Genomic Health (NASDAQ:GHDX) released fourth-quarter earnings on Wednesday, although the top line didn't come as much of a surprise since the test maker had already released preliminary numbers last month.

Genomic Health results: The raw numbers

 

Q4 2015 Actuals

Q4 2014 Actuals

Growth (YOY)

Revenue

$74.5 million

$69.1 million

8%

(Loss) From Operations

$3.5 million

$6 million

N/A

(Loss) Per Share

$(0.10)

$(0.20)

N/A

What happened with Genomic Health this quarter?

  • The stronger dollar hit Genomic Health's top line, which would have increased 9% at constant currencies.
  • It delivered 27,730 Oncotype DX test results, an increase of 12% over the year-ago quarter.
  • The big growth driver in 2015 came from Genomic Health's new prostate cancer tests, which increased 75% year over year in 2015 and now make up 8% of the total test volume.
  • Though it didn't break out prostate cancer test growth for the fourth quarter, competitor Myriad Genetics (NASDAQ:MYGN) said the number of its Prolaris test performed increased 104% year over year and 26% quarter over quarter in its most recent quarter. Myriad Genetics' management noted that, "We believe that we have gained market share relative to competitor tests." There's plenty of room for two competitors in the space, but the duel between Genomic Health and Myriad Genetics is something investors should keep their eye on.
  • International tests delivered increased 19% year over year in 2015.
  • It continues to gain additional reimbursement for its tests, including expanded coverage for the breast cancer patients with 1-3 positive nodes in the U.S., coverage for the test in four additional regions of Spain, and Medicare coverage for its prostate cancer test.

What management had to say 
"We expect gross margin rate of 81% and our worldwide average selling price to be similar in 2016 to the 2015 levels as we expect greater unit growth from test that are only partially reimbursed such as U.S. prostate test and international breast test," said COO and CFO Brad Cole. While it's disappointing that gross margins won't be improving this year even with the increased reimbursement, the partially reimbursed tests are an investment in the future because doctors that find them useful will continue to order them once reimbursement is set up.

Phillip Febbo, Genomic Health's chief medical officer, gave an overview of the company's Oncotype SEQ liquid biopsy test that's scheduled to launch in the middle of this year, "This test is a blood-based mutation panel that uses next-generation sequencing to identify select actionable genomic alterations for the treatment of patients with late-stage lung, breast, colon, melanoma, ovarian and gastrointestinal cancers." Simply put, the test will sequence the DNA of tumor cells in the patients' blood to help doctors monitor the progression of the cancer and make recommendations about the best drug to treat the tumor.

Looking forward
Genomic Health expects to run between 117,500 and 121,000 Oncotype DX tests this year, 10% to 13% more than 2015. Unlike the past few years, where the number of tests delivered outpaced revenue growth, the new reimbursements will allow revenue to catch up. Management is guiding for revenue between $320 million and $335 million, up between 12% and 17% over 2015.

The company expects to lose between $12 million and $18 million this year, assuming it hits the middle of its revenue guidance, compared to a $33.8 million loss in 2015. Most of the loss will come in the first half of the year with a loss of $7 million to $10 million in the first quarter, a little less in the second quarter, and then turn to profitability in the second half of the year.

Genomic Health is poised for substantial earnings growth. With fixed costs in place, 40% of every new revenue dollar will go through to the profit line.

Brian Orelli has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Genomic Health. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.