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Genomic Health, Inc.: Still Waiting for Reimbursement

Genomic Health's (NASDAQ: GHDX) revenue continues to grow slowly because of a delay in Medicare reimbursement for its prostate cancer test, but the genomic test maker was still able to reduce its net loss, moving the company closer to its goal of being profitable for the entire year.

Genomic Health results: The raw numbers

Metric

Q2 2017

Q2 2016

Year-Over-Year Change

Revenue

$85.5 million

$82.0 million

4%

Income from operations

($3.1 million)

($5.1 million)

N/A

Earnings per share

($0.08)

($0.18)

N/A

Data source: Genomic Health.

What happened with Genomic Health this quarter?

  • While revenue was only up 4% year over year, the number of tests delivered increased 9% year over year; Genomic Health's tests are in demand but the company continues to have trouble getting reimbursed for running those tests.
  • The biggest culprit for lack of reimbursement is the company's prostate cancer test, which grew volume by 38% year over year. The test now makes up 11% of total test volume but less than 5% of revenue. A hold on funding in France, which the company thinks is only temporary, also hurt the rate of reimbursement.
  • Fortunately, with fixed costs in place, much of the increased revenue is falling to the bottom line, moving Genomic Health closer to breakeven. This is the eight consecutive quarter that the company has produced this operating leverage.

Image source: Getty Images.

What management had to say

Brad Cole, chief operating officer and chief financial officer of Genomic Health, sees the company continuing to take advantage of that operating leverage over the next few years:

"The improvement we saw in '16 of $20 million and $15 million improvement here in '17 represents in the order of 40% to 50% of revenue dollars going on the bottom line and we think that's the approach we're going to take in the foreseeable future. There will be opportunities to invest more or less in different projects over the next two to three years and we have to make those choices and still deliver at the improved bottom line."

While the quarter was focused on what isn't being reimbursed, that should change when Medicare begins reimbursing for intermediate-risk prostate cancer patients, although Genomic Health's chairman, CEO, and president Kim Popovits couldn't put a precise date on it:

"So in terms of exactly when we start to see the revenue is little difficult for us to predict, but we certainly think it will be in the near-term."

Cole pointed out that the Medicare coverage should spur private insurers to follow suit:

"We think Medicare coverage, like in past products and in past years, has been a great leader into private coverage. And things like guidelines and other things will be important as well, but Medicare coverage is the big first step and we think the expanded coverage is going to truly put pressure on private players many of whom have not yet covered even lower and very low risk patients."

Looking forward

Management lowered its 2017 revenue guidance to a range of $345 million to $355 million from a previous range of between $355 million and $370 million, mostly due to the delay in Medicare coverage and the hold on French payments. Nevertheless, management thinks it can hit its goal of being profitable for the entire year even at the low end of the reduced revenue guidance.

Later this year, Genomic Health plans to launch another prostate cancer test, the Oncotype DX AR-V7 with Epic Sciences that's for later-stage patients with metastatic disease to determine whether they'll respond to androgen receptor-targeted therapies. Of course, as we've seen with Genomic Health's other tests, adoption will come earlier than reimbursement, so it'll take awhile to start generating meaningful revenue from the Oncotype DX AR-V7.

Looking further ahead into 2018, Genomic Health has some clinical trial data coming for its breast cancer test that could increase usage and the company will get a 15% increase in Medicare reimbursement for the breast cancer test because of a change in how the agency reimburses for laboratory tests dictated by the Protecting Access to Medicare Act.

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Brian Orelli has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Genomic Health. The Motley Fool has a disclosure policy.