Genomic Health's (GHDX) CEO Kim Popovits on Q2 2016 Results - Earnings Call Transcript

| About: Genomic Health, (GHDX)

Genomic Health, Inc. (NASDAQ:GHDX)

Q2 2016 Results Earnings Conference Call

August 02, 2016 04:30 PM ET

Executives

Emily Faucette - VP, Corporate Communications and IR

Kim Popovits - Chairman, President and CEO

Brad Cole - COO and CFO

Steve Shak - Chief Scientific Officer

Fred Pla - Chief Business and Product Development Officer

Analysts

Mark Massaro - Canaccord Genuity

Jon Groberg - UBS

Anne Edelstein - Bank of America

Bill Quirk - Piper Jaffray

Jack Meehan - Barclays

Operator

Good afternoon. My name is Bridget and I will be your conference operator today. At this time, I would like to welcome everyone to the Genomic Health’s Second Quarter 2016 Financial Results Conference Call. All participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to turn the call over to Emily Faucette, Vice President of Corporate Communications and Investor Relations. You may begin your conference call.

Emily Faucette

Thank you. Good afternoon everyone. And welcome to Genomic Health’s conference call to review our second quarter 2016 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 Annual Report on Form 10-Q for the quarter ended March 31, 2016, 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 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; and Fred Pla, our Chief Business and Product Development Officer.

I’ll now turn the call over to Kim.

Kim Popovits

Thanks, Emily. Good afternoon everyone and welcome.

We are pleased to report double-digit growth in both, revenue and tests delivered for the second consecutive quarter. With successful execution across all of our key markets, revenue grew 16% and tests delivered grew 12% compared to last year. Specifically our U.S. invasive breast cancer business increased 13% in revenue and 8% in tests delivered. DCIS breast cancer tests delivered continued to grow by 24% compared to the same period last year. We delivered a record number of prostate cancer tests with 13% growth and 3% contribution to revenue growth. And both international revenue and tests delivered increased by more than 20%, driven by strong performance in Western Europe, specifically the UK and France.

Based on these strong results in the first half, we are rating the low end of our full year revenue and test guidance. We expanded our Oncotype IQ Genomic Intelligence Platform with the announcement of two new liquid biopsy tests, focused on later stage cancer.

First, we launched Oncotype SEQ Liquid Select, a targeted panel that uses next generation sequencing to identify and assess actionable, genomic alterations through a single blood drop to inform the treatment of stage IV solid tumors. And in early July, we announced an exclusive collaboration to commercialize Epic Sciences’ novel AR-V7 liquid biopsy test for metastatic prostate cancer in the United States through our world class commercial channel. These achievements further reinforce both our strategy and leadership in providing genomic-based diagnostics to optimize outcomes across the cancer patient journey.

Additionally, we recently expanded our Board of Directors to include Geoff Parker with expertise in global investment banking and corporate finance and life sciences and biotech. Jeff’s proven track record in the health care financial industry will be an invaluable asset as we continue to grow and diversify our business.

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

Brad Cole

Thanks, Kim.

In the second quarter of 2016, revenue was $82 million, an increase of 16% compared to last year. On a constant currency basis, revenue increased 18% compared with the same period in the prior year. Revenue for the first half of 2016 was $162.9 million compared with $138.8 million for the same period in the prior year, an increase of 17%. We delivered more than 29,060 Oncotype DX test results in the second quarter, an increase of 12%, compared with the prior year. As anticipated and similar to historic seasonal patterns, tests delivered were down slightly sequentially. More than 58,570 tests were delivered in the first half of 2016, compared with more than 51,500 in the prior year, an increase of 14%.

I will now walk you through the growth delivered across each of our key markets.

Our U.S. oncology franchise that is invasive breast, DCIS and colon grew 13% in revenue and 11% in tests delivered. Cash collections were again strong with cash revenue in our oncology franchise growing 24% as compared to last year and accounts for the difference in growth rates between revenue and tests delivered.

Efficiencies and insights from our recent system implementation are the primary driver of the strong cash revenue, and we anticipate cash collections will begin to normalize later in the year. Supported by the unprecedented prospective outcomes data generated at the end of last year, our U.S. invasive breast cancer business continues to grow. We delivered a 13% increase in revenue and an 8% increase in tests delivered.

This continued volume growth in invasive breast cancer supports our belief that our market penetration, currently about 50%, can reach 80%. We expect continued outcomes data from TAILORx and SEER studies to add significantly to the body of evidence for the Oncotype DX breast tests over the next several years, and as a result, further establish Oncotype as the standard of care, the only test proven to predict chemotherapy benefit for invasive breast cancer.

Additionally, DCIS continued to gain traction with 24% test growth year-over-year. We believe the DCIS market where there is no other tests available is poised for continued growth to address a large unmet need for improved treatment decision-making.

We delivered a record number of prostate cancer tests in the quarter, which increased 13% year-over-year and sequentially, and represents more than 8% of total test volume. And in June, prostate volume was the highest in any single month since launch. We are pleased with our exit rate in the second quarter, leading to our expectation of continued strong sequential growth in the second half of the year.

And to remind you, as you look to calculate overall market share that Genomic Health reports test results actually delivered to physicians for treatment decisions rather than the orders received. The difference between these two metrics can be considerable depending on available this year. Additionally, the opportunity for the Oncotype DX Genomic Prostate Score is 140,000 [ph] patients in the United States each year who are designated as very low, low, and favorable intermediate risk by NCCN guidelines.

Prostate revenue was $2.3 million in the quarter, which contributed meaningfully to revenue growth, adding 3 percentage points to overall growth year-over-year. Our success in streamlining the collection of required data for Medicare billing resulted in an improved Medicare revenue from the first quarter. Prostate revenue for the quarter included approximately $1.4 million from CMS for very low and low NCCN risk category patients. We recorded approximately 70% of the eligible Medicare revenue in the second quarter. We expect our ongoing efforts and system improvements to result in a higher conversion of Medicare prostate tests to revenue in future quarters as data collection for these patients continues to improve.

U.S. tests delivered grew by 8% compared with the prior year and total revenue was $69.6 million in the second quarter of 2016, an increase of 15% compared with the same period in the prior year. We did record $88,000 in contract revenue from continued work with Pfizer in our collaboration for renal cancer.

International tests delivered grew 23% compared with the prior year and represented approximately 23% of total sales volume in the second quarter of 2016. Continued growth in western Europe led the way with 41% growth in the second quarter, particularly in the UK and France. International revenue was $12.3 million in the second quarter of 2016, an increase of 24%. On a constant currency basis, the increase was 26% compared to a year ago.

These strong revenue results were primarily driven by continued traction in both NHS volume and revenue in the UK as well as continued growth across both direct and partnered markets. 59% of tests delivered and 69% of product revenue were recorded on an accrual basis in the second quarter of 2016. Our gross margin was 81.4% in the second quarter. We anticipate our gross margin rates to remain in the 81% range in the coming quarters.

We’re pleased with the nearly 50% operating leverage delivered in the first half of 2016. As expected, we improved our operating loss to $5.1 million compared with $10.8 million in the second quarter of 2015. For the six months ended June 30, 2016, operating loss improved to $13.9 million compared with $25.5 million for the same period in the prior year.

Net loss was $6.1 million for the second quarter of 2016 and includes a tax expense in the quarter from the Company’s investment in a marketable security totaling $1.4 million and a gain on sale of $0.6 million on the same marketable security.

Based on our outlook for the year, following a strong first half performance, we are raising the low end of our full year revenue and test guidance, specifically we are raising total revenue to between $325 million and $335 million, formerly $320 million to $335 million. The new range represents growth of between 13% to 17% compared to 2015. Raising Oncotype DX tests delivered range to between 118,500 and 121,000, formerly, 117,500 to 121,000. The new range represents growth of between 11% and 13% compared to 2015. And maintaining that loss guidance between $12 million and $18 million at the midpoint of revenue guidance. Excluding gains from the Company’s investment in a marketable security, expected to offset costs associated with the Epic Sciences, collaboration or basic net loss per share of between $0.37 and $0.55. We expect that the $2 million gain already recorded this year from sales of a marketable security will offset expected 2016 integration and commercial readiness costs associated with our Epic Sciences’ collaboration as a commercial partner for its AR-V7 test for late stage prostate patients. The system integration costs are to ensure seamless order to [ph] cash processing for our customers, payers and Epic Sciences.

Separately, it is important to note that fluctuations in the price of the marketable security we hold through the end of the year will be reflected in the tax line and are not included in our guidance. While we expect our operating loss to improve from the second quarter, we still expect to be in a loss position during the third quarter. We continue to expect to achieve our full year operating leverage goal of approximately 40% in 2016 that is $0.40 of improved operating income for every new revenue dollar when compared to 2015.

Turning to international progress, we now have more than 260 million covered lives for the Oncotype DX Breast Recurrence Score with the addition of NHS reimbursement in northern Ireland and Scotland and the recent establishment of coverage for the breast cancer genomic tests by the French Ministry of Health, earlier this year.

In the UK, the National Institute for Health and Care Excellence or NICE published its latest quality standard guidelines recommending the use of the Oncotype DX in the eligible patients with early-stage breast cancer. Additionally, in applicable patients, Oncotype DX is now listed as equally important for quality care as estrogen-receptor, progesterone-receptor and HER2 status. These standards are intended to drive more widespread and consistent adoption in order to improve the quality of care. And we believe this exclusive endorsement by NICE will be impactful in driving greater adoption of our invasive breast cancer tests in the UK.

Furthermore, since NICE is highly regarded by payers and healthcare providers outside of the UK, these standards are expected to have a positive impact on adoption and reimbursement efforts in other international markets as well. With the unprecedented level of data supporting use of all of our tests and growing reimbursement in new markets, we believe we are well-positioned to deliver revenue and test results for the full year that are in line with our updated guidance.

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

Steve Shak

Thanks Brad. Our scientific productivity in the second quarter matched our outstanding commercial success with multiple significant data publications and presentations that continued to underscore the unique value and competitive differentiation of our Oncotype DX tests. In June, Nature Partner Journals Breast Cancer, a peer reviewed nature journal published results from our groundbreaking collaboration with the National Cancer Institute SEER Registry, representing the largest report of prospective clinical outcome in more than 44,600 patients treated based on the Oncotype DX test. These results demonstrated that node-negative and node-positive patients with low Breast Recurrence Score results had excellent breast cancer survival at five years, providing real world clinical evidence that these patients can be effectively treated without chemotherapy.

In an accompanying editorial, Dr. Joseph Sparano and Hyman Muss noted that SEER clearly demonstrates that Oncotype DX provides important information that is journalizeable to clinical practice. They also specifically call attention to the higher levels of breast cancer specific mortality among the rapidly growing number of women over 70 years of age, who could drive important benefit from chemotherapy treatment. We believe greater use of Oncotype DX in older patients can help address this large outcome disparity.

We also presented results from seven studies at ASCO including four new analyses from the SEER Registry. These newly published and presented SEER results are consistent with our original clinical validation studies. And they confirm and extent the outcomes results from three other recent prospective outcomes studies, the NCI sponsored TAILORx trial, Clalit Health Services in Israel and the German PlanB trial. With unprecedented survival evidence from multiple large international studies in more than 50,000 patients, Oncotype DX should be recommended and used as standard of care in node-negative disease and in certain patients with node-positive disease.

The Journal of Clinical Oncology, the official journal of ASCO published results from a large study confirming the ability of the Oncotype DX Recurrence Score result in combination with quantitative estrogen-receptor expression from our test to accurately predict the risk of late distant recurrence upto 15 years in patients with early stage hormone receptor-positive breast cancer. These important new findings suggest that Oncotype DX can help identify which patients are most likely to benefit from extended hormonal treatment beyond five years. No other invasive breast cancer test has Oncotype DX industry-leading level of clinical validation or utility data. Oncotype DX is the only way to accurately identify, which patients should and should not be considered for chemotherapy.

Turning to prostate cancer. With over 20 studies, we developed the Oncotype DX Genomic Prostate Score as a fit-for-purpose test focused specifically on low and favorable intermediate risk men who are candidates for active surveillance. We’ve recently launched an enhanced test report to reflect additional clinical evidence including a meta-analysis published in Urology that combined the patient-specific data from two validation studies to create even more precise risk estimates for the presence of high stage, high grade or adverse pathology. The new report highlights the power of the Oncotype DX Genomic Prostates Score alone as well as with NCCN criteria, making it easier for physicians to interpret and discuss results with their patients. Feedback from physicians who have used the new report has been very positive.

Looking ahead, we are further strengthening the association of the Oncotype DX Genomic Prostate Score with new clinical studies that will examine additional critical end points, including the development of metastases and prostate specific deaths. We believe that our growing portfolio of best in class scientific data along with our newly enhanced test report would deliver greater value to urologists as they determine the best management of men with NCCN very low, low, and favorable intermediate risk prostate cancer, and drive further increased test adoption in the back half of the year.

Finally, in colon cancer, results from the large SUNRISE clinical validation study of the Oncotype DX test were published in the Journal of the Clinical Oncology. Conducted in Japan, this study confirms that the Oncotype DX Colon Recurrence Score accurately predicted recurrence risk in 597 Japanese patients with stage II and III colon cancer, providing information beyond conventional factors.

SUNRISE is the first Oncotype DX colon cancer validation study in patients with stage III disease not treated with chemotherapy. Results from SUNRISE are consistent with our previous three clinical validation studies in over 1,600 patients and establishes the clinical validity of our colon cancer tests in Japan, one of many Asian countries with high incidence of GI cancers.

I’ll now turn the call over to Fred, who will discuss progress in our liquid biopsy program.

Fred Pla

Thank you, Steve.

As the world’s leading provider of genomic-based cancer diagnostic tests, we are uniquely positioned to make a significant impact in the field of liquid biopsy, beginning with two important advancements that occurred during the second quarter.

In June, we announced the commercial launch of our Oncotype SEQ Liquid Select test, first of several non-invasive liquid biopsy tests that we plan to deliver to our Oncotype IQ Genomic Intelligence Platform. Oncotype SEQ is a blood-based test that uses next-generation sequencing to comprehensively detect variance in 17 select genes to inform the treatment of patients with stage IV solid tumors.

The test is designed to provide clinically actionable information focused on genomic markers that have either been included in the NCCN guidelines or associated with sensitivity or resistance to relevant FDA approved therapy. The test can also match eligible patients with actively enrolling Phase 2 to Phase 4 clinical trials specific to their tumor type. We are excited to have begun delivering Oncotype SEQ, who have control physicians experience program that allows us to work closely with ordering physicians to ensure accurate use and interpretation of our unique test in this emerging and transformative field of liquid biopsy.

In this initial phase of our targeted launch, we are focusing on select clinics for the treatment of non-small cell lung cancer where a significant proportion of patients are either difficult to biopsy or treatment and would like to avoid the potential complications associated with invasive biopsy. So far, there has been great interest on the part of physicians and we’ve identified actionable variance in the majority of samples run to-date. These means that we’ve been able to provide specific information for physicians and their patients to optimize their treatment plan.

Results from our analytic validation study have been accepted for presentation at three upcoming medical meetings including the European Society of Medical Oncology in Copenhagen, Denmark this October.

Looking ahead, we are conducting additional rigorous studies to establish further evidence to support reimbursement, utility and the health economics of Oncotype SEQ, including a global multi-center clinical component study and we expect this trial to provide results in 2017.

Bridging oncology and urology, we are also very excited about our strategic collaboration with Epic Sciences to deliver its novel liquid biopsy AR-V7 assay to patients who are world-class commercial channels. AR-V7 is the most important biomarker for men with castration-resistant prostate cancer. Epic Sciences’ unique industry-leading no cell left behind platform has been validated to accurately detect patients with positive AR-V7 protein in the nucleus of circulating tumor cells or CTCs, which enable the delivery of predictive clinically actionable information at critical treatment decision.

A recently published study in JAMA Oncology led by Dr. Howard Scher at Memorial Sloan Kettering Cancer Center demonstrated that castration-resistant prostate cancer patients with AR-V7 positive CTCs had significantly better clinical outcomes when treated with taxane chemotherapy, rather than androgen receptor signaling inhibitors. This suggests that patients with detectable blood levels of AR-V7 should consider life prolonging chemotherapy as an alternative to potentially less effective and more expensive hormonal treatment at an earlier stage when it may be more beneficial. With the use of these new test, we estimate substantial health care savings for patients tested.

Epic Sciences will perform all aspects of the AR-V7 tests and its centralized CLIA certified laboratory in San Diego, California. Because patients with advanced prostate cancer are seen by neurologists and oncologists, we’re in a unique position to leverage our existing oncology and urology commercial channels to promote and commercialize the test. This includes our world class marketing, sales, customer service, managed care counteracting services and medical education as well as delivering the test results generated by Epic Sciences through our online portal system. We estimate that 50,000 patients in the United States annually could benefit from the AR-V7 test ability to predict treatment response and our confident that the validation data from the peer reviewed manuscript in JAMA Oncology will build momentum, as we work together with Epic to bring these tests to clinical practice in the first half of 2017.

I’ll now return the call back to Kim.

Kim Popovits

Thanks Fred.

In the first half of 2016, we have seen the results of our strategic investments deliver meaningfully to top line growth, and we expect this positive momentum to continue.

Over the reminder of the year, we plan to deliver revenue growth between 13% and 17% with positive EBITDA, continue to grow our U.S. invasive breast cancer business about 50% penetration toward the 80% that we believe is possible, increase reimbursement for our prostate test in the U.S. and for our breast test in key international markets, and expand commercialization efforts for our Oncotype SEQ and AR-V7 and liquid biopsy tests and further develop our pipeline.

Today, our Oncotype DX tests for early stage cancer represent an immediate large growth opportunity, while the advancement of our liquid biopsy pipeline with Oncotype SEQ and AR-V7 for later stage disease allow us to successfully diversify our business across a broader market opportunity. Collectively, these products under the Oncotype IQ Genomic Intelligence platform will continue to drive precision medicine forward as we lead the translation of genomic solutions for physicians, patients and payers. We look forward to continuing to update you on our progress throughout the year.

I now like to open the line for your questions.

Operator

[Operator Instructions]

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question is from Mark Massaro with Canaccord Genuity. Your line is open.

Mark Massaro

The first question is on prostate reimbursement. And I understand from prepared remarks, you said that you’re above 60 million commercial covered lives. Can you further maybe help us quantify where you’re at and whether or not you added more than one payor in the quarter? Hello?

Operator

Pardon me, Mark. Could you please repeat your question?

Mark Massaro

Yes, thanks. Can you hear me?

Kim Popovits

Yes. Thanks, Mark. We can hear you now.

Mark Massaro

So, my first question is, can you help us quantify the number of commercial covered lives you now have on prostate, any more color around some of the conversations you’re having with payers and whether or not you signed up more than one payer in the quarter?

Brad Cole

So, the number of payers didn’t change significantly during the quarter, we still have about 60 million lives covered. The conversations have moved forward but we did not report any significant new payers during the quarter. Some small payers were signed up during the quarter.

Mark Massaro

Okay, great. And I apologize, I came on the call late. I think the prostate revenue was $2.3 million in the quarter, is it correct that that compares to $2.6 million last quarter? And if those numbers are right, can you just walk me through why you think revenues were up sequentially.

Brad Cole

Yes, so we did talk about the growth in revenue in the quarter came from Medicare where we’re booking more consistent revenue from Medicare and the tests were up 13%, so we had two things going in the right direction. Like other products in the early stage of launch and reimbursement, there’s a variability in cash collections from payers as we go through the appeals process with privates. So, we had less cash revenue from private payers, which has been variable quarter to quarter, and this has been insignificant in the past, so a few hundred thousand dollars less from private payers, which could just as likely be higher next quarter as a result the appeals process. So that’s the very interesting. But on a sequential basis, Medicare revenue was up and tests were up.

Mark Massaro

Great, thanks. I will stick to two questions and hop back in the queue.

Operator

Our next question is from Doug Schenkel with Cowen & Company. Your line is open.

Unidentified Analyst

Hi, guys. This is Adam on for Doug, thanks for taking my questions. I just had a few quick ones on prostate as well. Could you provide an update on where you are in your submission for the intermediate risk coverage, now that you have NCCN -- now there is NCCN guidelines?

Kim Popovits

Yes, thanks for the questions. We continue our conversation, both with Medicare and with privates regarding the update of the NCCN guidelines with the incorporation of the genomic tests. And we believe that those conversations are going well but nothing new to report in terms of guesstimate on timing for that. But we think the evidence is quite strong and in particular for our tests that was -- when we talk about fit-for-purpose specifically developed for that population and we got very compelling data there.

Unidentified Analyst

Okay. And just one more on prostate, you might have mentioned this in your prepared remarks, but just wanted to make sure, did any data collection or ERP issues also occur in Q2 or are they fully resolved at this point? Thank you.

Brad Cole

Q2 is -- in Q2, most of those things are behind us, I’d say fully resolved in Q3, most things were not impacting us in Q2.

Kim Popovits

And I think I would just add to that, the strength that we saw in June being the largest month we’ve had since launch I think really reflects the fact that we had moved beyond some of those issues regarding data collection and the platform transformation that we went through. This is now allowing us to really focus on the clinical data and differentiation of our products, and we’re really excited that we just recently launched our new report that incorporates some of the new data and have had great feedback just in the past week or so with that report. So, I’m real happy as you know the team is to now be focused on what I think we do best, which is go out and differentiate our products and do a good job in the marketplace, and we don’t have to focus on logistical issues any longer.

Operator

Our next question is from Jon Groberg with UBS. Your line is open.

Jon Groberg

So, I guess as a follow-up -- obviously, my two questions are going to be where I’m getting most positive feedback here. So, on prostate again, I think you mentioned volumes were up 13%, but I wasn’t clear was that 13% year-over-year or sequentially. And then, I think you also said that one of the reasons, or one of the things you told us to be careful about was your reporting tests results that were actually delivered as opposed to tests received. And can you maybe help us understand what percent of the time you’re delivering actual results back to patients relative to their number of tests that you receive?

Brad Cole

Sure. On the growth figures, you heard correctly, it was about -- sounded odd but we were both up 13% sequentially and year-over-year. On the test question, we’re trying to be really clear that we have always reported test delivered for two physicians for patient treatment decisions. And while others may report orders, there especially in product like prostate where tissue is difficult sometimes to come by, the difference between test delivered and orders can be as much as 20% or 30% depending on who is processing the test. So, to focus on the right metric for purposes of determining market share and presence which really is test delivered.

Jon Groberg

And then the second part is I guess, how are you feeling under the collaboration with Epic? It sounds like that’s going to necessitate a little bit more of an increase in investments, from your prepared remarks and from the press release. I guess just generally, how are you thinking about expenses? And for the last couple of quarters of the year, can you give any kind of view as to how you expect those to trend relative to your full year guidance? Thanks.

Brad Cole

Okay. We’re excited about the Epic collaboration. It’s going to take a little bit of work in collaboration to get it to the next phase, which is really commercial launch in the hands of our both U.S. -- our U.S. oncology and prostate teams. That work is going to take the form of two things, some commercial readiness, which will be kind of normal course of business that we wouldn’t necessary plan for, but are planning for now; but more importantly, we have to integrate the system, so that we can be the commercial partner and they could be delivering it from their lab. And we haven’t done that before. So, it’s a first time event for us.

We think it’s pretty straight forward, but it’s can take some coordination effort, primarily in the fourth quarter, in the first quarter of next year. My remarks around spending were that, we believe that it will be less than $2 million this year to do this work, both sets of activities, both, some commercial readiness work and the integration of our system, so we can work seamlessly with Epic and with our customers as the commercial partner.

We excluded that from our guidance, because already excluded from our guidance was the booking of some gains on Invitae sale of about $2 million. So they offset each other at the moment and they were holding to our full year guidance of $12 million to $18 million when you exclude these two activities.

Jon Groberg

Okay. And just for the third or fourth quarter, any -- I know some people are -- some investor hoping that you might be able to turn profitable depending on your revenues in the fourth quarter. Any kind of updated views on the split for the last couple of quarters of the year?

Brad Cole

Yes. So, we expect to continue to improve our operating loss sequentially. We lost $5 million in the second quarter, we expect that to improve in the third quarter and to be in the breakeven range in the fourth quarter.

Operator

Your next question is from Bill Quirk with Piper Jaffray. Your line is open. If your phone on mute, you may need to unmute your phone.

Brad Cole

Maybe we should move on operator and catch-up with Bill later.

Operator

Okay. Our next question will be from Anne Edelstein with Bank of America. Your line is open.

Anne Edelstein

Great, thanks. Can you guys hear me okay?

Kim Popovits

Yes.

Anne Edelstein

So, it looks like you raised your full year tests volume guide by about 500 tests at the midpoint. Can you just help us understand the mix attribution there?

Brad Cole

I think it’s partly because we had such a good strong first half of the year, U.S. invasive tests delivered guidance in the high-end would have been high-single-digits, and we’ve delivered high-single-digits and double-digits in the first half of the year. So, it’s U.S. invasive business that’s driving that. But particularly, I want to point out that our international business continued grow about 20% on the order line, on a test delivered line. And it’s becoming a bigger portion of our business. So that’s giving us reason to think that the bottom end can -- we can be above the bottom end guidance.

Anne Edelstein

And then, on the prostate side, can you help us understand physician adoption in Q2? I know test volume was up 13% but is that due to increased utilization for urologists or is that more so due to expanded adoption across the urology community?

Brad Cole

Well, it’s a little of both each quarter. We saw -- we are now over 3,000 urologists that have ordered the tests, that’s up from last quarter. So, we had new continues as well and we continue to see repeat orders. So both in new customers and the order of the sequence -- the sequential increase, double-digit increase.

Operator

Our next question is from Amanda Murphy with William Blair. Your line is open.

Unidentified Analyst

Hi. This is Art [ph] in for Amanda. Just a follow-up kind of question. I was wondering if you can give some more color on prostate, maybe some anecdotes about how the competitive dynamics are as well as urologist adoption in light of that.

Kim Popovits

Yes. Let me start and others can jump in here. But we had I think a great quarter and particularly a great June. And I’ll just echo or reiterate what I said a minute ago, just really having the reps back to focusing, first off, all the territory field and the reps back focusing on more the clinical data and really hitting home on differentiation between the tests that are out there. So, we’re really starting to see the benefits of that focus, physicians are getting the clinical differences among the tests that they’re looking at and really seeing the advantages to using the GPS score in particular for the low and very low risk patients. So that’s continuing to be a big win for us. As we look towards gaining additional payer coverage, those conversations are going well. So, we’re feeling very good about where the traction is going. And the feedback that we’re getting from the market just in terms of the ease of use of our tests, the feedback that we’ve gotten on the new reports, we all think is a very positive trend.

Unidentified Analyst

And then, kind of a second question, which is down the road, but you talk about a tipping point for breast cancer. Do you -- how do you envision the same tipping point catalyst for prostate?

Kim Popovits

Well, I think you’d define a tipping point in a similar fashion, when you have more than 50% penetration or heading towards that number. We’re far from that now. So, when we think about how large the prostate cancer market is, we’re looking today at certainly way less than 20% penetration. So, in just the niche of the market that we’re in, that’s a 140,000 patients of which we’re less than 20% penetrated. So, there’s huge opportunity there, but there’s also a ways to go before we could actually say we’re moving towards the tipping point.

The one thing that is very helpful in prostate cancer is the need to do more active surveillance is well-accepted in the community. And I think we have very clear evidence that the only way to find those appropriate patients is by using the GPS score. You can’t guess which patients should be put on active surveillance. And I think the data that we’re presenting around that is quite compelling. So, I feel and I think folks here would agree that we have a situation that hopefully will rise even faster than when breast did in terms of reaching a tipping point or above the 50% mark and getting towards standard of care.

Operator

Our next question is from Bill Quirk with Piper Jaffray. Your line is open.

Bill Quirk

Hi. Can you hear me now?

Kim Popovits

Yes. Sorry about that.

Bill Quirk

No worries at all, I’m going to chalk it up to the political uncertainty in the U.S. since it’s pretty popular.

Kim Popovits

Good time to blame anybody.

Bill Quirk

Very true. Sorry if somebody asked this already, obviously got dropped off there for a few minutes. But just an update on reimbursement broadly speaking for node-positive in particular, DCIS, would be curious about that as well seen any movement there in the past quarter? Thanks.

Brad Cole

I don’t think there’s anything of note in node-positive, although the coverage for node-positive is in the $200 million -- not that big of business yet, 200 million lives or so. And so, we continue get paid routinely and see that as we renew contracts and things, pricing is strong both across node-negative and node-positive. And DCIS, private paid hasn’t an expanded recently. We’re still getting paid quite strongly but not at the level of invasive. So, no real change there, Bill.

Operator

Our next question is from Brandon Couillard with Jefferies. Your line is open.

Unidentified Participant

Hi guys, it’s Sachin [ph] in for Brandon. Regarding equity is taking Epic Sciences, do you think these type of deals are something you’d like to do more of as a way of extracting more value from the channel in lower risk way? Any color on that would be very helpful.

Fred Pla

This is Fred. I think the deal with Epic is a good example of the kinds of deals we’d like to do more of. So, whether they’re licensing collaborations or even acquisition of tests. Again, we’re really excited about this deal, just a perfect match for our channel. So anything that can really leverage our unique capability of the commercial side and frankly which can be accretive in the relatively short-term is definitely something that we’re actively looking for.

Unidentified Participant

And also switching to international, could you comment on the pace of uptake in Europe and could you provide some color around the current reimbursement environment and how do you expect the pacing of this market to trend in the second half and which geographies are like the biggest contributors?

Brad Cole

Well, the pace of uptake in western Europe -- in my prepared comments has been terrific. International tests were up 23% but in western Europe they were up over 40%. So, we’re continuing to see where we’re focusing our resources, we’re seeing results. So, both France and the UK are continuing to grow rapidly. France is where we think could be the next revenue generator, given that the Ministry of Health has agreed to cover Genomic tests beginning in 2017. We are putting things in place to be able to qualify for those payments here in 2016. And in Germany, we expect a decision late this year or early next year, which would lead to reimbursement in 2017 as well, maybe later in the year, but kind of one at a time and they’re variable. Each of the arrangement is somewhat different than the other but we’re pleased with the progress. And you volume usually leads reimbursement and that it takes acceptance of the technology, enthusiasm around use of the tests in the physician community which we’re seeing across western Europe.

Operator

And our last question is from Jack Meehan with Barclays. Your line is open.

Mitchell Peterson

Hi, thanks guys. This is actually Mitchell Peterson filling in for Jack today. I was just hoping to get an update on the prostate cancer sales force and just wondering if you’re at where you need to be, or if you think you need increased investment there?

Brad Cole

We’ve recently expanded this year the prostate sales force to about 40 individuals. Not all of them are fully up to speed. We think it’s a six to nine-month process and we should exit this year with the team fully up to speed. I think some of the exit success we saw in June was partly we got more and more reps up to speed and worked through some system challenges, but 40 this year. We will need to expand it, but we don’t believe to the extent or the size of the breast franchise as urology is more concentrated volume through the large group practices. But stay tuned, likely to expand again next year but no plans in the short-term.

Mitchell Peterson

Okay, that’s helpful. And just as a follow-up, could you talk about your volume expectations in prostate for the full year and just how that’s embedded in your full year test and revenue guidance?

Brad Cole

Yes. So, prostate tests have been running about 8% of total volume. The sequential growth this quarter was better than the rest of the business. It’s early in the market and it showed really nice growth sequentially, and we expect that to continue. So, although it’s still relatively small relative to the rest of the business, it will probably move up a little bit in terms of total contribution to total tests across the back half of the year but not materially, so 8%, may be moving up to 9%. It’s going to grow faster than the rest of the business.

Operator


Thank you, we will now conclude the Q&A portion of the call. At this time, I would like to now turn the call back over to management for closing remarks.

Kim Popovits

Well, thanks for joining us today and also for your patience as we figured out how to hear you. We’ll look forward to some one on one conversations coming out and seeing you at some upcoming meetings. Again, always appreciate your interest in Genomic Health and your great questions. Thanks.

Operator

And this concludes today’s second quarter 2016 conference call for Genomic Health. You may now disconnect.

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