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Driven by Medicare Coverage for Oncotype Dx, Genomic Health s Q1 Revenues Soar, Loss Narrows


This article has been updated from a previous version, which contained several errors.

Genomic Health's time in the spotlight appears to be paying off in revenues, reduced net loss, and visibility. During a conference call with investors this week, the company attributed dramatic first-quarter revenue growth to sales of its flagship Oncotype Dx breast cancer diagnostic and offered a glimpse of plans to further accelerate sales in the year ahead.

For the period ended March 31, the company's revenue soared to $5.1 million from $400,000 in the first quarter of 2005.

Revenues were driven by increased Oncotype Dx sales, which totaled $4.2 million in the quarter, up from $400,000 in the first quarter of 2005. The remainder of the company's quarterly revenues came from research collaborations.

Medicare, which began reimbursement for Oncotype Dx on Feb. 27, proved to be the primary driver for the company's rapid revenue growth. Genomic Health said in a statement that around half of its first-quarter product revenues came from Medicare reimbursements, and that the "majority" of these payments were from services that were performed prior to the effective coverage date.

Genomic Health said that it performed approximately 1,300 tests prior to Feb. 27, and that it was reimbursed for about one-third of them in the quarter. Additional retrospective Medicare payments will be received in future quarters, while revenue from Medicare services going forward will be recognized at the time the service is performed, the company said.

"Approximately 20 percent of the US population is now insured by payors who cover the Oncotype Dx service."

Approximately 16 percent of tests that the company performed in the first quarter were for Medicare patients, Kim Popovits, the company's president and COO, said during the call. Approximately 20 percent of the US population is now insured by payors who cover the Oncotype Dx service, she added.

The company's position with Medicare reimbursement also appears to be getting stronger. During the quarter, an administrative law judge overturned Medicare denials for Oncotype Dx reimbursement for 59 out of 67 patients, according to documents the company filed with the US Securities and Exchange Commission. In the fourth quarter of 2005, 146 such denials were overturned.

The company sold more than 2,900 Oncotype Dx tests during the first quarter, "the highest quarterly number to date," said Popovits. The company has performed 10,000 tests for 3,000 physicians since Oncotype's January 2004 launch, she said.

In answer to an analyst's question, Popovits estimated that approximately 70 percent of the company's physician customers were repeat users, while 30 percent were first-time customers.

A second major source of revenue was research collaborations, which contributed $900,000 to the company's top line in the quarter. The company is collaborating with Sanofi-Aventis and the Eastern Cooperative Oncology Group to "investigate the ability of gene expression to predict the likelihood of response to adjuvant chemotherapy, including Taxotere, in patients with early breast cancer with zero to three involved lymph nodes," Randy Scott, the company's CEO, said during the call. According to the terms of the collaboration, Genomic Health owns the rights to any resulting test services, he said.

The company also has research collaborations with Bristol-Myers Squibb and ImClone Systems.

Genomic Health is looking to use its recent success to further accelerate sales. The firm is now beginning to expand its sales force, a move it had initially planned to make early next year, Popovits said. The firm's 30-representative sales force will grow by 10 representatives and two field managers during the next quarter, she said. The company is also beginning an education campaign for breast cancer surgeons, she said.

Genomic Health plans has "made progress" in developing its pipeline in colon cancer studies with the US National Surgical Adjuvant Breast and Bowel Project, and it plans to unveil its findings at the June meeting of the American Society for Clinical Oncology, said Randy Scott, the company's CEO, during the call.

Those findings could point the way to Genomic Health's second clinical direction after its breast cancer assay Oncotype Dx, a choice the firm plans to make by the end of the year, said Scott.

The company is also involved in a 10,000-patient clinical trial called TAILORx (Trial Assigning Individualized Options for Treatment) through the US National Cancer Institute. In the trial, which may begin during the second quarter, patients with low-recurrence scores from Oncotype Dx will be treated with hormonal therapy alone, and high-scoring patients will be given combination therapy, while mid-range scoring patients will be studied to "answer an important treatment question," Steven Shak, the company's chief medical officer, said.

Popovits declined to comment on Genomic Health's interactions with the FDA, which sent the company a letter in January questioning whether Oncotype Dx might be better regulated by the agency, rather than through CLIA guidelines. The company has presented information about the test to the FDA, but it will not comment on its discussions "until it is appropriate to do so," said Popovits. Genomic Health continues to believe that its services are appropriately regulated under CLIA, she said.

"We don't know if this will be resolved in the short timeframe or the long timeframe," said Scott.

The company's visibility at the San Antonio and Miami Breast Cancer meetings resulted in a marked increase in physician interest, said Scott, adding that upcoming peer-reviewed publications should continue to increase adoption.

Net loss for the recent quarter dropped 11 percent to $6.8 million, or $0.28 per basic share, from $7.6 million, or $3.85 per basic share, in the similar quarter last year.

The firm spent $2.7 million on R&D during the first quarter of 2006, up from $2.2 million year over year.

Genomic Health had cash and cash equivalents of $17.9 million, and a total liquidity position of $61.4 million, on March 31.

— Chris Womack ([email protected])

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