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With a 90-Percent Jump in Q2 Revenue, Genomic Health Raises 2008 Guidance

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During a period when several diagnostics firms and clinical laboratories lowered their yearly revenue projections, citing the weak national economy, Genomic Health increased its 2008 guidance this week, based on the reimbursement success and increasing adoption of its flagship Oncotype DX product.
 
In reporting a nearly 90-percent jump in revenues for the three months ended June 30, Genomic Health said that it now expects to deliver between 38,000 to 40,000 test results this year, up from its previous guidance of 34,000 to 37,000 test results. The company expects its total revenue for the year to range between $105 million and $110 million, compared to the previous guidance of $100 million to $110 million. The firm reported $64 million in revenues last year.
 
“Full-year revenue may be at the higher end of this guidance,” reported Brad Cole, Genomic Health chief financial officer, during the company’s second-quarter earnings conference call.
He said Genomic Health continues to expect a net loss of between $15 million and $20 million for 2008, but expects losses to narrow in the second half of the year.
 
In contrast, Laboratory Corporation of America recently slashed its revenue expectations for the year by around 3 percent after noting that the stricken US economy has trickled down to patients and curtailed their ability to pay for tests [see PGx Reporter 07-30-2008]. 
 
Genomic Health attributed the uptick in its guidance to continued adoption of its Oncotype DX test by physicians and insurers. According to President Kim Popovits, more than 9,690 test results were delivered in the second quarter of 2008, compared to more than 5,750 test results delivered in the second quarter of 2007. Since the company launched Oncotype DX in 2004, more than 65,000 Oncotype DX test results have been delivered to patients.
 
In the second quarter, Genomic Health gained coverage for 6.9 million lives for Oncotype DX, including Blue Cross Blue Shield plans in Louisiana, Mississippi, and Northeastern Pennsylvania, which established policies covering approximately 2.3 million lives. In addition, Group Health Incorporated and HIP Health Plan of New York created policies covering approximately 4.6 million lives for Oncotype DX.
 
In June, Palmetto GBA, the company that will soon replace National Heritage Insurance Company as the Medicare administrative contractor, included Oncotype DX in its recently posted local coverage decisions for its jurisdictions. According to Genomic Health, Palmetto’s coverage decision has the “identical criteria” set forth by NHIC. The company expects to begin processing claims with Palmetto in September.
 
Popovits noted that there have been five studies conducted by physicians who used the test in clinical practice, demonstrating that on average, treatment recommendations change 30 percent of the time when an Oncotype DX recurrence score is available.
 
“Collectively, these studies, which have been presented or published, prove the actionable nature of Oncotype DX and its ability to inform treatment decisions by optimizing the use of chemotherapy while increasing physician and patient confidence in treatment plans,” Popovits said.
 
On July 1, Genomic Health increased the price of Oncotype DX by 4.5 percent, to $3,820.
 
Financials
 
In the second quarter, sales for Oncotype DX swelled 81 percent to $26.3 million, from $14.6 million in Q2 2007. Total revenues for the second quarter were $27.8 million, up 89.1 percent from revenues of $14.7 million in the second quarter of 2007.
 

“We believe the success of our test in the US supports international expansion, and we’re finalizing our commercial plans with the expectation that this will be a strong component of the company’s future growth.”

Contract revenues rose to $1.5 million, from $135,000 year over year. Contract revenue for the quarter included a milestone payment from the firm’s collaboration with Bristol-Myers Squibb for the identification of response genes for the colon cancer drug Erbitux, and milestone payments from Pfizer for a collaboration to develop a prognostic test for renal cell carcinoma.
 
In addition, Genomic Health cut its net loss 43 percent, year over year, to $4.1 million, from $7.2 million in the same quarter of 2007.
 
Genomic Health Chairman and CEO Randy Scott said in a statement that the company’s investment in its Oncotype DX is paying off “not only in our strong revenue growth in tests delivered, but also in the narrowing of our net loss in the second quarter.”
 
The company’s R&D spending increased 40 percent, to $7.3 million, from $5.2 million, while its SG&A costs rose 39.5 percent, to $18 million, from $12.9 million year over year.
 
Genomic Health finished the quarter with $17.2 million in cash and cash equivalents.
 
New Products Ahead
 
“While we work to further reduce our net loss, we will continue to invest in our product pipeline and expand our commercial efforts outside of the United States, which we expect to be important components of future growth,” Scott said in the statement.
 
In June, during the annual meeting of the American Society of Clinical Oncology, Genomic Health announced that it may develop a companion diagnostic for Taxotere in breast cancer [see PGx Reporter 06-11-2008].
 
And during the quarter, Genomic Health established collaborators and identified sources of clinical samples to advance its prostate and lung cancer programs, and began gene identification work to develop a prognostic test for clear cell type kidney cancer under its collaboration with Pfizer.
 
Indeed, Genomic Health officials have said that the company intends to expand the indication for Oncotype DX into breast cancer patients who are node-positive and those treated with aromatase inhibitors. The company is also studying Oncotype DX in patients with other cancer types, including colon, prostate, lung, and ductal carcinoma in situ.
 
And while the test previously yielded just a recurrence score, in the quarter ended March 31, the company began reporting measures of quantitative gene expression for estrogen and progesterone receptors [see PGx Reporter 01-16-2008]. 
 
Having heard from physicians that the additional quantitative gene-expression ER/PR data has helped personalize treatment regimens, the company announced plans to further add to its Oncotype DX test reports by the end of the year by including quantitative HER2 scores.
 
In May, Genomic Health began offering Oncotype DX for node-positive breast cancer patients and is currently working to secure reimbursement for this indication, which the company said comprises a “modest” portion of the 40,000 node-positive breast cancer patients in the US.
 
“We expect that the process for gaining reimbursement for node-positive patients will require the same diligence as our process for node-negative disease, including clinical data, peer-reviewed publications, and demonstrated physician adoption,” Popovits said.
 
For its colon cancer test, the company has received its first trial specimens for a clinical validation study slated to begin in the second half of the year. Results from validation studies are expected by the middle of next year. At that point, if the US Food and Drug Administration has finalized its guidance for in vitro diagnostic multivariate index assays, the company will submit the test for FDA clearance. Otherwise, the company will seek CLIA-certification.
 
Although the FDA has made clear its intention to regulate IVDMIAs, the regulatory status of Oncotype DX, which is currently a homebrew assay, remains in question as Genomic Health and the agency continue discussing whether it will need to be submitted for approval.
 
International Advances
 
The company had also previously stated that it plans to eventually expand Oncotype DX to overseas markets. During the second quarter, Genomic Health established distribution partnerships in five countries and has so far received test samples from 39 countries.
 
“We believe the success of our test in the US supports international expansion and we’re finalizing our commercial plans with the expectation that this will be a strong component of the company’s future growth,” Popovits said.
 
The company also initiated a study with Japanese investigators to help them gain clinical experience with Oncotype DX for early-stage breast cancer patients.
 
Furthermore, Genomic Health is processing samples from patients in Canada, Ireland, and Peru enrolled in the National Cancer Institute-sponsored international TAILORx study.
 
While the company does not plan to increase the number of sales reps for this year, the sales team may be expanded in 2009 to support international growth, company officials said.

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