Genomic Health Management Discusses Q3 2012 Results - Earnings Call Transcript

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Genomic Health (GHDX)

Q3 2012 Earnings Call

November 07, 2012 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, Secretary and Member of Non-Management Stock Option Committee

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

Kathy L. Hibbs - Senior Vice President and General Counsel

Analysts

Evan Lodes - JP Morgan Chase & Co, Research Division

Dane Leone - Macquarie Research

Isaac Ro - Goldman Sachs Group Inc., Research Division

David C. Clair - Piper Jaffray Companies, Research Division

Vamil Divan - Crédit Suisse AG, Research Division

Sylvia Chao

Scott Gleason - Stephens Inc., Research Division

Rafael Tejada

Mark Massaro - Canaccord Genuity, Research Division

Justin Bowers - Leerink Swann LLC, Research Division

Presentation

Operator

Good afternoon. My name is Chuck, and I will be your conference operator today. At this time, I would like to welcome everyone to the Genomic Health Third Quarter 2012 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference 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

Good afternoon, everyone, thank you for your patience, and welcome to Genomic Health conference call to review our third quarter 2012 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; 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 regulation, 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 June 30, 2012, 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. We delivered another strong quarter highlighted by $3.7 million in net income and a 13% increase in year-over-year product revenue, led by a significant international growth, reflecting the diversification of our business and continued progress in capturing this important global opportunity.

Further, we were especially pleased with the achievement of positive results from our large prostate cancer clinical validation study, in collaboration with leading researchers from the University of California, San Francisco, as announced in September. With these data, we are now positioned to leverage our proven commercial infrastructure in addressing a third major cancer in one of the greatest needs in medicine by making the Oncotype DX prostate cancer test available in the first half of 2013.

I will now turn the call over to Dean, Brad and Steve to provide further details on how our third quarter 2012 financial results, our worldwide commercial and operation's progress and our prostate cancer program. I will then conclude with our business priorities for the remainder of the year.

Dean?

Dean L. Schorno

Thank you, Kim. In the third quarter of 2012, we achieved 13% growth in both product and total revenue. Specifically, total revenue was $58.6 million compared with $52.1 million in 2011, and product revenue increased to $58.4 million compared with $51.7 million in the same period of 2011. Contract revenue comprised the balance of total revenue for the third quarter of 2012.

During the quarter, we delivered $3.7 million in net income compared with $3.2 million in the same period of 2011. We delivered more than 18,030 Oncotype DX tests in the third quarter, reflecting a 7% year-over-year increase. This result was a decrease compared to the second quarter of 2012, primarily impacted by lower-than-anticipated U.S. invasive breast cancer test volume, influenced by one less selling day in the quarter, along with reports of fewer patient visits, and, we believe, to a lesser extent, increased competitive activity. In light of this, we expect tests delivered to be approximately 74,000 for the year.

60% of tests delivered and 62% of product revenue were recorded on an accrual basis in the third quarter of 2012. Product revenues grew at a faster rate than test volumes during the quarter, largely due to strong international cash collections as a result of continued progress with payers in both Canada and Western Europe. We anticipate overall fourth quarter product revenue to be similar to third quarter results.

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