Genomic Health Continues Its Profitable Ways

Genomic Health (GHDX) rounded out 2018 with its 14th consecutive quarter of improved profitability on an adjusted basis, driven by data from the TAILORx study that showed Genomic Health's Oncotype DX Breast Recurrence Score test can help breast cancer patients pick the best treatment. The company's growing prostate cancer test franchise also helped drive revenue growth.

Genomic Health results: The raw numbers

Data source: Genomic Health.

What happened with Genomic Health this quarter?

• The year-over-year revenue growth benefited from new accounting rules that started in the beginning of last year, but even factoring out that gain, revenue would have been up a solid 18% year over year.
• During the quarter, the company delivered more than 35,530 Oncotype tests, an increase of 11% compared to the year-ago quarter. Revenue continues to grow faster than tests delivered because the company is getting better reimbursement for the tests. A bump in the price that Medicare pays also helped drive the revenue growth.
• On the back of data from the TAILORx study, U.S. invasive breast cancer test volume increased 9% year over year for the quarter.
• Genomic Health expanded its urology salesforce, which seems to have helped U.S. prostate cancer tests grow 9% quarter over quarter.
• Medicare coverage for its new Oncotype DX AR-V7 Nucleus Detect prostate cancer test became effective in December and should drive growth next year. The older Oncotype DX GPS prostate cancer test is now covered by insurance plans that, combined, cover more than 100 million people.

Image source: Getty Images.

What management had to say

Steven Shak, Genomic Health's chief scientific officer, talked about the benefits of the company's breast cancer test and how they pay for themselves:

Oncotype DX is the only test that improves the outcomes and lowers cost compared to other prognostic tests or to no testing at all. Multiple studies have consistently shown that Oncotype DX's cost savings and its use has delivered billions of dollars in healthcare savings globally to date. When we started offering Oncotype DX, more than 70% of women were being treated with chemotherapy. We now know based on TAILORx that a great many patients were being over-treated.

Genomic Health's chief financial officer, G. Bradley Cole, highlighted the benefit from international growth: "So, the great uptick we saw in the international markets post-TAILORx we believe is going to continue throughout the year, particularly in markets where penetration levels aren't like the U.S. So, there's a large opportunity for growth outside the U.S. and, in particular with German reimbursement anticipated, will contribute to revenue in ways it hasn't in the past."

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Looking forward

Management guided for 2019 revenue of $436 million to $448 million, an 11% to 14% increase compared to last year. With the TAILORx data coming midyear last year, year-over-year growth will be higher in the first half of the year than the second half where the comparative quarters already include some growth from the results.

For Genomic Health to hit the top of its revenue target, the international business needs to pick up. The upper end of management's guidance calls for 50% increase in international revenue, driven by more than 25% increase in volume, as well as increased reimbursement, especially in Germany.

On the bottom line, management is looking for earnings of $1.23 to $1.38 per share, a huge increase from the $0.68 per share in 2018. As it sells more tests, more of the revenue is flowing to the earnings line because there are fixed costs that don't increase with the new revenue. Improvements in reimbursements also help drive earnings because, in many cases, the company was running the tests anyway to drive business.