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Genomic Health Reports 11 Percent Revenue Jump in Second Quarter

This article has been corrected to note that Brad Cole is Genomic Health's CFO and COO.

NEW YORK (GenomeWeb) – Genomic Health reported after the close of the market Tuesday that its second quarter revenues were up 11 percent year over year driven by increased sales for its Oncotype DX tests.

The Redwood City, Calif.-based molecular diagnostics firm had total revenues of $70.5 million for the three months ended June 30, up from $63.7 million in the second quarter of 2013, beating the consensus Wall Street estimate of $69 million. As with the first quarter, all of Genomic Health's revenues in the most recent quarter came from product sales.

Genomic Health said that it delivered more than 24,050 Oncotype DX test results in the second quarter, an increase of 17 percent from 20,650 in Q2 2013. International test volumes grew 32 percent year over year, comprising 20 percent of total test volume.

The firm posted a net loss of $4.6 million, or $.15 per share, for the quarter, up from a loss of $3 million, or $.10 per share, for Q2 2013. On average, analysts expected a loss of $.26 per share.

Its R&D spending dipped slightly to $13.3 million from $13.8 million in the year-ago quarter. However, its SG&A expenses jumped 18 percent to $49.6 million from $42.0 million.

In the previous quarter, Genomic Health officials had forecasted a higher net loss and increased expenses in the second quarter due to growing research investments. The company has been investing particularly in validating its Oncotype DX brand of tests in prostate cancer and ductal carcinoma in situ (DCIS). Additionally, Brad Cole, Genomic Health CFO and COO, said during an earnings call on Thursday that spending increases in the second quarter were also due to efforts to grow test volume internationally.

"Our international penetration levels are below 10 percent," Cole said, noting there is significant growth opportunity for Oncotype DX tests in markets outside of the US.

During the quarter, Canada established Oncotype DX breast cancer test coverage for an additional 3.6 million lives in the province of Alberta, bringing the total number of lives covered to more than 86 percent of Canada's population. In Spain the Agency for Health Technology Assessment of Andalusia published a report recommending Oncotype DX "as the only breast cancer test to support therapeutic decision-making in patients with early stage, hormone receptor-positive, invasive breast cancer," Genomic Health said in a statement. In Mexico, a private health insurer also granted reimbursement for the breast cancer test, covering 1.2 million lives.

Also during the quarter, the company announced positive results from an independent clinical validation study performed by the Center for Prostate Disease Research. According to the study results, the Oncotype DX prostate cancer test predicts multiple endpoints associated with disease aggressiveness in men with low and intermediate risk for the illness. The trial also found that the test could predict adverse pathology from a biopsy, as well as biochemical recurrence – or a rise in prostate-specific antigen levels – after surgery. Biochemical recurrence "is a longer term measure of outcomes for aggressive disease," Genomic Health explained in a statement.

Additionally, Genomic Health published results in European Urology from three studies supporting the use of the test to gauge a greater number of low-risk prostate cancer patients who can do well with active surveillance. Genomic Health Chairman, President, and CEO Kim Popovits said on the call that there was a 54 percent increase in the number of prostate cancer tests ordered during the year, with 900 urologists ordering the diagnostic, up 30 percent from the first quarter.

With regard to the DCIS test, Genomic Health has reported positive preliminary results from an independent clinical validation study, which the firm said was the largest genomic study done in DCIS to date. The test results showed that the diagnostic predicts the risk of local recurrence (ie. the development of a new invasive cancer or recurrence of DCIS in the same breast). The company plans to present more detailed results from the trial at the San Antonio Breast Cancer Symposium in December.

Steve Shak, executive VP of R&D, said during the earnings call that Genomic Health is on track to develop a liquid-biopsy based testing platform. To this end, the company has launched the first clinical study for developing this platform and opened multiple study sites. Shak projected that a liquid biopsy based platform would allow the company to address markets larger than breast and prostate cancer.

With regard to the US Food and Drug Administration's notice last week to the US Congress regarding its draft risk-based regulatory guidelines for LDTs, Popovits said the company has worked with the agency on this framework and will continue to do so.

Genomic Health finished the quarter with $32.5 million in cash and cash equivalents and $73.2 million in short-term marketable securities.

Company officials said that third quarter revenues will likely be similar to the second quarter with a similar net loss due to increased spending.

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