Genomic Health (NASDAQ:GHDX) posted solid revenue growth in the second quarter thanks to increased use of its cancer tests as well as an improving average selling price as more insurance companies and government health plans are willing to pay for the tests.

Genomic Health results: The raw numbers

Metric

Q2 2018

Q2 2017

Year-Over-Year Change

Revenue

$95.6 million

$85.5 million

14%

Income from operations

$7.10 million

($3.14 million)

N/A

Earnings per share

$0.23

($0.08)

N/A

Data source: Genomic Health.

What happened with Genomic Health this quarter?

  • Revenue growth was driven by a 6% increase in the test volume and an 8% climb in average selling price as reimbursement by insurers and governments health plans went up.
  • Leading the way, revenue from its U.S. invasive breast cancer test increased 13%. Some of the growth came from a jump in volume, but about two-thirds of it resulted from increased reimbursement, including from Medicare as it implemented new reimbursement rates after the passage of the Protecting Access to Medicare Act.
  • Sales of its U.S. prostate cancer test were up 63%, but at $6.7 million, it's still only a small fraction of overall revenue. Increased reimbursements drove about half of the growth.
  • Without any added costs, the increased reimbursement rate falls to the bottom line, helping the company turn a profit this quarter.
  • At the American Society of Clinical Oncology (ASCO) meeting in June, the company presented positive data from the Trial Assigning Individualized Options for Treatment (TAILORx) study, showing the Oncotype DX Breast Recurrence Score test helped patients decide whether they'll benefit from chemotherapy.
  • The partnership with Biocartis to run Genomic Health's tests on Biocartis' Idylla platform is progressing with a feasibility study for the Oncotype DX Breast Recurrence Score test complete. The companies are building out the infrastructure to launch the test in late 2019 and looking to perform feasibility studies to bring Genomic Health's other tests onto the platform, which will allow localized testing and should drive sales overseas where sending samples to Genomic Health is challenging.
Male doctor talking to a female patient in front of a window

Image source: Getty Images.

What management had to say

Kimberly Popovits, Genomic Health's chairman, president, and CEO, highlighted the benefits of the TAILORx results: "We anticipate these positive results will be transformative and increase global adoption, reimbursement and penetration of the Oncotype DX Breast Recurrence Score. We are already seeing the impact of the TAILORx results in global invasive breast test volume following ASCO."

While the data should drive continued adoption and reimbursement for the test, Popovits cautioned that the growth is going to be slow and steady:

We don't see it as a hockey stick. We see it as a bit more of a marathon. But getting from where we are today, which is maybe 58%, 60% penetrated, there's a lot of room for growth here in the U.S. And then as Brad [Cole, the company's CFO] mentioned earlier, with penetration outside the U.S., being less than 15%, there's a tremendous amount of growth there.

Looking forward

Management reiterated its 2018 guidance, but noted that it's expected to be at the high end of the $366 million to $382 million range. To hit the upper end, which would be 15% higher than 2017, U.S. invasive breast cancer test revenue needs to grow by at least 10% and revenue from the prostate cancer test has to rise by about 50%. It'll also need to increase international sales by about 20% and start to see revenue from its newest test, the Oncotype DX AR-V7 Nucleus Detect test, whose Medicare reimbursement should be finalized in the third quarter.

It's a tall order, but Genomic Health certainly has momentum on its side.

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.