had to say

G. Bradley Cole, Genomic Health's chief financial officer and chief operating officer, laid out plans to reaccelerating growth:

Returning to double-digit growth in the second half of the year is dependent on expanded CMS coverage for NCCN intermediate-risk patients, increased private coverage for prostate, and continued growth in our global breast business.

Phillip Febbo, Genomic Health's chief medical officer, noted the increasing usage of prostate cancer tests:

It is clear from market research that urologists are adapting genomic testing with more than one of every five men diagnosed with clinically low-risk prostate cancer now receiving a genomic test. An increasing proportion of men faced with this diagnosis are making more informed treatment decisions with their physicians and many are opting to follow active surveillance.

While Febbo is excited about the increased adoption, investors should also note that almost 80% of prostate patients are still not getting a genomic test, offering plenty of future growth.

Looking forward

In the second quarter, management is looking for revenue of $86 million. While that isn't much higher than the first quarter, in the international markets, the second quarter tends to be slower, so some sequential growth is a positive.

The final CMS reimbursement decision won't come until the second half of the year, so management is guiding for growth to accelerate as the year progresses. In the second half of the year, management has a goal to increase prostate cancer test volume by 30%, while revenue is expected to increase by 40%.

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