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Genomic Health Reports 7-Fold Revenue Jump in Q2, Increases Full-Year Test Volume, Revenue Estimate

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Genomic Health this week reported a seven-fold leap in second-quarter revenues, while its net loss fell by 40 percent.
 
The company also updated its full-year revenue guidance to between $24 million and $26 million, from previous expectations of $14 million to $18 million. Net losses are expected to fall between $31 million and $35 million for the year, compared to $37 million to $43 million in previous estimates.
 
Genomic Health generated revenues of $8.4 million for the period ended June 30, compared to $1.2 million year over year. Net loss for the period narrowed to $4.9 million, compared to $8.1 million in the similar period in 2005.
 
Brad Cole, Genomic Health CFO, told analysts on a conference call that the company expected to deliver 13,500 OncoType Dx services in 2006, compared to its previous estimate of 12,000.
 
The company has “just finished” a new facility that could allow it to triple its test production to an output of about 75,000 per year, but it does not have enough workers or equipment to do that at the moment, said Cole. During the first quarter, the company produced about 18,000 tests per year, and it is now approaching a rate of about 100 tests per day, he said.
 
Genomic Health also plans to “deliver one prognostic test into full-scale development in 2006,” according to Randy Scott, the company’s CEO. He said the test could be the company’s colon cancer prognostic and chemotherapy-response test or one of its other cancer projects.
 
Asked by analyst David Lewis from Thomas Weisel whether Genomic Health or the US Food and Drug Administration is taking more time in settling the FDA’s questions about Oncotype Dx’ proper regulation, Scott said he did not think there was a solid timeline. “I think we’ve worked hard to indicate to industry that it’s not clear to us whether FDA would choose to make a decision in the short term or if they would take longer,” he said.
 
But should the agency decide to regulate Oncotype, it “should put out guidelines for notice and comment – it would represent change in policy,” he said.
 
Q2 2006 Earnings
 
Cole said the increase in revenues for the quarter was primarily driven by increased adoption and reimbursement of the Oncotype Dx breast cancer gene expression test, which brought the company $7.8 million in product revenue. During the second quarter of 2005, Oncotype Dx sales amounted to $1.1 million.
 
The company recognizes about 30 percent of product revenue at the time that the service is delivered, with the balance of product revenue recognized upon cash collection. 
 
About 38 percent of product revenues, or $3 million, for the second quarter of 2006 came from non-Medicare sources.
 
During the same period, approximately 61 percent of product revenue, or $4.8 million, came from Medicare, including about $2.8 million in payments for services delivered before Feb. 27, the effective date of Medicare coverage.
Genomic Health said these payments, along with about $1.5 million in Medicare payments recognized in the first quarter of 2006 for services rendered before the effective coverage date, constitute the bulk of prior outstanding services provided to Medicare.
 
As a result, overall product revenue should decrease in the third quarter of 2006 compared to the second quarter, said Cole. The company expects total Medicare revenue and the share of product revenue derived from Medicare to decline in the third quarter compared to the second quarter, although non-Medicare revenues should increase from the second to the third quarters.
 
Genomic Health spent $2.7 million on R&D in the second quarter of 2006, compared to $2.4 million in the second quarter of 2005.
 
The company had cash and cash equivalents of $55.1 million on June 30.

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