Genomic Health, Inc. Earnings: Waiting for (More) Reimbursement

Genomic Health (GHDX) reported solid revenue growth last week as the cancer-test maker moves its way to profitability.

Genomic Health results: The raw numbers

Data source: Company press release.

What happened with Genomic Health this quarter?

• The number of tests delivered increased 16% year over year; revenue grew even faster because more of its tests are being reimbursed for.
• The big driver came from the increased use of Genomic Health's invasive breast cancer test in the United States. Test volume increased 11% year over year, and revenue from the test increased 16%.
• While the prostate test is now covered by Medicare, Genomic Health still isn't getting reimbursed for many tests, so the prostate cancer test only contributed 4 percentage points of the 22% year-over-year increase in U.S. revenue. Test volume, on the other hand, was up 18% year over year, boding well for the future as the company works on collecting data required for Medicare billing.
• Gross margin dropped year over year because of a growth in the number of U.S. prostate cancer tests and international tests that are reimbursed at a lower rate.

What management had to say 

Kim Popovits, Genomic Health's chairman, CEO, and president, hinted that there might be a backlog of prostate cancer tests that the company hasn't reported yet: "We are only reporting tests delivered, so we're not reporting tests ordered but tests delivered. And that means a GPS score has left the building and is in the hands of a physician and a patient."

On the competition with Myriad Genetics' (MYGN 0.38%) Prolaris prostate cancer test and others, Popovits highlighted the differences in the test: "There's a lot of noise in the space right now, which we actually think is positive."

Genomic Health is focused on a very low-risk group with the active surveillance where it thinks it has an advantage. "So there are some conversations now around newer tests, but most of those tests have been validated in a late-stage higher risk population," Popovits said.

Myriad Genetics reported approximately $3.2 million in revenue from Prolaris for tests reimbursed in the most recent quarter, beating Genomic Health's $2.6 million. But Genomic Health had about $1 million in eligible Medicare revenue that wasn't captured during the quarter, so Genomic Health might have a slight lead. Either way, there's still quite a bit of a market left to capture; Myriad Genetics' management estimates a global market size of $1.5 billion that's largely untapped.

Looking forward

Management is shooting for revenue growth of 12% to 17% for the year. The second quarter tends to be soft, so the guidance is for revenue around the $81 million level seen in the first quarter, which would result in double-digit growth compared with the second quarter of 2015.

Growth in test volume will be key for long-term growth, but short-term growth -- and Genomic Health's goal of having positive earnings before interest, tax, depreciation and amortization for the remainder of the year -- will come from increased reimbursement for those tests.