Genomic Health (GHDX +0.00%) is scheduled to release fourth-quarter earnings on Wednesday after the bell. The top-line number won't come as much of a surprise since the genetic-test maker already released preliminary numbers for the most-recent quarter ahead of the J.P. Morgan Healthcare Conference last month.
Preliminary results put fourth-quarter revenue between $73 million and $74 million, up about 6% from the year-ago quarter. The company said it delivered more than 27,520 tests in the fourth quarter, up about 11% year over year.
The growth, while decent, was lower than management had guided for. The company blamed a new ordering system for a slowdown in the number of tests delivered and billed for, which cost the company $3 million in business. Revenue was also affected by delays in collecting patient data that Medicare requires, but that's just a revenue recognition issue since it will be captured this year.
Along with the preliminary fourth-quarter numbers, management provided 2016 guidance for revenue between $320 million and $335 million, which would be 12% to 17% higher than 2015's preliminary number.
The one question that should be on investors' minds
Missing from the preliminary numbers released last month was how the company fared on the bottom line. Earnings are harder to estimate than revenue since there are a lot more moving parts to the expense lines, especially since the press release came out only eight days after the books closed.
It seems possible that the earnings number will be in the red when Genomic Health reports on Wednesday. In the third quarter, Genomic Health had an operating loss of $5.4 million on sales of $73.6 million. With similar revenue in the fourth quarter, it seems likely we'll see another loss in the most-recent quarter.
Whether Genomic Health rounded out the year with a profit or not, investors should be asking when the company plans on staying profitable. With its prostate cancer test gaining Medicare reimbursement in October, it seems likely that Genomic Health could be profitable based on the number of tests its performing right now. Any growth would just be a bonus.
But there may also be an increase in expenses coming. Last month, Genomic Health said it plans to launch its first liquid biopsy test, called Oncotype SEQ, in the middle of this year with plans to develop "several" more liquid biopsy tests in the future. Investments in development of the tests and reimbursement once they're launched will affect the bottom line in the years ahead.
Sometimes investors have to sacrifice short-term losses for long-term profits, but they will need to believe the investments in liquid biopsy tests are worth the payoff.
