If you just look at test volume, Genomic Health (NASDAQ:GHDX) had a solid 2014, with a year-over-year increase of 12%. That's not hyper-growth, but double-digit growth is nothing to sneeze at.
Unfortunately, the revenue line wasn't nearly as impressive, growing just 6% year over year. Combine the two growth rates, and it's clear Genomic Health is making less off each test it performs.
At least for now. The test-maker has a twofold problem, though both problems will hopefully be resolved in 2015.
First, international product revenue grew 19% in 2014 compared with the prior year. Reimbursement of the Oncotype DX breast cancer test overseas has trailed the U.S., where it's regularly reimbursed. An area with lower reimbursement that's growing faster than the average is a recipe for revenue growth to trail test-volume growth.
But international reimbursement is improving. Beginning April 1, the Oncotype DX breast cancer test will be reimbursed in England by the government's National Health Service. And Genomic Health recently received a positive reimbursement decision for the mandatory health insurance system in Switzerland.
The other problem comes from growth of the Oncotype DX prostate cancer test. In 2014, Genomic Health quadrupled the number of prostate cancer tests performed compared with 2013. By the fourth quarter, the test made up 8% of the total tests ordered. Unfortunately, the prostate cancer test isn't reimbursed yet, dragging on the average revenue per test.
Genomic Health believes it now has the data necessary to gain reimbursement with its second validation study and first decision impact study, and it's in talks with private payers and Medicare to cover the test. The latter is a biggie, as it represents 50% of the prostate cancer market.
Looking forward, Genomic Health is guiding for revenue of $292 million to $305 million in 2015, which would be a year-over-year increase of 6% and 11%. Test volume is supposed to increase between 7% and 14%, so the two metrics are getting close to growing in parallel.
In fact, if you read between the lines, revenue growth might actually exceed test-volume growth in the second half of the year. Management said to expect year-over-year revenue growth in the "low single digits" in the first half of the year, followed by "double-digit growth" in the latter half of the year. By the fourth quarter, the company expects to be profitable.
Not to rest on its laurels, Genomic Health is pushing forward with its next generation of tests that will use liquid biopsies. The tests measure DNA that's released by solid tumors into the blood or urine of patients. More DNA may indicate that the tumor is growing.
The liquid biopsy offers a nice alternative to more invasive procedures such as tissue biopsies and could be more sensitive than imaging done with PET scans. And they could be ordered multiple times by doctors during the course of treatment to monitor tumor burden, potentially producing more revenue than the Oncotype DX tests, which use tumor biopsies to determine treatment decisions.
Liquid biopsy tests for breast and bladder cancer are currently in clinical studies, with the hopes of launching the first liquid biopsy test next year.
Of course, with the way reimbursement for tests goes, there's no guarantee of seeing meaningful revenue from the liquid biopsy test next year, even if the development of the test proceeds as planned.