GHDX

Genomic Health, Inc. (GHDX)

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Genomic Health (GHDX)

Q2 2013 Earnings Call

July 31, 2013 4:30 pm ET

Executives

Emily Faucette

Kimberly J. Popovits - Chairman, Chief Executive Officer, President and Member of Non-Management Stock Option Committee

Dean L. Schorno - Chief Financial Officer and Principal Accounting Officer

G. Bradley Cole - Chief Operating Officer and Member of Non-Management Stock Option Committee

Steven Shak - Chief Medical Officer and Executive Vice President of Research & Development

Analysts

Dane Leone - Macquarie Research

Jeremy J. Joseph - Crédit Suisse AG, Research Division

Shaun Rodriguez - Cowen and Company, LLC, Research Division

Isaac Ro - Goldman Sachs Group Inc., Research Division

JP McKim

Mark Massaro - Canaccord Genuity, Research Division

Rafael Tejada - BofA Merrill Lynch, Research Division

Nicholas Jansen - Raymond James & Associates, Inc., Research Division

Presentation

Operator

Good afternoon. My name is Chuck, and I'll be your conference operator today. At this time, I would like to welcome everyone to Genomic Health Second Quarter 2013 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Emily Faucette, Vice President of Corporate Communications and Investor Relations. You may begin your conference.

Emily Faucette

Thank you. Good afternoon, everyone, and welcome to Genomic Health's conference call to review our second quarter 2013 financial results. Before we begin, I'd like to remind you that various remarks that we make on this call that are not historical, including those about our future financial and operating results; our plans and prospects; our ability to leverage our existing infrastructure; the success of our business strategy; economic benefits and value to payers of our tests; growth opportunities, including international; our planned launch of a test for prostate cancer patients; future products, product enhancements and our product pipeline; demand for our tests and drivers of demand; payer coverage and progress in reimbursement and patient access; our investment in our product pipeline, international expansion and commercial organization; clinical outcomes and timing of clinical studies and product launches; and our expectations regarding our ability to comply with potential FDA or other regulations, constitute forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act.

We refer you to our quarterly report on form 10-Q for the quarter ended March 31, 2013, filed with the SEC, in particular to the section entitled Risk Factors, for additional information on factors that could cause actual results to differ materially from our current expectations.

These forward-looking statements speak only as of the date hereof, and we disclaim any obligation to update these forward-looking statements.

Joining me on the call today are Kim Popovits, our Chairman of the Board, Chief Executive Officer and President; Brad Cole, our Chief Operating Officer; Dean Schorno, our Chief Financial Officer; Steve Shak, our Chief Medical Officer and Executive Vice President of Research and Development; and Kathy Hibbs, Senior Vice President and General Counsel. I'll now turn the call over to Kim.

Kimberly J. Popovits

Thanks, Emily. Good afternoon, everyone, and welcome. In the second quarter, we delivered strong year-over-year increases in both product revenue and tests delivered. These results reflect higher U.S. invasive breast cancer penetration and the continued success of our international expansion. We also achieved 2 major milestones that we believe will further diversify our business and lead to long-term growth. First, and very exciting, we successfully launched our Oncotype DX prostate cancer test, following the UCSF presentation of our positive clinical validation study at the AUA meeting on May 8. The test has been well received by practicing urologists and represents our third product franchise, addressing both a large market opportunity, as well as the personal and economic toll of the overtreatment of early-stage cancers.

Second, we secured Medicare reimbursement for our Oncotype DX DCIS Score. We believe this major reimbursement win, combined with the publication of the DCIS validation study in the Journal of the National Cancer Institute will lead to additional coverage among private payers and enable greater access for the 50,000 newly-diagnosed DCIS breast cancer patients in the U.S. alone each year.

I will now turn the call over to Dean, Brad and Steve to provide further detail on our second quarter results, our worldwide commercial and operations progress and our recent clinical updates. I'll then conclude with our business priorities for the remainder of the year. Dean?

Dean L. Schorno

Thank you, Kim. During the second quarter, we delivered product revenue of $63.7 million, compared with $57.2 million for the second quarter of 2012, an increase of 11%. Total revenue for the second quarter of 2013 increased to $63.7 million, compared with $57.6 million in the second quarter of 2012. As expected, we did not recognize any contract revenue in the second quarter, following the completion of the majority of our collaboration work with Pfizer in the first quarter. With the Pfizer renal cell carcinoma validation study now underway, with the anticipated completion in the fourth quarter of 2013, we expect the milestone payment of $1.5 million to be recognized as revenue in the fourth quarter. While we may have other collaboration revenue during the remainder of the year, we do not expect this revenue to be significant. Our base U.S. invasive breast cancer business remains strong and generated year-over-year growth. As we expected, product revenue for the second quarter was similar to that of the first quarter, due to historic seasonal patterns, along with the impact of sequestration, which is anticipated approximately $1 million for the year. We delivered more than 20,640 Oncotype DX tests in the second quarter, an increase of 9%, compared with more than 19,020 tests delivered in the same period in 2012. 64% of tests delivered and 71% of product revenue were recorded on an accrual basis in the second quarter of 2013. As expected, the impact of both our prostate launch and sequestration resulted in a gross margin of 83%, compared with 84% in the first quarter. We anticipate similar gross margins in the second half of the year. Total operating expenses for the second quarter of 2013 were $66.6 million, compared with $55.8 million for the same period in 2012. As anticipated on our last call, our net loss for the quarter was $3 million, compared with net income of $1.8 million in the second quarter of 2012 due to increased operating expenses to prepare for and execute the launch for prostate cancer tests and to further invest in our international expansion and product pipeline. With these continued investments, we expect a small loss in the third quarter. Cash and cash equivalents and short-term investments at June 30, 2013 were $107.3 million, compared with $99.1 million at December 31, 2012.

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