Genomic Health Starts Sprinting

Last quarter, Genomic Health's (GHDX) chairman, president, and CEO, Kimberly Popovits, characterized the company's growth like a marathon.

Apparently, the cancer-test maker started doing sprints in the middle of its 26.2-mile trek, posting record revenue and profit during the third quarter.

Genomic Health results: The raw numbers

Data source: Genomic Health.

What happened with Genomic Health this quarter?

• Factoring in the ASC 606 accounting change, revenue would have been up 23% year over year; increases in test volume added 10 percentage points while improvements in reimbursements and collection added 13 percentage points.
• Revenue in the U.S. from invasive breast cancer -- at $76.7 million, the bulk of revenue -- increased 24% on a comparable basis. About half of the growth was from added volume, as doctors increased the number of patients being tested after the release of data from the TAILORx study that showed patients with certain scores on Genomic Health's Oncotype DX Breast Recurrence Score test can skip chemotherapy. The other half of the growth came from increased reimbursement rates.
• U.S. prostate cancer revenue increased 28% year over year, on the back of a 15% increase in test volume.
• The relatively new Oncotype DX AR-V7 Nucleus Detect test for men with castrate-resistant metastatic prostate cancer gained Medicare's final local coverage determination, allowing for reimbursement for men in the government program starting in December.

Image source: Getty Images.

What management had to say

Chief Financial Officer G. Bradley Cole highlighted Oncotype DX AR-V7's potential and the unknowns that make it hard to pin down exactly how big the market could be:

I'll just remind you that the market for AR-V7 is about 50,000 patients a year. We don't have a price point yet for Medicare, but that should be forthcoming in the next few weeks or month, but we think the value add is much like IVC and should be a price well above $3,000, representing $150 million or so market opportunity in the U.S. We're the only tests available, and so our expectations are significant, but we haven't -- we are not ready to provide specific guidance on '19 until we get a little more time under our belt with reimbursement in place.

The breast cancer test was listed in the preferred category in the National Comprehensive Cancer Network guidelines, which Popovits thinks will help increase its market share:

We're absolutely thrilled to have that exclusive differentiation. It's not really the impact that we're seeing is on pricing or payer coverage because we have broad payer coverage already. With payers, it really is on more our ability for penetration, market share, and really strengthening our performance there as we aim to reach all patients.

Looking forward

With a quarter of post-TAILORx growth under its belt, management increased 2018 guidance and now expects revenue to grow about 17% year over year, up from an expectation of 10% to 15% growth. On the bottom line, management is expecting earnings of $0.72 to $0.78 per share, substantially higher than the $0.14 per share at the high end of the previous guidance.

Looking into next year, there should be some additional growth for the breast cancer test, but the real focus will be on prostate cancer, where increasing reimbursement should drive revenue.