Genomic Health, Inc.: Almost at Breakeven

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Genomic Health (GHDX) released third-quarter earnings on Thursday afternoon, reducing its loss and laying out a path to breakeven in the fourth quarter.

Genomic Health results: The raw numbers

Data source: Genomic Health press release. YOY = year over year.

What happened with Genomic Health this quarter?

• The 12% revenue growth outpaced an 8% growth in tests delivered as Genomic Health continues to increase reimbursement -- certainly a good thing.
• Much of the growth came from its DCIS breast cancer test; it delivered 23% more tests, producing nearly 20% more revenue than in the year-ago quarter.
• U.S. invasive breast cancer tests continued to grow, with a 9% year-over-year increase in revenue and a 5% increase in tests delivered.
• While that's a bit of a slowdown from year-over-year growth seen earlier this year, it's understandable: We've reached the anniversary of the data presentation and publication, in Sept. 2015, that validated the company's invasive breast cancer test and reaccelerated growth of the test.
• The number of prostate cancer tests delivered increased 6% year over year, which isn't that great for an up-and-coming test, but Genomic Health has a plan to reaccelerate growth, with its sales force focusing on key large accounts and the introduction of a new test-report format that should be easier to interpret. In a separate release on Tuesday, Genomic Health announced positive top-line results from a validation study for its prostate cancer test that should also help increase sales.
• By comparison, Myriad Genetics (MYGN -0.05%) reported a 56% year-over-year increase in orders for its competing prostate cancer test, Prolaris. But that's not quite an apples-to-apples comparison, because Genomic Health reports tests delivered while Myriad Genetics reports tests ordered, which could be inflated by tests that are ordered but can't be processed because the tumor samples are of poor quality.

What management had to say

Commenting further on the results from the validation study and competition with Myriad Genetics, Genomic Health's chief medical officer, Phil Febbo, said: "We believe this unique combination of near- and long-term endpoints distinguishes our assay from a growing number of competitors, based on the value it brings to the patient/physician shared decision regarding the optimal management of clinically low-risk prostate cancer."

Even as the dominant player in the invasive breast cancer test market, Kim Popovits, Genomic Health's chairman, CEO, and president, thinks the company can go higher: "[S]itting today around 55%-ish [market penetration], and tossing a number out, could we get to 80%, 75%? We really believe that's the case."

Looking forward

Management is looking for double-digit revenue growth in the fourth quarter, which would put it at the midpoint of its full-year 2016 guidance.

For the income line, Genomic Health is looking to break even in the fourth quarter, which includes about $2 million in one-time expenses to integrate the AR-V7 test, which it'll start selling for Epic Sciences next year. Genomic Health was able to accelerate its path to breakeven because it's no longer paying licensing fees for one of the techniques -- polymerase chain reaction, or PCR -- that it has to perform to process its tests.

Moving from breakeven toward profitability shouldn't be too difficult next year, given the company's operating leverage. For 2016, management estimates that for every extra dollar of revenue over its 2015 level, it's creating $0.40 of operating income.