Genomic Health's (GHDX) CEO Kimberly Popovits Q4 2015 Results - Earnings Call Transcript

| About: Genomic Health, (GHDX)

Genomic Health, Inc. (NASDAQ:GHDX)

Q4 2015 Earnings Conference Call

February 10, 2015 4:30 PM ET

Executives

Emily Faucette - Vice President of Corporate Communications and Investor Relations

Kimberly Popovits - Chairman, President and Chief Executive Officer

Bradley Cole - Chief Operating Officer and Chief Financial Officer

Steven Shak - Chief Scientific Officer

Phillip Febbo - Chief Medical Officer

Fred Pla - Chief Business and Product Development Officer

Jason Radford - General Counsel.

Analysts

Nicholas Jansen - Raymond James

Mark Massaro - Canaccord Genuity Inc.

Adam Wieschhaus - Cowen & Co LLC

William Quirk - Piper Jaffray

Steven Sarver - William Blair & Company, LLC

Tejas Savant - JP Morgan

Jack Meehan - Barclays Capital

Operator

Good afternoon. My name is Shanice, and I will be your conference operator today. At this time, I would like to welcome everyone to the Genomic Health's Fourth Quarter and Year End 2015 Financial Results Conference Call.

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 fourth quarter and year-end 2015 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 and focus of our business strategy.

Economic benefits and value to payers of our tests, growth opportunities, future products and product launches, technologies and our product pipeline, demand for our tests and drivers of demand, as well as correlations between test demand to present or future revenue, payer coverage, timing of revenues from payers and progress in reimbursement and patient access, effects of foreign exchange rates, our investment in our product pipeline, international expansion and commercial organization, clinical outcomes and timing of clinical studies and publications, and our expectations regarding 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 September 30, 2015, 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 and Chief Financial Officer; Steve Shak, our Chief Scientific Officer; Phil Febbo, our Chief Medical Officer; Fred Pla, our Chief Business and Product Development Officer; and Jason Radford, our General Counsel.

I’ll now turn the call over to Kim.

Kimberly Popovits

Thanks, Emily. Good afternoon everyone and welcome. In 2015, we successfully executed on our key business drivers delivering strong growth in our profitable U.S. invasive breast cancer business, while increasing adoption and access in our emerging DCIS, prostate and international markets where we have data to drive further near-term growth.

Specifically for the full-year we delivered 6% U.S. revenue growth, a 7% increase in U.S. breast cancer test delivered, inclusive of a 76% increase in DCIS test volume. 75% growth in prostate cancer test volume and 19% test growth in our international market.

Having delivered in the third quarter our highest test growth in more than two years we are pleased to report the continuation of this positive momentum in the fourth quarter marked by a 12% increase in test volume and an 8% increase in revenue compared with the same period in 2014.

We expect the strong momentum generated across our business in 2015 combined with new compelling prospective outcomes evidence for Oncotype DX breast cancer test, robust data supporting emerging markets and the recent Medicare coverage decision for our prostate cancer test to lead to double-digit test and revenue growth in 2016.

Further, we are very excited to continue our impact in making cancer care smarter with the launch of our first liquid biopsy test, Oncotype SEQ in mid-2016. Oncotype SEQ will be a next-generation sequencing blood-based mutation panel targeted to identify select actionable genomic alterations for the treatment of patients with late-stage lung, breast, colon, melanoma, ovarian and GI cancers.

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

Bradley Cole

Thanks, Kim. In 2015, we delivered more than 107,030 Oncotype DX test results an increase of 12%, compared with more than 95,610 test results delivered in 2014. Prostate test delivered in the full-year grew 75% compared to the prior year and represented approximately 8% of total test volume in 2015.

International test delivered in the full-year grew 19% compared to the prior year and represented approximately 21% of total test volume in 2015 driven by continued success in Western Europe, Canada and Japan where we are focusing our international efforts and resources.

In the fourth quarter of 2015, more than 27,730 Oncotype DX test results were delivered, an increase of 12%, compared with more than 24,770 test results delivered in the same period in 2014. International tests grew by 25% in the fourth quarter, 58% of tests delivered and 74% of product revenue were recorded on an accrual basis in the fourth quarter of 2015.

Revenue was $286.8 million for the full-year 2015, compared with $275.7 million in 2014, an increase of 4%. International revenue for the full-year of 2015 was $41.4 million, compared with $45 million a year ago and was reduced by approximately $3 million from foreign exchange rate differences due to the stronger dollar in 2015 compared to a year ago.

In the fourth quarter, revenue was $74.5 million compared with $69.1 million in the same period of 2014, an increase of 8%. On a constant currency basis, quarterly revenue increased 9% compared with the same period in the prior year.

U.S. revenue was $63.9 million in the fourth quarter of 2015, an increase of 9% and test volume increased 8% compared with the same period in the prior year. Our U.S. invasive breast cancer business remains strong and continued to grow in both unit and revenue terms.

Full-year breast test growth was 7% as we continue to increase penetration where we are the market leader and see significant opportunity for further growth. In DCIS, we are pleased to see continued momentum with more than 75% year-over-year test growth. We believe we are positioned to grow the DCIS market where penetration today is less than 10% and there is no other test available.

We saw international revenue grow in the fourth quarter of 9% on a constant currency basis. Actual revenue reported was $10.6 million in the fourth quarter of 2015, compared with $10.3 million a year ago. International revenue was reduced by $600,000 from foreign exchange rate differences due to the stronger dollar in the fourth quarter compared to a year ago.

Our gross margin was 81.1% in the quarter and 81.3% for the full-year 2015. Operating loss for the fourth quarter narrowed to $3.5 million compared with $6 million for the fourth quarter of 2015. Net loss was $3.2 million for the fourth quarter of 2015 and includes an $800,000 tax benefit in the quarter resulting from a change in the fair value of the company's investment in a marketable security.

Operating loss was $34.5 million for the year ended December 31, 2015, compared with an operating loss of $23.6 million for the year ended December 31, 2014. The operating loss for the year ended December 31, 2015 includes a non-recurring first quarter charge of $5.5 million in R&D. Net loss was $33.3 million for the year ended December 31, 2015, compared with a net loss of $24.6 million for the year ended December 31, 2014.

Cash and cash equivalents and short-term investments at December 31, 2015 were $76.8 million, excluding the fair value of the company's investment in a marketable security of $18.1 million, compared with $103.7 million at December 31, 2014.

Turning to guidance. In 2016, we plan to deliver double-digit test and revenue growth and improve our net loss, while delivering positive EBITDA. Specifically, we are providing the following financial guidance for the full-year ending December 31, 2016. Total revenue of $320 million to $335 million, representing growth of between 12% and 17% compared to 2015.

Net loss between $12 million and $18 million at the midpoint of revenue guidance, excluding the effect of the Company's investment in a marketable security, or basic net loss per share of between $0.37 and $0.55; and Oncotype DX tests delivered of 117,500 to 121,000, representing growth of between 10% and 13% compared to 2015.

Our 2016 revenue guidance will be driven by the continuation of strong growth across our business including U.S. breast cancer growth and high single-digits similar to levels we delivered in the second half of 2015. We expect the TAILORx and SEER data to have a positive impact on further increasing adoption.

We also expect strong growth across our business by delivering revenue on existing Medicare coverage for low and very low risk prostate cancer patients in the United States which represents about a third of our U.S. prostate test volume. We expect prostate test to be more than 10% of our total test volume in 2016.

And we expect to deliver strong growth across our business from international revenue growth in the mid to high-teens with the full-year of UK NHS reimbursement and improving revenue in Western Europe. We expect our net loss in the first half of the year to be within the full-year loss guidance of $12 million to $18 million with a larger loss in the first quarter than in the second quarter and move to deliver profitability in the second half of the year as revenue continues to grow.

We expect gross margin rate of 81% and our worldwide average selling price to be similar in 2016 to the 2015 levels as we expect greater unit growth from test that are only partially reimbursed such as U.S. prostate test and international breast test. We expect the combination of R&D and SG&A expenses to grow approximately 7% or about half the rate of revenue growth in our guidance as we deliver leverage and improved profitability.

As in past years, we will see a significant increase in the first quarter operating expenses from the fourth quarter levels of approximately $7 million due mainly to a reset of personnel related costs in the New Year. This translates to a $7 million to $10 million loss in the first quarter with revenue in the first quarter at street consensus and this expected increase in costs our net loss will be significantly larger in the first quarter of 2016 than the fourth quarter of 2015.

The anticipated 2016 full-year operating loss improvement of approximately $15 million at the midpoint of revenue guidance is a departure from the investment over the past couple of years. The improved bottom line represents nearly 40% leverage of our topline growth that is 40% of every new dollar revenue is going to profit in 2016. Adjusting for the 2016 full-year cost of our newer ERP system leverage rises to approximately 50%. Beyond 2016, we anticipate continued leverage as we improve profitability.

Turning now to reimbursement progress that occurred during the fourth quarter. In node-positive breast cancer, we continue to expand coverage of the Oncotype DX breast cancer tests for patients with 1 to 3 positive nodes to include 11 million additional live through new policies with Health Net, Blue Cross Blue Shield of Florida and Independent Blue Cross. This brings the total number of node-positive covered lives to more than 161 million U.S. lives.

Also in the first quarter, we received positive reimbursement decisions for the Oncotype DX breast cancer test in four additional regions of Spain bringing the total number of international covered lives to 196 million. We continue to wait further reimbursement decisions in France and Germany with an expectation to see increased revenue from these countries in 2016.

We believe this combined with a strong demand outside of the United States will result in strong international growth in the future. With the unprecedented level of data supporting use of all our test and growing reimbursement in new markets, we believe we are well-positioned to deliver revenue growth of 12% to 17% in 2016.

I will now turn the call over to Steve to discuss recent clinical milestones.

Steven Shak

Thanks, Brad. 2015 was a remarkable year for generating unprecedented prospective patient outcomes for the Oncotype DX breast cancer tests in more than 50,000 patients across four trials including the watershed TAILORx results that were published in the New England Journal of Medicine last September.

At the San Antonio Breast Cancer Conference in December we announced additional industry-leading outcomes data with the presentation of multiple prospective studies including results from the SEER or Surveillance, Epidemiology, and End Results program of the National Cancer Institute, complete results from a multi-center study from Clalit Health Services, the largest health maintenance organization in Israel, an additional analyses from TAILORx and the German PlanB study originally presented at the European Cancer Congress in September.

With these four new studies we now have an unparalleled amount of invasive breast cancer evidence from four large independently run international studies demonstrating that Oncotype DX has clinical utility both by changing treatment decisions and by delivering favorable prospective patient outcomes. I would like to spend a few minutes discussing specifically the SEER Registry funded by the National Cancer Institute since the early 1970s.

SEER is the premier source of cancer statistics in the United States collecting incidents and cancer survival data for 30% of all United States cancer patients. Through this first of its kind collaboration with NCI we evaluated the prospective outcomes in more than 40,000 node-negative and 4,500 node-positive breast cancer patients who were treated using the Recurrence Score at diagnosis.

Results demonstrated breast cancer specific mortality at five years with less than 0.5% in node-negative disease, and 1% in node-positive disease up to three positive nodes when the Recurrence Score results were less than 18%. The study also showed that mortality increased with rising Recurrence Score results, underscoring the accuracy of Oncotype DX in predicting patient outcomes.

Specifically it increased slightly among patients with intermediate Recurrence Score results of 18% to 30% and more than tenfold in patients with high Recurrence Score results equal to or greater than 31%. Importantly SEER also revealed alarming disparities in Oncotype DX testing and in outcomes dependent on patient age and geographical location. Based on the most recent analysis of patient information from the year 2012 on average 41% of patients with node-negative hormone receptor positive, HER2-negative breast cancer had the Oncotype DX test performed.

Patients 70 years of age or older with node-negative breast cancer a subgroup that showed significantly worse breast cancer specific survival and lower chemotherapy use across all the SEER Registry were more than three times less likely to be tested on average than patients who are younger than age 70.

In addition, a large variability in testing was observed among the 12 states included in the SEER database within almost twofold range in testing and as low as 30% proportion of patient tested in the State of California. These insights will help us as we aim to increase access and use of the test in the United States. We plan with the National Cancer Institute to broaden this collaboration on data sharing and to continue to supplement the SEER Registry with Oncotype DX testing information on an annual basis.

In collaboration with SEER we intend to publish the study's findings and to further analyze results regarding the uses of Oncotype DX within the NCCN recommended patient criteria and in important patient subgroups often underrepresented in clinical trials.

In the meantime, positive results from a large prospective outcomes study in Germany outside the United States important for our global business that was previously presented at the European Cancer Conference were recently accepted for publication in the Journal of Clinical Oncology led by the Women's Healthcare Study Group in 93 centers across Germany.

The PlanB study demonstrated that women with Recurrence Score results of 11 or less who were treated with hormonal therapy alone had excellent outcomes, with 98% events free survival rates at three years despite having intermediate or high-risk disease by traditional parameters.

Furthermore, five-year outcomes data now from the PlanB study have been accepted for oral presentation at the upcoming European Breast Conference in March. We look forward to sharing those results with you after the embargo lifts. Together TAILORx, SEER, Clalit and PlanB provide unequivocal evidence supporting the expert clinical practice guidelines on the utility of Oncotype DX in node-negative and node-positive disease beyond the standard measures used alone for so many years and demonstrate that patients and their physicians can make more informed decisions and achieve favorable prospective outcomes based on the Recurrent Score result.

We believe this compelling suite of new global prospective outcomes data in more than 50,000 patients obtained just in the last six months will derive a meaningful increase in penetration as standard of care, where today half of the 140,000 eligible patients in the United States still do not receive an Oncotype DX Recurrent Score when making this critical chemotherapy treatment decision.

I will now turn the call over to Phil, who will discuss progress in our exciting new liquid biopsy pipeline and the prostate programs.

Phillip Febbo

Thanks Steve. We are very excited to begin leveraging our business model as we develop and start commercializing our liquid biopsy portfolio. We believe our experience bringing molecular tests into cancer care, our commercial channel including strong relationships with community physicians who take care of the majority of cancer patients, as well as our expertise in demonstrating clinical utility and gaining reimbursement for value-based tests sets us apart.

As you may remember, a year ago we announced our vision to expand our impact to answer clinical questions across the entire cancer patient journey and a few weeks ago we introduced our Oncotype IQ Genomic Intelligence Platform, which groups all of our current and future products into one platform aimed at making cancer care smarter throughout the patient journey.

The Oncotype IQ platform contains several classes of products including our existing portfolio of Oncotype DX gene expression tests, which are targeted at answering treatment decision questions in early stage disease. The next product under the IQ platform will be the Oncotype SEQ portfolio of gene sequencing tests based on next generation sequencing that will include both liquid and tissue-based tests. SEQ test will be designed to help the physician identify potential therapies for patients that face a recurrence or late stage disease.

The third product class will be our Oncotype Track pipeline of tumor monitoring tests. These tests will focus on monitoring the effectiveness of therapy, recurrence detection or the overall patient disease burden. We plan to launch our first Oncotype SEQ liquid biopsy test in mid-2016. This test is a blood-based mutation panel that uses next-generation sequencing to identify select actionable genomic alterations for the treatment of patients with late-stage lung, breast, colon, melanoma, ovarian and gastrointestinal cancers.

In developing Oncotype SEQ, we focused on our large established customer base, which is the community oncologist and their patients to understand their current and future needs. We also leveraged heavily our experience developing cancer tests that are optimized for clinical utility and for patient access so that they can be adopted and used widely.

As a result Oncotype SEQ is a fit-for-purpose panel that can be efficiently incorporated into oncology care especially within community-based practices throughout our unmatched commercial channel. We believe payors will be more inclined to cover a panel with robust analytic validation that focuses primarily on actionable genes were treatment has established utility to support clinical intervention. I look forward to updating you on our liquid biopsy progress as we continue to advance our SEQ and Track programs.

Turning now to our prostate cancer test, which has been specifically developed and validated to assess the aggressiveness of prostate cancer and predict both near and long-term outcomes to enable more precise patient risk stratification and better informed treatment decisions for men with low and intermediate risk prostate cancer.

In October, Palmetto GBA, a Medicare administrative contractor that assesses molecular diagnostic technologies initiated reimbursement coverage of the Oncotype DX prostate cancer test for qualified Medicare patients throughout the United States. We are pleased that 30% of our intended use population now has access to the test and we continue to make progress in collecting prostate patient data for Medicare billing.

Also during the quarter, in addition to the 14 studies that have included more than 2,000 patients, urology published a meta-analysis of the original Oncotype DX clinical validation studies demonstrating the ability of the Genomic Prostate Score to refine risk stratification for low and intermediate risk patients with greater precision compared to clinical classifiers alone. These data were also presented at the 2016 ASCO GU Cancers Symposium along with initial results from a new study highlighting the prediction of labor current event in intermediate and high-risk patients.

The urology publication and these results at ASCO GU add to the growing body of evidence supporting Oncotype DX as a precise risk assessment tool for low and intermediate risk prostate cancer patient who may benefit from active surveillance. We look forward to leveraging this latest data as we continue to pursue expanded Medicare coverage for intermediate risk patients and private coverage for low and intermediate risk prostate cancer.

I will now turn the call back to Kim.

Kimberly Popovits

Thanks Phil. The value we build in our business this past year has created tremendous momentum going into 2016 leading to our anticipated delivery of double-digit growth this year. We believe the successful execution of our strategic initiatives will allow us to deliver our 2016 milestone.

Specifically, we will deliver revenue growth between 12% and 17% of positive EBITDA continue to grow our U.S. invasive breast cancer business to about 50% penetration, increased reimbursement for prostate in the U.S. and for our breast cancer test in key international markets launched the Oncotype SEQ liquid panel by mid-year and initiate validation work for a second liquid biopsy test.

With more than 600,000 patients served today Genomic Health has become a global leader in delivering precision medicine. We have transformed the way cancer is treated, changing standard of care and most importantly made a positive impact on patient outcomes.

With our Oncotype DX test, we pioneered the molecular diagnostics industry established an unmatched worldwide commercial channel and successfully develop the business model that brings value to physicians, patient and payors. We are excited to leverage our unique experience and infrastructure to innovate further with our site set and making cancer care smarter to the delivery of multiple liquid biopsy test that are optimized for clinical utility and access across the patient journey.

We look forward to continuing to update you on our progress throughout the year and I now like to open the line for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Nicholas Jansen with Raymond James. Your line is now open.

Nicholas Jansen

Hey guys, thanks for the question and nice quarter. Just wanted to get a better sense of your expectations for prostate in 2016, I appreciate the color surrounding as a percent of total volumes over 10%, but how do you think about the increased reimbursement coverage, yes, you have about 30% today for Medicare low risk, but is there any expectation in 2016 that we should get some non-Medicare coverage or even Medicare high-risk at some point, just wanted to get your views of kind of the adoption curve on the reimbursement side of the house? Thanks.

Phillip Febbo

Let me just start maybe other people can fill in and as we clear that we see our prostate businesses continue to grow and with the growth next year will be above 10% in total volume. So today, a third of that volume or so is covered through the CMS coverage for low and very low risk patients.

There is an opportunity with private payors to expand what I would call our label, which we’ve done studies at both intermediate risk and low and very low risk patients. There wouldn’t be opportunity at high-risk patients, Nick we haven’t done work in that group. So there is an opportunity to expand coverage, but even without that the opportunity get paid for the first time in a significant way this year will generate growth in the topline.

Kimberly Popovits

And I might just add on to that one very encouraging piece of recent news is that NCCN has updated their guidelines to recommend active surveillance as an option for those low to intermediate risk patients and that's actually a key piece of information that we were awaiting to go back to talk not only with Medicare but with other private payors around expanding the access specifically with Medicare to the intermediate group.

Nicholas Jansen

That’s great. And then secondly regarding your Oncotype DX test delivered guidance. Does that include any liquid biopsy just wanted to confirm that and then secondly in terms of the liquid biopsy investment in 2016 relative to 2015. How much do we think about in terms of absolute dollars are you spending there in terms of how we should be thinking about the eventual recovery or return off of that investment? Thank you.

Bradley Cole

So the test guidance is Oncotype DX we were - we slip that in - we have Oncotype DX and Oncotype SEQ now so it is just the DX franchises around test guidance for this year. We are investing nearly half of R&D and the liquid biopsy platform and products to come over the next couple of years. So with R&D being in the $60 million range it’s nearly $30 million will be in this new platform here in 2016.

Nicholas Jansen

Thanks guys. I will jump back in the queue.

Kimberly Popovits

Great thank you.

Bradley Cole

Thank you.

Operator

Our next question comes from the line of Mark Massaro with Canaccord Genuity. Your line is now open.

Mark Massaro

Hey guys thanks for the question. I wanted to ask about the Oncotype SEQ panel and wanted to ask why you decided not to include prostate in that panel?

Phillip Febbo

Yes, so when developing the Oncotype SEQ panel we’ve really focused on actionable events that have therapies that are linked with patient benefit. At this point in advanced prostate cancer and it is targeting advanced stage disease. There is not a therapy with an actionable genetic event. We do see emerging therapies and part of the excitement of the Oncotype SEQ is that it will be a product that will be more facile to evolve over time and to incorporate additional events as the level of evidence and as the utility of targeting events become present.

Kimberly Popovits

So one of the things Mark that we focused on in that panel were markers that have level one very high level evidence NCCN type evidence in terms of actionability because we felt that would be the best path for patient access and the most clinically actionable now. But just to echo it Phil said we have certainly designed it whereby when additional information is there that we would be able to run this panel to include new markers where the level of the evidence is high enough or to be actionable and specifically…

Mark Massaro

Yes, that make sense. And not a lot of commentary about the ERP implementation, but where do you stand with that is there any lingering concerns that you have as we’re now in Q1 and any impact that we might lookout for as Q1 evolve?

Phillip Febbo

Yes, so we can say that things are better than they were at launch and we work through a lot of issues. There are still things to work through but we are making progress we don’t expect to have a material effect on the results in 2016.

Kimberly Popovits

Yes, may be just adding there from what we have seen in January we feel comfortable that we resolved the major issues and that were on track to meet the guidance that Brad just outlined in our conversation today.

Mark Massaro

Okay. Thanks very much.

Kimberly Popovits

You’re welcome.

Operator

And our next question comes from the line of Doug Schenkel with Cowen & Company. Your line is now open.

Adam Wieschhaus

Hi, there. This is actually Adam Wieschhaus on for Doug. Thanks for taking my question.

Kimberly Popovits

Welcome.

Adam Wieschhaus

Maybe to start, can you just provide your thoughts on the ASCO guidelines which were updated on Monday for invasive breast cancer?

Steven Shak

Sure this is Steve Shak. So once again ASCO guidelines issued a strong recommendation for Oncotype DX. It is also very encouraging as we read through the text clearly that the guideline support more consistent adoption of genomic testing as the standard in breast cancer care. It should be pointed out I made reference earlier to a number of new studies which we’ve just reported now in the last six months.

The ASCO guidelines that just came out did not yet incorporate that new data and that unparalleled evidence from TAILORx which we are already seeing TAILORx and SEER and that new information having an impact on leaders in the field and their confidence in our test being a standard of care.

Kimberly Popovits

Yes. I would just add to that too, this notion that we’re sitting at a level of 50% penetration, piling on this evidence and having ASCO continue to recommend genomic testing for early stage breast cancer patients, we think will bode well along with the SEER data and the other things that we can bring out clinically this year. So feeling very confident in the strong growth that we had for invasive business in the U.S. in the third and fourth quarter for that to continue and even grow a bit more in 2016.

Adam Wieschhaus

Okay, great. And for international breast I think you mentioned Germany and France were coming along as well as Spain. Can you provide an update on the NHS progress, you had a trickle of revenues in the third quarter did those revenues and volumes come in sequentially as expected?

Phillip Febbo

Yes. So we are seeing an increase in the UK revenue as a result of NHS coverage, we still think there is big opportunity and more room to grow and we will have in 2016 a full-year where we got contracting in place and coverage in place to where we think we’ll see a significant piece of our international growth will come from Western Europe including the UK.

Adam Wieschhaus

Okay, great. Thank you.

Kimberly Popovits

Welcome.

Operator

And our next question comes from the line of Bill Quirk with Piper Jaffray. Your line is now open.

William Quirk

First question, just I guess kind of somewhat going back to earlier one. Your revenue guidance is ahead of your Oncotype DX test volume guidance. And so I guess the question is are you expecting some catch-up payments here or because Oncotype SEQ isn't included in there you are expecting some revenue from that product in 2016? Thanks.

Operator

[Operator Instructions]

Kimberly Popovits

Bill, are you still there?

William Quirk

Yes.

Kimberly Popovits

All right, thanks. Don’t take that personally.

William Quirk

Yes, I’m certainly hopeful was in the nature of my question.

Bradley Cole

We didn’t hear you.

William Quirk

Okay. The first question has to do with the difference between your revenue guidance and your Oncotype volume guidance. And I guess I’m just trying to kind of cross walk between the two. And so I guess the question is, are you expecting some sort of catch-up payments to get to higher revenues than test volume or alternatively electing some Oncotype SEQ revenue which obviously isn't in the volume number you’ve provided? Thank you.

Bradley Cole

Yes. There is primary two things there Bill. The first one is prostate, so in the comparison numbers in 2015 there wasn't - there is negligible revenue from CMS and so building in this 30% of our test volume in prostate comes it would be - we have revenue from CMS that’s a step up in revenue which will adds to the faster growth rate in revenue.

Likewise, we expect that revenue will be a little higher growth in international than test growth in international, probably because we have a full-year of getting reimbursed in the UK. We did some testing in the UK for example in the NHS system where we’re taking orders, but we didn’t have contracts in place and we couldn’t book the revenue. So we are continuing to service the markets. Likewise in Germany we have expectations for revenue as we continue to service the market there, so it’s an acceleration there a bit.

Kimberly Popovits

And then the third piece of that is the invasive breast cancer business and continued growth around the world specifically in the U.S. continuing in the high single-digit and no revenue for SEQ.

Bradley Cole

No revenue for SEQ, right.

William Quirk

Okay, got it. That’s very helpful. And then just a follow-up on Oncotype SEQ, how should we think about data dissemination throughout the year and then help us I think a little bit about reimbursement, are you going to try to use existing codes are you going to take I guess your more traditional approach which is to try to carve out your own unique code? Thanks.

Phillip Febbo

Yes. Well the Oncotype SEQ product does measure events in the blood that have established utility through trials showing - linking those events with therapies and with clinical benefit. And I think in distinction to some of our - to our current Oncotype DX portfolio of products, we feel that will be in a much better position to get reimbursement earlier based on that utility data that’s already out there. So it is a different model and we are excited about that opportunity.

Operator

Our next question comes from the line of Derik de Bruin with Bank of America Merrill Lynch. Your line is now open.

Unidentified Analyst

Hi, this is Ann calling in for Derik. I guess the first question on sales growth linearity, what should we expect maybe in terms of half sales growth in the back half of 2016 in order to achieve that profitability guidance you provided?

Bradley Cole

Yes. So the midpoint of revenue guidance is around 15% that would require sequential growth quarter-to-quarter in revenues right. So we do see revenue in the first quarter as we stated similar to the street consensus around $78 million, but in order to see improvement on the bottom line, we need to see sequential growth and we don’t see significant change within back half growth quarter-to-quarter or first half growth quarter-to-quarter is there all in the 12% to 17%, there isn’t big acceleration.

Unidentified Analyst

Okay. And then question on Oncotype SEQ I think you mentioned that your primarily targeting the community oncologist communities so what is the market size like there in terms of number of ordering docs and then also I think that we most of the success that we’ve seen in terms of genetic panel oncology has been academic start of hospitals, so what gives you confidence like community oncologist, already its speak on and those types of tests?

Bradley Cole

Well, I think it’s clear that 70% of patients are seen in the community-based settings and that’s our experience with the Oncotype DX portfolio and that’s really where we have an outstanding relationship. And as I mentioned earlier, we really use that to develop. And to your point, we have - it’s an exciting time with incredible development of knowledge of cancer.

But the information that can really be used by community oncologist today to help a patient to improve both their duration and quality of life, it’s still pretty focused and that's what we’re bringing to the market and we feel that's what our community oncologist that were working with need that’s what we can deliver. And we can deliver with best-in-class analytic validation that gives them the right confidence that they can make decisions based on our test.

Kimberly Popovits

Yes. And I would add to that Phil and his team did just a really beautiful job going out and getting feedback from community oncologist, because while we believe that there is a role for really broad panels in academia and in research.

What the community physicians are looking for is something that they can use today to practice state-of-the-art genomic medicine with their cancer patients and this is what we are bringing them is here are the actionable markers today that payors are familiar with and that can help guide your patients therapeutic treatment decision.

So it really does fit I think very nicely and what we've always done a genomic health is ask a specific question on and do a fit-for-purpose type of development to bring, what we believe will be a world-class assay and really distinguish ourselves with the analytical piece of it.

Bradley Cole

And we believe with the variance that will be included and the diseases were covering there's an accessible population of over 350,000 patients.

Operator

Our next question comes from the line of Amanda Murphy with William Blair. Your line is now open.

Steven Sarver

Hey guys this is Steve Sarver in for Amanda. Thanks for taking my question today. I just have two quick ones I know that you mentioned you received coverage in like four areas of Spain. I was wondering where you are at with Germany and I guess once if you receive coverage or how many likewise you expect to be under coverage at that point?

Bradley Cole

Today, we are still seeking significant public coverage. We’ve got some decisions that allow access to certain parts of the market, but not to broad public coverage. So we now have the ability to build in Germany through an appeals process and are working through that with private payors.

The decision that would be - that would follow on that first decision that would be more broadly applicable will come later in 2016, probably at the back half of 2016 certainly. But over time we think with this first opening we’ll be able to see revenue growth from the levels that was in 2015, but the big win is not - we don’t have the big win yet and it’s still come to later in the year. Could be early 2017 but Germany has ways to go. Actually more people are covered in Spain than they are in Germany at the moment.

Kimberly Popovits

One of the things that we are very excited about and Steve outlined it is using that PlanB those results in that data to really move what’s going on in Germany forward a little bit faster. So optimistic that we’re going to make progress this year can't tell for sure when exactly that big event happens.

Steven Sarver

Okay and I know that you mentioned for Q1 you expect to have a significant operating loss compared to Q4. Are you able to provide any more color on that $7 million operational loss related to personnel is there any more detail you are able to provide?

Bradley Cole

Sure. It simply put, there is a reset of expenses associated with personnel in the New Year between taxes, vacation, 401(k) match even simple things like we provide our employee based salary increases early in the year. So that just had difference there as $5 million to $6 million without any new hiring.

So we’ve seen this most years, we’ve seen an increase and we’ve always seen an increase in this category and from the fourth quarter just moving that up $5 million or $6 million or push the loss up to $8 million to $9 million then we got other costs associated with full quarter of ERP costs and what have you.

So if you just interpret their guidance range where we’re saying half of our guided loss that entire guided loss will be in the first half and more than half of that will be in the first quarter you are going to be at a $7 million to $10 million range. And I know the streets more in the $2 million to $4 million range and we are in the high single digits.

Steven Sarver

Perfect. Thanks for your time.

Kimberly Popovits

You’re welcome.

Operator

Our next question comes from the line of Tim Evans with Wells Fargo Securities. Your line is now open.

Unidentified Analyst

Hi, thanks this is [Sarah Silverman] on for Tim. I was wondering if you could comment on responses you are getting from physicians on the TAILORx data. Now that were kind of a quarter end can you see any increased user penetration there?

Phillip Febbo

Yes, absolutely it’s had - really almost in the immediate positive impact, it had a positive impact both in orders, but just as importantly in the dialogue and discussion and confidence of physicians to move to reflex testing to have it incorporated in healthcare systems as a standard and obviously the momentum of having it included as a standard is certainly very important now for the quality of care as we know that as a standard it’s going to deliver the prospective outcomes that physicians and patients want it’s going to actually now move care - what we’re seeing in both directions both with low recurrence Score disease and avoiding unnecessary chemotherapy.

But also I want to emphasize it sort of a one-two punch with now the SEER data and the Clalit data because it’s also identifying the women who appear maybe to have favorable features, but can benefit clearly and have life-saving benefits from the addition of chemotherapy. And so in that regard all of the standardization of this clearly - we expect it’s going to have the kind of impact that Kim and Brad described on our revenues going forward this year.

Kimberly Popovits

And I think specifically the fact that we have the ability to target the areas where we know the penetration is low. So looking at the SEER data on top of TAILORx and their own data that we track internally, this just gives us really good powerful tool to go out and to really exposed institutions what they're doing and the fact that it is not standard of care if they're not using Oncotype to make treatment decisions around chemotherapy. It’s the only tool they have that can actually predict chemotherapy benefit that’s been validated to do that.

Now prospectively with more than 50,000 patients, so very excited to get our strategic accounts team and the sales force and of course is thrilled with the data. So we really believe it will have a pretty significant impact. That just in the U.S. alone that’s an additional 70,000 patients that we’re not reaching today, so it's a sizeable opportunity for growth.

Unidentified Analyst

Great, thanks.

Kimberly Popovits

You are welcome.

Operator

Our next question comes from the line of Tycho Peterson with JP Morgan. Your line is now open.

Tejas Savant

Hey, guys. This is Tejas Savant for Tycho actually. Just a couple of quick follow-ups on the liquid biopsy panel. First of all I mean it’s increasingly becoming a space where you have multiple competitors, so far there is only one company at scale that’s out there now a couple more entering the space including you guys. So beyond the fact that you already have an existing relationship with oncologist, how exactly do you expect to differentiate your panel out in the field?

And as a quick follow-up to that I mean one of the companies that has a big PanCancer Panel today spoke about community setting being a little more challenging for them, they kind of hit a wall in terms of test volume because of lower reorder rates. So it seems like it was not so much the relationship with the oncologist that was missing, but more an issue with the way doctor using this data or well-developed knowledge base and those kinds of - sort of reasons. So can you give us some color on that?

Steven Shak

Absolutely. And I would argue that it was actually the lack of the relationship that led to that lack of reorders because obviously they brought a tool into that practice that didn't delay. And that's really what we've learned over the 15 years of bringing molecular diagnostics to practicing oncologists.

And so how will be distinguished is it's not any single element, it's the ecosystem that we have that drives our success, it’s finding the right technology. In this case next generation sequencing with the right analytic performance so that you can provide a test that patients and physicians can have confidence facing their decisions on. It’s rightsizing that information so you don't overwhelm the physician and you give them something that they can use for that patient in front of them.

It’s been working across our Company, our sales channel, our work with managed care, our strategic markets group to really position that product for success in demonstrating utility and moving on to reimbursement. And I think it's really that combination that is excess. We’ll have best-in-class technology, we’ll have best-in-class analytic validation and then we’ll deliver it through our best-in-class channel and it’s really that combination that we see distinguishing ourselves from the acknowledge - what we acknowledge is a growing amount of noise in this area.

Tejas Savant

Got it. And then just a quick follow-up on reimbursements. I mean have you had any sort of early conversations with Medicare on the private payors, obviously PanCancer panel is broadly based on upheld battle in the last couple of years after a lot of initial excitement some people have characterized them as a run way train and not enough sort of targeted drugs out there to justify use in every case and so on and so forth. So any color there on early conversations?

Steven Shak

Yes. We have great relationships across this spectrum of payors and certainly have and started to leverage those relationships to engage in discussions. The field is changing and we feel we’re in a very good position.

Tejas Savant

Got it. Okay, thanks.

Operator

And our last question comes from the line of Jack Meehan with Barclays. Your line is now open.

Jack Meehan

Hi, thanks. Good afternoon guys. I wanted to just ask a three questions on neurology, so first what were the sequential trends in volume growth and I was wondering if you could parse out what the underlying growth look like versus what impact from the data collection issues that you [flagging] previously ended up being?

Bradley Cole

Yes. So we did see growth in neurology business and was impacted by couple of things I mean data collection was in the start-up phase where now in different place today. Our ERP systems has a little bit of affect just like they do on the whole business, but we still saw that the test grow over 30% year-over-year, it’s not the 50% to 70% we’ve seen in the past, but orders were up 40%.

And so we haven’t talked about orders, but when we look at orders in the business as other people talk about it if we think about our indication of low and intermediate patients we think we still are the market share leader and we are seeing growth in the 40% to 50% range and we would expect that same growth next year. Does that answer your question?

Jack Meehan

I think so. So to build to what you are guiding for the full-year in terms of volumes is the way we should think about its sequential test of volume growth on a quarterly basis throughout the year?

Bradley Cole

Yes, that’s what we are demonstrating this year and I think we are expecting another year like this year where we see sequential growth in test volume. There was a time when our core market, our first product in breast spring and summer were slower and that’s still the case at times, but we’ve got such a more diverse product line in geographical product line that we have seen sequential growth in the last couple of years. Some new markets are growing rapidly, Western Europe is at 25%, this part year prostate was up 70%, that will smooth out some of that, but we are expecting sequential growth.

Jack Meehan

Okay. And then just your expectations for the U.S. urology sales force, when you would think about expanding that and then just optimally size wise what you think that the amount of feet on the street you need would look like?

Phillip Febbo

Yes, so we enter this year having just increase the size of the sales force to nearly 40, it’s a new development in the last month or so, last couple of months I should say. And we think the optimal sales force size is not 40, but more like 60 to 80 and we will have to see how that goes, but we can complete the reach for that nearly doubling the size which we don't intend to do this year, we tend to expand it up to 40 which is about a third growth this year and keep it there for the duration of 2016.

Jack Meehan

Got it. That’s helpful. And then just a last one I'm curious in international markets that your peer is looking to come up with a kit-based version of their test that’s underdevelopment. I was curious if you thought that was a strategy that you were considering following as well? Thank you.

Phillip Febbo

Well, I think a kit-based strategy make sense in certain markets and we are continuing to look at that. I can remember at first year at a company we are talking about that so we continue to look like where it’s appropriate and I think when Oncotype DX becomes standard of care around the world it would be more straightforward to make it into a kit.

Kimberly Popovits

And I think one way to maybe talk about that is looking at more decentralized model so some of that comes down to what your definition of a kit is so we are looking at this country by country and I think we have some creative solutions and some ideas of how we can do this in more of a decentralized fashion so stay tuned on that and we’ll be bringing you update in that way, but I totally in sync with Brad there you know as we are making progress and gaining the public reimbursement that’s the timeframe in which I think we need to think about making moves of that nature, but we are clearly talking about it.

Operator

We will now conclude the Q&A portion of the call. At this time, I’d like to turn the call back over to Kim Popovits.

Kimberly Popovits

Okay. Thank you and I just want to say thanks to all of you for joining us today and always for your support and interest in Genomic Health. We will look forward to seeing you at upcoming investor meetings. So take care. Thanks. Bye-bye.

Operator

And this concludes today’s fourth quarter and year-end 2015conference call for Genomic Health. You may now disconnect. Everyone have a great day.

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