Genomic Health (NASDAQ:GHDX) recorded a $1.1 million profit during the third quarter, something it's been shooting for as it's improved its bottom line for each of the last nine consecutive quarters. But the profit only came on a non-GAAP basis, in which the company subtracted out the expenses associated with its recently announced collaboration with Biocartis. On a GAAP basis, Genomic Health lost a still-reasonable $2.2 million.

Genomic Health results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue

$83.8 million

$82.3 million

1.9%

Income from operations

($2.6 million)

($3.0 million)

N/A

Earnings per share

($0.06)

($0.08)

N/A

Data source: Genomic Health.

What happened with Genomic Health this quarter?

  • The number of tests delivered increased by 5.4% compared to the year-ago period, with the U.S. hurricanes affecting test volume somewhat. Without the disruption, management estimates volume would have increased by approximately 7.6%. Some of that lost revenue could show up in the fourth quarter as patients reschedule their appointments, but the company said it's hard to know how much.
  • Most of the growth in test volume is coming internationally where volume increased 14% and in U.S. prostate cancer test where volume was up 39% despite the impact of the hurricane. U.S. invasive breast cancer test volume was flat year over year as the company dominates that market.
  • Revenue would have been up about 5% without the impact of the hurricanes. Volume continues to outpace revenue growth as the company performs tests without reimbursement, which will hopefully pay off in the long run, working from a larger base once reimbursement is established in the different payers.
  • The launch of the Oncotype DX AR-V7 Nucleus Detect test, which identifies men with prostate cancer who won't benefit from androgen receptor inhibitors, is progressing and the company has applied for Medicare coverage.
  • In September, Genomic Health announced a partnership with Biocartis to develop an in vitro diagnostic version of its Oncotype DX Breast Recurrence Score test on Biocartis' Idylla platform. Rather than sending samples to Genomic Health's laboratory, local pathology laboratories and hospitals will be able to run the tests directly, which is ideal for continued growth in international markets. Genomic Health and Biocartis are shooting for launching in 2019, starting in France and Germany.
Woman looking at mamogram

Image source: Getty Images.

What management had to say

Kimberly Popovits, Genomic Health's chairman, CEO, and president, highlighted the potential for the TAILORx study to grow revenue from breast cancer tests when the study is released next year:

We believe that TAILORx intermediate results, the largest adjuvant breast cancer treatment study ever conducted, will be a significant catalyst in driving future growth and penetration when reported, establishing a new standard of care.

For the prostate cancer test, Popovits stressed the new Medicare coverage that went into effect on Oct. 9 as a driver of revenue:

Importantly, we are beginning to close the gap between volume and revenue with new reimbursement, including the final coverage decision to expand Medicare coverage to qualified U.S. patients with intermediate-risk prostate cancer.

COO and CFO Bradley Cole talked about the balance of increasing earnings versus reinvesting new revenue to drive future growth:

I think we have to continue to balance how much to drop to the bottom line and how we invest in these new markets. Prostate is a market that's less than 20% penetrated today by class. AR-V7 is a brand-new market, so I think we've got to make some wise choices, which, I think, we've made this year in what you've seen on the bottom line.

Looking forward

Management is looking for revenue of $89 million in the fourth quarter, up 9% year over year, and expects to turn a profit with net income of at least $2.5 million.

Looking ahead to 2018, Genomic Health will get a bump up in reimbursement rate from Medicare for its invasive breast cancer test. And the aforementioned TAILORx results could drive sales in the second half of the year while the Medicare reimbursement for intermediate-risk prostate test will contribute for the entire year now that it has coverage. And finally, there's potential to obtain coverage for the AR-V7 test in early 2018.

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