Genomic Health's CEO Discusses Q4 2012 Results - Earnings Call Transcript

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 |  About: Genomic Health, Inc. (GHDX)
by: SA Transcripts

Operator

Good afternoon. My name is Chuck, and I will be your conference coordinator for today. At this time, I would like to welcome everyone to Genomic Health Fourth Quarter and Year-End 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

Thank you. Good afternoon, everyone and welcome to Genomic Health conference call to review our fourth quarter and year end 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 provisions of the Private Securities Litigation Reform Act.

We refer you to our quarterly report on Form 10-Q for the quarter ended September 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.

Kim Popovits

Thanks Emily. Good afternoon everyone and welcome. We delivered strong full-year 2012 financial results including a $0.2 million in net income and 14% year over year revenue growth, highlighted by a record revenue in the fourth quarter. These results reflects continued market expansion in the U.S. and significant international growth. Looking ahead, we are focused on several near term milestones that we expect will further diversify our business and similar (ph) long term growth. Importantly we believe the anticipated publication of our DCIS clinical validation study will support our ongoing efforts to increase reimbursement and extend patient access to the DCIS score.

Additionally, we remain on track to launch the Oncotype DX prostate cancer test, our third product franchise, in the second quarter and look forward to sharing full results from the positive UCSF clinical validation study at the American Urological Association meeting in early May in San Diego.

I will now turn the call over to Dean, Brad and Steve to provide further detail on our fourth quarter and year end financial results, our worldwide commercial and operations progress and our recent clinical updates. I will then conclude with our business priorities for 2013. Dean?

Dean Schorno

Thank you, Kim. During the fourth quarter, we delivered record revenue of $60.4 million compared with $53.4 million in the fourth quarter of 2011. Product revenue was $60 million compared with $53.2 million for the fourth quarter of 2011. Contract revenue comprised the balance of total revenue for both periods.

During the quarter we delivered $2 million in net income compared to $2.6 million in the same period of 2011 which included an approximate $1 million incremental benefits from a license fee reduction. We delivered more than 18,820 Oncotype DX tests in the fourth quarter reflecting a 10% year over year increase. 60% of tests delivered and 68% of product revenue were recorded on an accrual basis in the fourth quarter of 2012.

Our gross margin for the quarter was 84%. For the full year 2012, total revenue increased to $235.2 million compared with $206.1 million in 2011, an increase of 14%. Product revenue was $233.5 million for the full year of 2012 compared with $204.8 million in 2011. International revenues were 12% of product revenues, an increase of approximately 45% compared with 2011.

Our annual net income was $8.2 million compared with $7.8 million in 2011. In 2012, we delivered more than 74,520 tests, an increase of 12% compared with 2011. Cash, cash equivalents and marketable securities at December 31, 2012 were $99.1 million after funding a $30 million share repurchase compared with $100.5 million at December 31, 2011. The share repurchase program was initiated in December and was completed on Friday, February 1 with the repurchase of approximately 1,061,000 shares. Net cash provided by operating activities for the full year was $25.8 million.

Now turning to our 2013 outlook. For the full year we estimate total revenue of $258 million to $266 million, a 10% to 13% increase over 2012. These estimates reflect growth of our U.S. invasive breast cancer business, reimbursement for the Oncotype DX, DCIS tests in the United States following future publication as well as continued strong growth from international markets. We did see an approximate $1.2 million of one-time Medicare colon payments in Q1 of 2012 that will not repeat in Q1 of 2013. This will impact our year over year comparisons.

In 2013, the revenue contributions from our prostate cancer tests will be minimal while we generate additional clinical evidence, publication and reimbursement support needed to capture this large market opportunity and meet the significant medical needs.

We currently anticipate collaboration revenues to be similar to 2012 levels. We expect the full year GAAP basic net income per share ranging from a $0.12 loss to an $0.08 profit. Excluding stock compensation expense, we anticipate full year non-GAAP basic net income per share ranging from $0.48 to $0.68.

In 2013, we expect to make certain key investments including the launch of the Oncotype DX prostate cancer test in the second quarter, along with continued investments to realize the significant opportunities in breast, colon and international markets. As a result of these investments, coupled with the typical increases we see each year in operating expenses during the first quarter, we anticipate net loss during the first two quarters of 2013. With the launch of our prostate cancer test we anticipate our gross margin rate to decline slightly.

In 2013, research and development and sales and marketing expenses are planned to increase as a percent of total revenue as compared to 2012 levels. We currently expect our full year cash expense to be less than $1 million. We expect to spend approximately $15 million on capital expenditures in 2013 to increase capacity, enhance laboratory automation and expand IT infrastructure and equipment for the development of next generation products.

I will now turn the call over to Brad to review our global commercial and operations progress.

G. Bradley Cole

Thanks, Dean. During the quarter, we achieved important clinical and commercial milestones with numerous medical meeting presentations, publications and continued progress in securing reimbursement worldwide. In colon cancer we were pleased to report the Journal of Clinical Oncology accepted our second large clinical validation study for publication. As a reminder, this study confirmed the findings of the landmark QUASAR study results, showing that the Oncotype DX colon cancer test improves the ability to differentiate between higher recurrence risk disease and lower recurrence risk disease and those were beyond conventional factors.

In January we also presented positive data at the 2013 Gastrointestinal Cancer Symposium including a clinical utility study demonstrating that the test changed treatment decisions 45% of the time leading to an overall 22% reduction in chemotherapy use. And second presentation suggested that this decrease in chemotherapy resulted in direct medical care cost savings of $4200 per patient.

Further the journal Value in Health published results from a modeling study showing that the use of the Oncotype DX test in stage II colon cancer patients may lead to health care cost savings while improving clinical outcomes. With this additional evidence demonstrating the clinical utility and cost effectiveness of Oncotype DX in colon cancer and the second publication of JCO, we now have compelling support for broader reimbursement and increased patient access to our colon cancer tests.

In December we presented data from six Oncotype DX breast cancer studies from the United States and Europe at the San Antonio Breast Cancer Symposium that continued to demonstrate the unique value and the clinical utility of the test across invasive breast cancer and DCIS. These data reinforced the impact and ability of the test to informed treatment decisions while providing a positive economic impact on health systems worldwide.

We believe these studies, now in the hands of our global sales team, further highlights the predictive value of Oncotype DX and will support increased adoption worldwide. Additionally, we believe the anticipated upcoming publication of our DCIS clinical validation study will support coverage expansion and broader adoption of Oncotype DX. Validated in the landmark ECOG 5194 clinical study the DCIS score identifies up to 75% of women who have low risk disease and may be treated with surgery alone and spared radiation. This represents a market opportunity of approximately 50,000 patients in the United States alone.

From a reimbursement front, we recently established coverage for the Oncotype DX breast cancer test with TRICARE for all U.S. armed forces and along with two additional state Medicaid programs for no-negative breast cancer patients. We also secured additional reimbursement contracts in Germany and France for the Oncotype DX breast cancer test bringing the total number of international covered lives to more than 95 million.

During the quarter, we continued to invest in delivering the benefits of Oncotype DX testing to patients worldwide and as a result, our international test volume increased by more than 50% compared to the same period last year. International revenues represented approximately 15% of our overall product revenue in the fourth quarter. Looking ahead, we continue to expect international revenues to be a significant contributor to overall product revenue growth.

Turning now to prostate cancer, we announced positive top line results last September from our large clinical validation study with UCSF. This new market represents our largest opportunity to date with nearly 240,000 men diagnosed in the U.S. each year. In January the American Urological Association selected this study for an oral presentation at its annual meeting in May. This urology focused meeting provides an excellent venue for the first presentation of the full study results.

In the meantime we are completing the necessary work in our lab and building our commercial team to make the Oncotype DX genomic prostate score available to physicians and patients worldwide in the second quarter of 2013. We recently hired great talent with significant urology experience, including a national sales director and senior director urology medical affairs to execute on our product launch plan into physicians and payers in this new market.

Capturing this opportunity will require publication of validation study results, completion of additional clinical studies and reimbursement success to broaden patient access. Based on our experience in breast and colon cancer we have already begun leveraging online strategies to intercept, educate and activate patients and their care givers. We are developing patient websites and online tools that will not only educate but encourage prostate cancer patients and their loved ones to ask their physicians about the test. We look forward to sharing more details regarding our commercial plans around the time of launch.

The majority of the planned operating expense in 2013 will be directed towards our international opportunity in breast and colon and our entrance into the large U.S. prostate market. We also plan to invest in our clinical laboratory capabilities through automation and new platforms designed to increase efficiencies and to ensure robust analytical capability going forward as test offerings expand and demand for Oncotype testing continues to increase worldwide over the coming years.

I will now turn the call over to Steve to provide additional detail on an important breast cancer study presented at San Antonio and update on our development program.

Steve Shak

Thanks Brad. Given the increasing number of prognostic markers, operating breast cancer treatment management and recently presented data in San Antonio, I would like to spend a few minutes clarifying the important differences between the predictive value of Oncotype DX and other tests developed for prognostic purposes.

The Oncotype DX recurrence score was developed to answer the specific question of which estrogenic receptor positive breast cancer patients representing 75% of all breast cancer diagnosis who need chemotherapy in addition to hormonal therapy. To date it is the only test validated for this purpose and the only test included in all the major breast cancer guidelines for treatment decision making.

Highlighting this important distinction, a study conducted by Genomic Health in collaboration with investigators in France showed clinically meaningful differences between patient results generated by the Oncotype DX test and a commercially available 70-gene classifier. Specifically Dr. Kloe (ph) and co-authors reported a comparison of the Oncotype DX recurrence score result with the 70-gene test performed on fresh frozen tissue in 67 patients. The result showed that 45% of patients defined as high risk by the 70-gene test actually had low risk Oncotype DX recurrence scores indicating these patients would have minimal if any benefit from chemotherapy.

And based on estrogen receptor expression we’d be expected to have a large benefit from hormonal therapy alone. This discordance clearly emphasizes the clinical limitation of the 70-gene test which was developed using a largely untreated patient population that does not reflect the established standard of care. In contrast the Oncotype DX test was developed in a patient population receiving standard of care hormonal therapy which then allowed us to validate the relative therapeutic benefit of adding chemotherapy.

Importantly the results presented in San Antonio confirmed an earlier study by investigators independent of Genomic Health that were presented at ASCO breast in 2011, where 39% of patients classified as high risk by the 70-gene test were also discordant and low risk by Oncotype DX. Clearly all multi-gene tests are not the same. And how tests are developed and validated dictate their clinical utility. This is especially important in estrogen receptor positive breast cancer where the key clinical question is whether or not to add chemotherapy.

We will continue to educate the physician community on these results and the important factors to consider in evaluating the clinical utility of genomic tests in order to avoid unintended misclassification and mistreatment of estrogen receptor positive breast cancer patients.

Looking ahead, our R&D efforts in 2013 will be focused on supporting broader reimbursement and patient access, generating additional clinical evidence for our existing products in their current indications driving toward commercialization of new indications and establishing platforms for future products. Specifically, this year we plan to initiate additional large DCIS clinical study to confirm and extend the findings of the landmark ECOG E-5194 study, to conduct a colon oxaliplatin treatment validation study for prediction in stage 3 disease, a large clinical study using next generation sequencing to examine not only tumor expression but also mutations in fixed paraffin embedded tissue, and finally, to report full results from our positive prostate clinical validation study at AUA.

The prostate study performed in collaboration with leading cancer researchers at the University of California, San Francisco met its primary endpoints by demonstrating that the Oncotype DX genomic prostate score with prospectively validated as the predictor of aggressive disease for patients with early stage prostate cancer. Importantly, a test result obtained without removing the prostate. Based on these results we believe our test will increase the number of patients who can more confidently elect active surveillance which employs careful monitoring of patients over time

Just as we have in breast and colon cancer, we plan to continue research and development of the Oncotype DX prostate cancer test to answer additional critical questions for patients and physicians. Specifically we have our site set on answering questions about biochemical and clinical recurrence, active surveillance and response to specific drug treatment. We have contracts in place and plan to initiate another large prostate cancer study bringing our total number of prostate studies to eight and look forward to sharing more details later this year.

As Brad noted, we are investing in our clinical laboratory capabilities through automation and enhancing our RT-PCR platform to increase efficiencies to meet the demand for our expanding menu of tests. These investments will also be leveraged to enhance our next generation sequencing technologies that are driving our next generation of products. Through the rest of this year, we will be reporting on our progress in using next generation sequencing and other technological innovations to drive biomarker discovery and development for patients with breast, colon and prostate cancer.

I’ll turn the call now back to Kim.

Kim Popovits

Thanks Steve. 2013 will be a landmark year for Genomic Health as we further diversify our business and launch our third product franchise and begin once again to improved treatment decisions for another significant population of cancer patients. In addition to the R&D milestones highlighted by Steve, I’d like to conclude by emphasizing our focus in 2013 on the significant near term opportunity to expand our global commercial business and long term growth that will position us to capture an estimated $3.5 billion global opportunity across breast, colon and prostate cancers.

Specifically we plan to expand our penetration in base of breast cancer by addressing the two in five eligible women in the U.S. who today are not getting an Oncotype DX current score to personalize their treatment decisions, procure reimbursement for the Oncotype DX, DCIS score which represents a new market of more than 50,000 patients in the U.S. alone and broadens our private coverage for our colon cancer test. To continue to increase adoption and reimbursement in international markets where we are currently less than 5% penetrated and gaining significant traction, launch our first product in prostate cancer which has a market opportunity of more than 120,000 patients in the U.S. with the potential to exceed our current U.S. breast cancer opportunity and importantly we will continue to lead the integration and translation of relevant data in next generation cancer genomics to eliminate the one size fits all treatment of patients with cancer.

I’d now like to open the line for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from Tycho Peterson with JP Morgan.

Tycho Peterson - JP Morgan

First one just on baseline assumptions by geography, can you talk a little bit more about what you think about the U.S. and then I guess (inaudible) more importantly, how you think about international expansion?

Dean Schorno

Tycho, I had little trouble hearing you, I think the question was about looking forward at revenue traction in the international core, is that right?

Tycho Peterson - JP Morgan

Just give your assumptions by geography.

Dean Schorno

Well we have two geographies we are talking about U.S. and O-U.S. and we saw growth in 45% range in 2012 and expect to see strong growth, similar ranges on that growth going forward. We don’t see any reason for that to slow in the short term and by way of default in US business we will be growing in the upper single digits if you just take our guidance into account in the top line.

Tycho Peterson - JP Morgan

And then can you, just on prostate, talk to any preliminary thoughts here on pricing dynamics and how we should think about kind of post-launch traction with payers?

Steve Shak

Yeah, post-launch traction with payers is really dependent on what’s been a formula and what’s worked so well in breast, the clinical validation followed by cost effectiveness studies, the clinic utility and the demonstration of utility and clinical action liveability in the market. So there won’t be the same thing with prostate. So get a publication on the first study and followed by additional studies. We think although we have certain products today that there is no reason this can’t be value based price much like the others have been and think about the dynamics in the market with overtreatment existing and many patients who could avoid treatment, like we think our study will show that our value based price will be fully justified and we will have more to say about that around launch.

Tycho Peterson - JP Morgan

And then one last quick one, is there any difference in GAAP and non-GAAP guidance other than stock based comp with that model?

Dean Schorno

There is no difference, that’s the only element we’re only breaking out.

Operator

Our next question comes from Dane Leone with Macquarie Research.

Dane Leone - Macquarie Research

So momentum at the core franchise definitely picked up q-on-q, I think setting the stage for 2013 guidance. Could you just break down some of the expectations you’ve built into that guidance for maybe colon franchise as we have seen a bunch of studies published and accepted for publication along with DCIS, in the context of the core breast cancer franchise as well?

Dean Schorno

So we are excited about the products that we are seeing in colon and the anticipated publication of the DCIS study which will lead to more success through reimbursement. So included in our guidance this year is additional revenue from colon and from the DCIS franchise, while there’d still be less than 5% of total revenue overall in that range, but obviously growing faster than the rest of the business. So it still is the base of breast cancer business in the US growing in mid single digit range like it did in 2012. So the publication will make a difference and we have expectations that revenue will grow from these new franchises.

Dane Leone - Macquarie Research

And could you give us the comparable EPS non-stock comp number for 2012 and in light of your guidance for 2013, and then just from a longer term perspective, for several years now your mantra has been an investment time period especially going into prostate but post 2013, is this from your longer term strategy when we would see more of a ramp in leveraging the fixed cost base as you give prostate out there and colon gets traction in some of the new endeavors in the breast cancer franchise?

Dean Schorno

Let me answer the first one and we haven’t broken out the historic non-GAAP EPS. You may see on the Q1 10-Q, Dane.

G. Bradley Cole

Those always are available on the Qs and Ks as well.

Dean Schorno

Yeah, so you do see the total dollars – actually in the press release you will see the total compensation dollars, you can calculate that number.

And then from a profit perspective, we have said for some time now we’d invest in the prostate opportunity in the international opportunities as well as the NGS opportunities. But at the point in time where we start to see meaningful revenues from our prostate cancer franchise, that’s the point in time where we really start to see bottom line leverage in the business. And post our launch, publication, potentially additional studies and publication of the studies is when we really expect to see those meaningful revenues in the 15-ish timeframe.

Operator

Our next question comes from Isaac Ro with Goldman Sachs.

Isaac Ro - Goldman Sachs

Wondering maybe just touch (inaudible) on if you guys look at where consensus assumptions are on earnings this year for your business, I think in the past just treat as perhaps over modelled earnings leverage associated with new products and given where we are – kind of working with limited information on prostate, how do you look at what our expectations are for earnings this year? Are you comfortable with that? Just want to – trying to make sure that expectations are set properly on that.

Dean Schorno

Well, the expectations that we are setting are against us today and we have been deferring till today. And so the guidance is this around breakeven as we invest in the prostate launch and in the international opportunity, if you look back and once you’ve done modeling, you will see that there is significant increase in the sales and marketing effort and it’s for those two reasons why we are seeing the increased investments. I think the street’s net income is probably a bit higher than we’ve guided to today, and so this is our guidance and we think it’s the right thing for the business given the big opportunities in the international prostate market.

Isaac Ro - Goldman Sachs

And then maybe just one other item on the technology, there is obviously lot of movement there on a lot of the core research technologies that eventually find their way into the clinic. So just could you maybe help us understand how you are planning on incorporating technologies as they come to bear for prostate or is it something more you think it will be sort of locked in for the first couple of years?

Steve Shak

So there is obviously tremendous excitement and enthusiasm here and elsewhere with regard to the clinical insights and the scientific insights that can be obtained by next generation sequencing and looking at a full – with a wider lens at the human genome. We think we are optimally pleased really to play – continue to play a leading role in providing the evidence that really has value for decision making. We highlighted that, I think really today that, that value really matters but being able to answer critical questions are really – is really important and this is the key to getting reimbursed and getting the payment that’s required to generate revenue to drive the revolution further. So that will continue to be our focus and you will hear more about that later this year.

Kim Popovits

I think to your question though, does the prostate test – is it going to be launched and do we feel comfortable and confident with its ability to do, Steve just outlined on the current platform today for the next several years? Absolutely we do. But we will continue to aggregate new technologies to learn more about not just prostate cancer but breast and colon as we move forward and hence could be the second generation Oncotype DX platform and test going forward. But for now we feel confident with where the prostate is at this point.

Operator

Our next question comes from Amanda Murphy with William Blair.

Amanda Murphy - William Blair

Could you help us frame out the variability just in terms of the top and bottom of the range, what we should be thinking about in terms of where you might – why you may follow the (inaudible)

G. Bradley Cole

I think the top of the range includes all the things that Dean referred to around reimbursement traction as well. So you will notice that the test volume includes is about the same as the revenue range but that includes prostate which is going to knock out the reimbursement but the revenue does include reimbursement for DCIS. So success on the reimbursement front which we will be able to track through our conversations, we will direct you more at the top end of the range. And that’s really the difference between the two. The test volume range is what we delivered this year was 12% in volume and we think we can still grow the business double digits on the volume with strong international growth and the single digit growth in the U.S. (inaudible).

Amanda Murphy - William Blair

And then in terms of the international side it seems like you had certain acceleration in the back half of the year. I know that you had some incremental contracts this quarter and last quarter. Is there anything else driving that or is it just sort of the momentum of growing outside the US, just curious what the dynamics there are in terms of the growth, it seems like there was a meaningful acceleration.

G. Bradley Cole

And there was and what you really saw in the second half of the year was a pull-through of some of the arrangements we have been working over the last year or two. So the pull-through meaning the collection and the ability to bill and collect outside, particularly in Europe and in Canada over the second half of the year and followed by continued growth in test volume into the same markets which now in 2013 will allow us just have that revenue pull-through more routinely.

Operator

Our next question comes from Vamil Divan with Credit Suisse.

Vamil Divan – Credit Suisse

Mine is just on the competitive landscape I guess out there on the breast side, and based on the comments you made last quarter and then insights Steve offered today, can you just give us a sense of what you are seeing out there and some of the traction, some of the competitors might be having or not, over the last few months here?

Kim Popovits

I will start here and maybe others can chime in. But I first want to say that obviously we had a very strong quarter, our market share remains strong. And our shift a little bit to talking more about the comparison of tests out there really is along the lines of patient clinical utility and how these tests are being used. It’s really not a market share issue for us, and it’s more of the recent data that we saw at San Antonio that we think is so compelling on, in terms of the major question that physicians are asking in base of breast cancer which is around the need for ER positive patients to get chemotherapy in addition to hormonal therapy. So we really want to make sure that this data which is compelling and very important that patients are not mistreated and not understanding the utility of these tests is out there with physicians. But market share overall again a very strong, great quarter. Brad just outlined the growth we are expecting for 2013. So we feel good about where we are.

Vamil Divan – Credit Suisse

I think my follow up is just on kind of building up to that in the education and lot of stuff you have coming up later this year. Is there any thought of maybe doing some sort of clinical day or an analyst day maybe on the time of the prostate launch or else, otherwise to kind of assist the education efforts?

Kim Popovits

Yeah, we would want to do that and we are in talking right now about when the appropriate time is and probably it would be around the time of the prostate cancer data. It’d be great to take folks through that. I think it’d be great to walk through some of the things we are thinking about clinical utility today and clinical utility in the future and the role for genomic classifier specifically the Oncotype DX test going forward as we are looking at other key questions to answer. So stay tuned about what you know but we very much would like to do that this year.

Operator

Our next question comes from Bill Quirk with Piper Jaffray.

Bill Quirk - Piper Jaffray

So first question is just on prostate cancer itself, not so much the revenue, obviously you covered that in terms of ’13. But how should we think about the launch expectations in terms of volume recognizing that given the presentation at the AUA, it’s probably going to be more of a third and fourth quarter volume addition?

G. Bradley Cole

Yeah, our expectations as you point out given the timing in the year, our expectations for the ’13 are a bit modest, and we’re putting our resources into getting ready to launch the first half and then take into market in the second half. We don’t have high expectations for revenue given what we have laid out and this is the reimbursement path on any new product. But we have modest test volume expectation. I think if it changes and the back half of the year looks stronger than we have expected, you will hear that in how we discuss test volume and accrual related percentages because without reimbursement it will affect that and I think it will be an explanation that Dean can provide at the time. We do have high expectations about what the market can yield in the end and over the next two to three years but not for ’13.

Bill Quirk - Piper Jaffray

And then as a follow-up for Dean. The OUS revenue again very strong, and obviously you guys are doing a very nice job with respect to overall past performance. I seem to recall that we had a bit of a I guess cash payment bullish in the third quarter. Did we see any of that in the fourth by chance?

Dean Schorno

There was not an unusual cash payment bullish like we saw in the third quarter. It was more normalized in the fourth quarter.

Operator

Our next question comes from Derik de Bruin with Bank of America/Merrill Lynch.

Unidentified Analyst

It’s actually Rafael in for Derik. Just a quick one on prostate cancer first, realizing that you’re going to have some data coming up in May. Just curious to know what efforts are being done to get – I guess a publication ready and when we could potentially expect the publication on this data set. Is this a end of 2013 event or 2014 event?

Steve Shak

This is Steve. We’ve already made a lot of progress in working on the publication and getting it out as quickly as possible. What we’ve learned over time is that it’s actually quite difficult to predict in any – for any individual publication whether it’s going to occur faster or slower than the average. Our target is to have this faster than the average and to do everything that we can. Given the interest in prostate cancer, again it was almost like we saw this certainly with our first publication in breast cancer some years ago, there is tremendous interest and we are hearing it now already in this topic and in this field for prostate cancer. So I think that will bode well for it to occur very quickly but then we can’t give you a prediction for that.

Unidentified Analyst

And as a follow up just on colon cancer, you mentioned some of the planned activities for better – setting a stage three patients, just wanted to see if you could remind us what the size of that opportunity was versus stage 2. And also I may have missed this but any updates on when we could see an update on developing a signature for chemotherapy benefit on the colon test?

G. Bradley Cole

To your question about the size of the opportunity in stage 3, actually the number of patients diagnosed for stage 3 is larger than the stage 2 but while we have a prognostic only test at the moment, we think the opportunities in incremental 80,000 to 10,000 patients with our current offering and Steve can talk about how we could address this additional market of more than 25,000 to 30,000 patients, if we have a predictive test and Steve –

Steve Shak

Yes, so in that regard again as I stated earlier, we will be initiating our colon oxaliplatin treatment prediction validation study later this year, can’t wait to see the results. We don’t have them yet but those results if positive would allow us to launch this extension of our Oncotype DX platform for colon cancer in 2014.

Operator

Our next question comes from George Zavoico with MLV & Co.

George Zavoico – MLV & Co.

A couple of questions, regarding your quarterly test results delivered and revenue, basically if you take the fourth quarter and average it out you come out with a number that was very closer to first quarter. So arguably you can say that test result growth was almost flat for the year, 2012. And on the other hand, your revenue increased. So two things about that. First of all, you also mentioned that an international growth increase would suggest that if test results stayed fairly flat, that US test result actually may have decreased. And how do you explain the increase in the revenue per test in that regard?

Dean Schorno

Well, it’s a lot of numbers for me to calculate and figure out for you, George, I guess, you’re right that we had just a fantastic start to the year in the first quarter, and we haven’t broken out test volume in great detail. But the US business did indeed have growth year over year although it was single digit, international growth in test was in the 40%, 50% range but it’s still in the 10% to 15% total tests. So you are right that tests delivered in the fourth quarter were not that much driven than they were in the first, as they went through a bit of a dip in the summer. But from a ASP and revenue, we have seen increased revenue on an average per test across the US invasive breast cancer franchise and the international franchise, the reason on a total basis when you bake (ph) the US may not change much and same thing is going to have in the prostate. DCIS has a product that’s been on the market with limited reimbursement, colons have limited reimbursement and both those franchises have shown some growth. So if we could fill the 140, which won’t do much more than what I have said, we are still seeing pricing power in our US invasive breast cancer and a significant price improvement outside the United States. But we’ve got things going on outside the US much like we did with products. We’ve got some markets where we have seen nice traction with limited reimbursement, others with strong reimbursement and growth. So it’s a mixture, net net, as we are seeing some improvement.

George Zavoico – MLV & Co.

And then finally, regarding the competition again, clearly the competition was pretty well capitalized or got newly capitalized I should say, and they are making quite a large footprint. In fact, recently they have talked about how the physicians that they have on their side are supporting their competition. So I am glad to see that you are now especially with that French study that I saw at the San Antonio, it’s clearly an important initiative on your part to really begin to differentiate the two tests. So it sounds like this is sort of a strategy that you’re going to follow through in the future to differentiate the tests future, and perhaps even try and convert some of the people using the -- some of the docs using the other tests. If you could add anything more to that strategy, how you plan to counter the aggression as it were, the aggressive marketing on their part, that would be useful.

Kim Popovits

George, let me maybe make a comment there. I think I can safely say about being too biased but as the leader in the space we certainly have the commercial infrastructure and the sales force to get out there and deliver this message into make sure that physicians are not confused. Again as I mentioned earlier, this really is about patient, and when you see data as such that was presented at San Antonio confirming data that has been previously presented, our concern at this point is that physicians may not understand that these tests were designed to answer two very different questions. And if the question the physician has is around whether or not to give a patient chemotherapy on top of hormonal therapy, the only test that can answer that question is Oncotype DX and the data is clear.

So I think we do need to be a little bit more aggressive with it to get out there and make sure people understand this. We would certainly hate to see patients mistreated because physicians don’t understand this and unfortunately as you see and have this noted here, the data is not necessarily being positioned appropriately, by all parties involved here. So we really need to make sure on behalf of patients that we get this message out and I can assure you that our team is motivated, our sales force is informed, and I am going to end this by saying I am anxious to get back to focusing on the two in five patients that are getting Oncotype to this period. That’s a real opportunity for us to expand our market. We’ve got to stay focused on that. That said, though, we can’t take the risk of patients not being treated appropriately and if there is misinformation or comparisons around these tests that aren’t just appropriate.

Operator

Our next question comes from Doug Schenkel with Cowen & Co.

Doug Schenkel - Cowen Research

Maybe kind of being a little bit more direct relative to some of the other question you’ve got on this. Last quarter you acknowledged this sequential decline in US breast cancer volumes for a few reasons including lower testing volumes across the market and I think to some extent competitive dynamics. Did invasive breast volumes improve sequentially and based on everything you’ve already said it’s to conclude the competitive pressures maybe lessens in the quarter?

G. Bradley Cole

So you’ve got about right, we did see a nice bounce back and maybe even better than I think the street and we expected. But we do believe that this was going to be a temporary thing and I think the results of the fourth quarter confirmed our thinking about the third quarter, there was a patient slowdown, patient flow slowdown, we have seen a bounce back nicely and we have seen no real change in the competitive dynamics. So we continue to see competitive noise but continue to see success with our market share and growth in the business.

Kim Popovits

And I would just add to that. The major driver of what we saw on the third quarter as we had anticipated or expected at the time we believe this is the case today. There were just lower patient volumes towards the end of the summer which, while we can’t explain exactly why that happened, it clearly was reported across our industry and other industry as well as hospital visits and all. So again we are -- today our focus is not so much about the market share, it’s really just about getting the right information out there for patient treatment.

Doug Schenkel - Cowen Research

My second question is if we plug in 15% of product revenue being international, it appears that US revenues were above flat sequentially in Q4. And then you aggregate second half versus first half if that math is correct, revenues were 3% lower in the US in the second half than in the first half. You indicated that your guidance assumes upper single digit revenue growth in the US, that would suggest that revenues are going to accelerate somewhat significantly relative to the Q4 run rate. You talked about the fact that prostate isn’t going to be a big contributor next year. So can you just talk about what’s built into that US acceleration guidance? Is it further acceleration in invasive breast versus other indications or is the delta really colon, DCIS or something else?

G. Bradley Cole

So I think that we need to point out in the fourth quarter and Dean will keep me honest here, that we did see growth in the US revenue in the fourth quarter and the third quarter. We had a particularly strong international revenue in the third quarter due to the pull-through that I referred to and that we were seeing success in international reimbursement. So although tests were down sequentially in the third quarter we saw a strong revenue because of the international pull-through. So the revenue growth was 13% year over year in the third quarter, it was 13% again this quarter with about a little bit less contribution from international. So the growth we saw sequentially was in the US and we expect to see continued growth into 2013. Hope that helps to clarify that. I don’t think it was quite right.

Doug Schenkel - Cowen Research

Yeah, we can run through it offline. I guess just 15% of 60 in product revenue suggests that there was a pick up in international revenue sequentially which (inaudible).

G. Bradley Cole

We’ve got some one on one time schedules here.

Operator

And our next question comes from Dan Leonard with Leerink Swann.

Dan Leonard - Leerink Swann

Can you give me some sense for how sensitive your guidance is, your DCIS guidance and the timing of the publication, do we need to be watchful if the publication occurs in March versus February or April, is that important all versus what you got?

Steve Shak

I think DCIS’s reimbursement will be important through the year. But there may be other things that go the other direction. So we will keep you informed. But early in the year is what we anticipated.

Dan Leonard - Leerink Swann

And Brad, you mentioned that some of the word clinical in the economic work you have done around colon has broadened the access to colon. Any change you can quantify that in terms of number of covered lives or some other metric for us?

G. Bradley Cole

We’ve had a few payers come on with colon recently. Their comments are really more directed to the future with the second publications just coming out now, that will allow us to broaden access over the coming year or two. But not they were really significant in the last 60 days or so.

Operator

At this time I am showing no further questions. I would like to turn the call back over to Ms. Popovits for closing remarks.

Kim Popovits

Thank you and thanks for joining us today and for your interest in Genomic Health. We look forward to seeing you at some upcoming investor conferences and medical meetings.

Operator

And this concludes today’s fourth quarter and year end 2012 conference call for Genomic Health. You may now disconnect.

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