Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Genomic Health Inc. (NASDAQ:GHDX)

Q2 2008 Earnings Call Transcript

August 5, 2008 4:30 pm ET

Executives

Brad Cole – CFO and EVP of Operations

Randy Scott – Chairman and CEO

Kim Popovits – President and COO

Steve Shak – Chief Medical Officer

Analysts

George Zavoico – Cantor Fitzgerald

Charles Duncan – JMP Securities

Matthew Scalo – Canaccord Adams

Bruce Jackson – RBC Capital Markets

Bruce Cranna – Leerink Swann

Eric Criscuolo – Thomas Weisel Partners

Scott Gleason – Stephens Incorporated

Tycho Peterson – JP Morgan

Operator

Good afternoon. My name is Lamont and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 conference call for Genomic Health. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. (Operator instructions)

I would now like to turn the conference over to Brad Cole, Chief Financial Officer for Genomic Health. You may begin.

Brad Cole

Thank you. Good afternoon everyone and welcome to Genomic Health’s second quarter 2008 conference call. Before we begin, I would 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, future plans and prospects, the success of our business strategy, the impact of clinical data on demand for our tests, economic benefits and value to payers of our tests, growth opportunities, future products, product enhancements and our product pipeline, demand for our tests and drivers of demand, payer coverage and progress in patient access, our investment in our product pipeline and commercial organization, clinical outcomes and timing of clinical studies, our growth potential and our expectations regarding our ability to comply with potential FDA regulations, constitute forward looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act.

We refer you to our annual report on Form 10-Q for the quarter ended March 31st, 2008 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.

With that, I will turn the call over to Randy Scott, Chairman and CEO of Genomic Health.

Randy Scott

Thanks, Brad. Good afternoon everyone and welcome. Also joining us today are Kim Popovits, our President; Joffre Baker, our Chief Scientific Officer; and Steve Shak, our Chief Medical Officer.

We are pleased with the continued strong growth in both revenue and tests delivered for our breast cancer assay Oncotype DX. During the second quarter, product revenue grew 81% compared to 2007 and tests delivered grew 69%, while our net loss narrowed. With ASCO and NCCN recommending Oncotype DX in treatment guidelines, overall usage expanding to a broader population, and continued progress in securing reimbursement for the test, we believe that Oncotype DX is becoming standard practice to breast cancer treatment planning.

We are delivering on our mission to bring the promise of genomics to clinical practice in cancer and our work has just begun. We will continue to invest in our product pipeline and expand our commercial efforts outside of the United States, both of which we expect to be important components of future growth, while working to further narrow our loss.

With this in mind, I'll turn the call over to Kim Popovits to discuss the specifics of our commercial progress with Oncotype DX, followed by Brad Cole, who will review our second quarter financial results and updated financial guidance. I will then close with an overview of the progress we are making with our development programs and with our outlook for the remainder of 2008. As always, we look forward to your questions and comments during the Q&A. Kim?

Kim Popovits

Thanks, Randy, and good afternoon everyone. More than 9,690 test results were delivered in the second quarter of 2008 compared to more than 5,750 in the second quarter of 2007. To date, I am pleased to report that more than 65,000 recurrence scores have been delivered to patients. These results clearly reflect momentum associated with the inclusion of Oncotype DX in ASCO and NCCN treatment guidelines.

With coverage decisions or policies now in place for over 80% of US insured lives and our internal financial assistance program, we are nearing our goal of establishing access to Oncotype DX for all appropriate patients. During the second quarter, we announced a 4.5% price increase for Oncotype DX and gained coverage for over 6.9 million additional lives, including Blue Cross Blue Shields plans in Louisiana, Mississippi, and Northeastern Pennsylvania, Group Health Incorporated and HIP Health Plan of New York.

In addition, we are working with Palmetto GDA, the company that will replace National Heritage Insurance Company or NHIC as the Medicare administrative contractor to facilitate the transition of coverage for Oncotype DX. Palmetto posted local coverage decisions for Medicare jurisdiction in June, which included Oncotype DX, following the identical criteria previously set for it by NHIC. We expect to begin processing claims with Palmetto in September.

While we are pleased with this increased coverage, we remain committed to securing coverage with all payers and we will continue to work diligently on that front. In May, we made additions to our report for node positive patients and are now working to expand reimbursement policies to include the increasing number of these patients who have requested Oncotype DX as part of their treatment planning. We expect that the process for gaining members on node positive patients will require the same diligence as our process for node negative disease, including clinical data, peer review publications, and demonstrated physician adoption.

We continue to increase the clinical utility of Oncotype DX by providing additional individualized patient information. In May, the journal of clinical oncology published results of a study confirming RT-PCR by Oncotype DX can deliver quantitative gene expression levels for assessing Estrogen Receptor and Progesterone Receptor status, which are critical factors in determining the use and benefits of hormonal therapy for the treatment of breast cancer.

In the first quarter, we began providing measurements of quantitative gene expression for ER and PR in all Oncotype DX reports, and it received positive feedback from physicians about the addition of this patient-specific information. In addition, it is our plan to provide individualized HER2 scores in all Oncotype DX reports by the end of 2008. As more physicians incorporate Oncotype DX into clinical practice, we gain important insight into its impact on treatment decisions for physicians and patients. There are now five studies conducted by clinicians who use the test in clinical practice, demonstrating that on average, treatment recommendations change 30% of the time when the recurrence score is available.

Collectively, these studies, which have been presented or published, prove the actionable nature of Oncotype DX and its ability to inform treatment decisions by optimizing the use of chemotherapy, while increasing physician and patient confidence in their treatment plans.

On the international front, we have established distribution partnerships in five countries and have received test samples from 39 countries to date. We continue to receive additional international samples from TAILORx, a worldwide clinical trial sponsored by the National Cancer Institute and coordinated by the Eastern Cooperative Oncology Group, including patients from Canada, Ireland, and Peru.

We also initiated a study supporting Japanese investigators as they gain clinical experience with Oncotype DX for early-stage breast cancer patients. We believe that our success in the United States supports the international expansion of our business and we are finalizing our commercial plans with the expectation that this will be a strong component of the company’s future growth.

With that, I will turn it over to Brad to review our second quarter financial results.

Brad Cole

Thanks, Kim. Our second quarter revenue was $27.8 million compared to $14.7 million for the second quarter of 2007. Product revenue from Oncotype DX in the quarter was $26.3 million, an increase of approximately 81%, compared to $14.1 million for the same period in 2007. This growth reflects increased adoption and continued progress in reimbursement.

51% of product revenue was recorded on an accrual basis and recognized at the time the tests were delivered, compared to 34% in the second quarter of 2007. In the June 2008 quarter, 43% of our test volume was with accrual-based payers. Quarter-to-quarter fluctuations expected in reported revenues as still nearly half of all product revenue is recognized on a cash basis.

Contract revenue was $1.5 million in the second quarter of 2008, which included a milestone payment from Bristol-Myers Squibb, related to the company’s program to identify genes to predict response to Erbitux, and also reflects initial work with Pfizer on our previously-announced collaboration in renal cell carcinoma. This compares to $135,000 for the second quarter of 2007.

Cost of product revenue was $6.9 million in the second quarter of 2008 as compared to $4.2 million in the second quarter of 2007. Our gross margin on product revenue for the second quarter was 74%, an improvement over 71% in the second quarter of last year. As we stated last quarter, we expect gross margin rates to remain in this range for the full year of 2008.

Operating expenses for research and development and selling and marketing and general and administrative expenses increased $7.1 million to $25.3 million in the second quarter versus $18.2 million in the same period in 2007. This increase reflects our continued investment in R&D and commercial operations as well as the increased scale of our business overall. The increase in total operating expenses included FAS 123R stock-based compensation expense of $2.3 million in the second quarter of 2008, compared to $1.5 million for the same period last year.

Net loss in the second quarter of 2008 of $4.1 million narrowed as expected from $7.2 million a year ago. Cash and cash equivalents and investments at June 30, 2008 were $60.6 million compared to $68.4 million at December 31, 2007.

We are providing updated guidance for the full year of 2008, reflecting our review that the resources we have dedicated to supporting Oncotype DX will continue to positively affect our bottom line this year, with adoption and revenue also continuing to grow. We anticipate delivering between 38,000 test results and 40,000 test results in 2008, a modest increase from our previous estimate of 34,000 test results to 37,000 test results. The top end of this new estimate range represents 65% full-year growth over 2007. This estimate reflects seasonality defined as modest sequential growth in Q2 and Q3. We also are projecting total revenue in a range between $105 million and $110 million, compared to previous guidance of $100 million to $110 million, with an expectation that full-year revenue may be at the higher end of this guidance.

Our second quarter net loss, as expected, was significantly less than a year ago. We continue to expect our quarterly net loss in the second half of 2008 to narrow on a year-over-year basis. We believe our 2008 net loss will be in the range of $15 million to $20 million, as we continue to invest in our organization, including our commercial operations, infrastructure, and our product pipeline programs.

I will now turn the call back over to Randy.

Randy Scott

Thanks, Brad. Turning to our pipeline, I'll provide an update on our development programs.

In breast cancer, we are making progress with our plans. We expect to include quantitative HER2 scores in all Oncotype DX reports by the end of this year. We also plan to initiate a study in DCIS this year. Furthermore, two abstracts have been accepted for presentation at the 2008 ASCO breast cancer symposium taking place September 5-7 in Washington, D.C., and today, the Journal of Clinical Oncology published a study online showing that Oncotype DX recurrence scores provide additional prognostic information in patients with early-stage breast cancer, beyond that derived from Adjuvant! Online, an online tool that evaluates clinical variables that help physicians and patients assess the risks and benefits of getting additional therapy after surgery.

We continue to make headway with analytical validation for our colon cancer assay, and have received the first clinical trial specimens for our clinical validation study. As expected, we anticipate beginning this study in the second half of this year for the validation of an Oncotype DX colon cancer assay. Personalized medicine was the prominent theme at this year’s American Society of Clinical Oncology annual meeting, with a particular emphasis on the K-ras mutation in colon cancer and the role it plays in predicting response to Erbitux. At the meeting, we presented results from two initial studies with pharmaceutical partners that support further investigation of possible tests to predict response to targeted therapies, including Erbitux, in colon cancer and Docetaxel or Taxotere in breast cancer. Results from the Erbitux study suggest potential for developing the tests comprising K-ras mutation status in combination with the expression levels of a small number of genes to select patients for therapy and we are exploring this idea with Bristol-Myers Squibb and ImClone.

In addition, we identified a number of genes that may help to predict response to Taxotere and we will be exploring these further as well. We believe that work in targeted therapies, both alone and in conjunction with pharmaceutical companies is important for the development of personalized medicine. We also established collaborators and identified sources of clinical samples to further our prostate and lung cancer programs in the quarter.

Finally, we began a gene identification work to develop a prognostic test for patients with renal cell carcinoma, the most common type of kidney cancer in adults under our collaboration with Pfizer. This year, we have experienced strong growth in revenue and adoption and are narrowing that loss. Over the remainder of 2008, we anticipate steady progress for our business and in our mission to enhance treatment decisions for the millions of patients diagnosed with some form of cancer each year. We will continue to invest thoughtfully as we apply the same rigorous clinical development process that produced Oncotype DX for early-stage breast cancer to develop the exciting and important programs in our pipeline.

Thank you for joining us today and I'll now open up the call for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question is from the line of George Zavoico with Cantor Fitzgerald.

George Zavoico – Cantor Fitzgerald

Hi, everyone. Really nice quarter. Congratulations.

Randy Scott

Thanks, George.

George Zavoico – Cantor Fitzgerald

I have a couple of questions. You said the price went up 4.5%; does that make it around $3,800?

Kim Popovits

$3,820.

George Zavoico – Cantor Fitzgerald

$3,820. Okay. And when did that go into effect, last month?

Randy Scott

That is correct, as of July 1.

Kim Popovits

July 1.

George Zavoico – Cantor Fitzgerald

July 1, okay. And with more lives and more test results, do you have any plans to expand your sales force or to reach more physicians or you think you are pretty close to topping out there?

Randy Scott

That is a good question, George. We are just entering our fall planning cycle for 2009. I would say, as we have indicated earlier, we plan to hold the sales force where we are in 2008 but we will be looking very closely at 2009, both with regard to sales force expansion in the US and probably just as importantly for future growth internationally as well.

George Zavoico – Cantor Fitzgerald

You are suggesting you might look to hire your own people overseas, or through another distributor?

Randy Scott

Well, we have some marketing distribution programs, but we think international growth is going to be really important future to the company. So we are actually engaged in a process now of establishing plans for 2009 internationally and yes, that could include expansion in some of our own commercial efforts outside the US.

George Zavoico – Cantor Fitzgerald

Okay, and moving on to Bristol-Myers and Pfizer, it sounds like there is not a whole lot more to add beyond ASCO. You seem to be in the planning and development phase. You seem really – and then mentioning your only comment on what the next step will be or when the next milestones might be paid out or what they are?

Randy Scott

Yes, I think that is exactly right, George. We enjoy working closely with our pharmaceutical collaborators on some of the targeted therapy projects. We have now completed the first phase of the work with Bristol-Myers Squibb and ImClone around Erbitux, and we are in discussions with them about the next steps there. But wherever we are working in targeted therapies with a pharmaceutical company, of course it is very dependant on their timeline for access to clinical samples et cetera. So, you know, we will continue to focus internally on our own product development efforts and work closely with our pharmaceutical partners, but many of those timelines will be outside of our control.

George Zavoico – Cantor Fitzgerald

Okay, great. Congratulations again. Thank you very much.

Randy Scott

Thanks, George.

Operator

Your next question is from the line of Charles Duncan with JMP Securities.

Charles Duncan – JMP Securities

Good afternoon, folks. Thanks a ton for taking my questions and let me add my congratulations on a really nice quarter.

Randy Scott

Thanks, Charles.

Charles Duncan – JMP Securities

First question that I have, you mentioned – Kim mentioned the Palmetto criteria was exactly the same in terms of coverage. Can you give us your perspective on how they might translate into kind of pricing decisions?

Randy Scott

Kim?

Kim Popovits

Yes, thanks Charles. So we know that the LTD transferred as was with an HIC. We have no reason to believe that that does not include the price that was justified and analyzed through an HIC and the other number of reviews that were done. So, to this date, we don’t believe that price is an issue with Palmetto. However, that said, if that were to become something that we wanted to justify with Palmetto, we would go through the same process that we did through an HIC and the same analysis that we have done and quite frankly think that we are probably even in a stronger position today based on the clinical practice guidelines, the increasing usage in adoption and the Blue Cross Blue Shield tech assessment review. But again, I go back to – -there has been nothing to suggest that Palmetto was interested in reopening the pricing issue, but we will be prepared to do that if they wish to go in that direction.

Charles Duncan – JMP Securities

That makes sense to me, and can you give us some sense. You said that you were ready to go within – I believe it is September 1, they go live?

Kim Popovits

That is correct.

Charles Duncan – JMP Securities

Okay, good. And then –

Kim Popovits

We have experienced already the issuing claims through Palmetto, so we are in good shape in terms of the processing and the ending prepared to make that a pretty seamless process.

Charles Duncan – JMP Securities

Sure. They manage somehow their large accounts that you have been dealing with them in the past, right?

Kim Popovits

That is correct.

Charles Duncan – JMP Securities

Can you give a little bit more color on the pipeline, Randy? It is great to see that you are starting this clinical validation study on colon cancer but just remind us on the timelines there and when it is possible you may have some data out of the colon cancer program?

Randy Scott

Sure. We are starting right now conducting the analytical validation and the plans are to start the clinical validation before year end. So you can look to mid next year as the overall timeframe in which we might be reporting results of that.

Charles Duncan – JMP Securities

So at that point would you launch the test, I mean, assuming that it is positive or would you perhaps enter in another validation, I mean, how would that go on?

Randy Scott

Charles, we are going down the path and as such preparing either for regulatory scenario under CLIA or for the FDA. So if at that point FDA finalized their guidance, then it would probably be an extensive FDA review that would be required after that. So we wouldn’t be able to launch until obviously approved by the FDA. If under CLIA, however, we will be prepared similar to our launch for Oncotype DX breast cancer assay. You know, we could be in a position to launch by the end of next year or soon thereafter.

Kim Popovits

But Charles, if your question was regarding the strength of this particular validation study, assuming we meet the endpoints in the study, do we believe it is a strong-enough study to launch this test? Yes, we do.

Charles Duncan – JMP Securities

Okay, good. And then if you could add a little bit more color on your plans in DCIS, you said that you are going to service study in 2H; any thoughts on kind of the targeting of that and the timing?

Randy Scott

Steve, you want to comment on DCIS?

Steve Shak

Yes, Charles, as you know there has been increasing interest in DCIS, again the incidents in the United States is over 50,000 cases per year and so, in our studies we are going to be looking at both the recurrence score and its performance in DCIS as well as the potential of new genes to be useful for treatment planning. You know, I think that in terms of timing and the specifics about that, we usually say more about that at the time when we have got some of the results and our pull net together. So I would just say on that one, Charles, stay tuned.

Charles Duncan – JMP Securities

Are you getting samples in from patients that have DCIS and also an update on node positive?

Steve Shak

Yes, I guess just as an update on DCIS in terms of studies that we plan to conduct a study this year, looking at DCIS samples and clinical outcome, we have to look at the feasibility of being able to look at gene expression in DCIS samples and certainly we find it feasible in our technology is adaptable if we are looking at those samples.

Charles Duncan – JMP Securities

Okay, thanks for the added color and congrats on a great quarter again.

Randy Scott

Thanks, Charles. Just to be clear, we would currently exclude DCIS samples from our commercial, only if there is the presence of invasive breast cancer, would we actually run the Oncotype DX commercially.

Charles Duncan – JMP Securities

Okay, got it. Thanks again.

Operator

Your next question is from the line of Matthew Scalo with Canaccord Adams.

Matthew Scalo – Canaccord Adams

Hi, guys, I just wanted to follow up on the node positive. Would you disclose the number of node positive test runs so far, either this quarter or to date?

Randy Scott

You know, we don’t plan to break that out. We are seeing an increase in node positive use. I would still describe it as modest and of course the overall breast cancer market for node positives disease is smaller. We would estimate approximately 40,000 a patient, but many of those probably would not be appropriate for Oncotype DX, especially those patients that have multiple nodes. So we expect a small subset of that market to represent the overall node positive market. So we don’t plan to break out node positive. We are seeing an increase in usage out there. We have now incorporated node positive report into Oncotype DX.

Kim Popovits

I could just add to that that while we are excited about the clinical utility out there for node positive patients and have gotten good feedback we do have some work to do on the payer side. So while the samples coming in are increasing, we need to now go back through the payer community and get the node positive patients put in the policies and contracts that we have. The reimbursement will lag here similar to what happens when we launched in the node negative population.

Matthew Scalo – Canaccord Adams

Okay, and can I assume that even if a payer did establish a policy, not a contract, but a policy, you guys wouldn’t put out a press release on that, right?

Kim Popovits

No, and we do already have payers that have changed their policies to include node positive patients or patients with micromeds.

Matthew Scalo – Canaccord Adams

Okay, that is good to hear. Just switching back to the standard node negative ER positive patient population, it sounds like with the penetration of the market right now, you guys maybe have fully penetrated the early adopters, the thought leaders here. Have you changed any marketing programs to go after maybe the lower volume centers, maybe the rural segments?

Kim Popovits

Yes, I would actually say that we have not penetrated even our – I think our core market quite yet. So if we look at being maybe around 50% today, we do see a need to really penetrate the existing accounts further. We also will I think eventually see a need to expand a little bit more and one thing that we are shooting for is the representative to have more time with individual physicians. So, it is a very tight service based type of cell. So where we are standing a bit is into the breast surgeon, and that is a group that of course sees the patient first and certainly a good entry point for us. So while we are doing some work with the breast cancer surgeon community, we believe we still have a significant opportunity left with the oncology audience that we are currently calling on.

Matthew Scalo – Canaccord Adams

And certainly, breast surgeons see that DCIS population as well I would assume?

Kim Popovits

They do.

Matthew Scalo – Canaccord Adams

Okay, all right. Thanks guys, I'll get back in queue.

Kim Popovits

Thank you.

Operator

(Operator instructions) The next question is from the line of Bruce Jackson with RBC Capital Markets.

Bruce Jackson – RBC Capital Markets

Hi. Good afternoon. If I could ask a follow up question on Palmetto; in the cases where you are working with them already, how does the reimbursement compare with what you are receiving from National Heritage?

Kim Popovits

In the same ball park, so not much difference at all.

Bruce Jackson – RBC Capital Markets

Okay. And then there is the colon cancer test, if I could get some more clarity on the development timeline, first there is the analytical validation, then there is the clinical validation, and then mid next year you will have data. What happened with it after that in terms of launching the tests or getting formal approval or clearance from the FDA?

Randy Scott

Yes. So once we have completed the studies and finalized the results with the collaborators and presented those presumably at a national or international conference, we would then move forward through the appropriate regulatory path. If under CLIA as we did with Oncotype DX breast cancer assay, we would work with the CLIA regulatory groups to get approvals and move forward with launch under CLIA, which could happen, you know, probably within a six month timeframe after results were reported. If under FDA, we would then be preparing the right documentation, whether a file 10-K or PMA for FDA and if it did require a PMA, it could be as much as a year or more. Sometimes, regulatory processes with FDA; so the panel’s regulatory process really makes a fairly significant difference in the timelines for product launch in the US.

Bruce Jackson – RBC Capital Markets

Okay. So you haven’t ruled out a CLIA approach?

Randy Scott

No, certainly not.

Bruce Jackson – RBC Capital Markets

Okay, thank you.

Operator

Your next question is from the line of Bruce Cranna with Leerink Swann.

Bruce Cranna – Leerink Swann

Good afternoon, everyone.

Kim Popovits

Good afternoon.

Bruce Cranna – Leerink Swann

Hey, Brad, I know it is probably difficult but is there any way looking forward to I guess model the milestone line, or is it just – it is going to an impossibility to get our arms around that?

Brad Cole

Yes. Bruce, you are referring to contract revenue?

Bruce Cranna – Leerink Swann

Yes.

Brad Cole

Yes, it is difficult. I mean we have got ongoing collaborations and we just started the one with Pfizer so there will be some revenue going forward from Pfizer and from others, but we can’t really give you any guidance into when milestones might happen with the other partners.

Bruce Cranna – Leerink Swann

Okay. And then you gave us the percent of the revenues that were accrual-based. Can you give some percent on a text-volume basis?

Brad Cole

Yes, it was 43%.

Bruce Cranna – Leerink Swann

Okay, thank you. And then, I had one other. If, in fact, you start reporting HER2 new – I think you said towards the end of this year, do you move pricing again on that, or is it sort of this pricing increase in, I guess, in anticipation of that?

Randy Scott

Yes, we would not base pricing decisions on that whole event, but Steve maybe you want to comment just on the overall markets that need an interest for HER2 testing?

Steve Shak

Yes, there certainly is a tremendous interest in the quality of HER2 testing and in some uncertainty that exists in HER2 status for individual patients. Certainly, that is – you know, we get a lot of requests. Even today, for – in more information about HER2. So, based on this we have performed additional studies, look forward to presenting those results and obviously, we clearly believe like – we currently believe that standardized quantitative testing for ER, PR, and HER2 has real value for patients and for physicians.

Bruce Cranna – Leerink Swann

Yes, did you ask a little more money for it?

Steve Shak

No, we didn’t. So, when we made the ER scores available, I believe that was in January of this year. We did that without a price increase, I think it is part of our – you know, we feel excited about the ability to continue to do studies, enhance the value of our assay for physicians and for patients.

Randy Scott

And so Bruce, we will look at pricing over time on a steady basis. Our business model is really built on continuing to deliver more and more value to patients, continuing to do additional clinical trials and clinical studies such as the aromatase inhibitor study that is ongoing. So we don’t plan to base pricing on individual events on kind of a micro-pricing schedule, but rather just looking at the value over time and then our price should be based on the value that we are delivering to the healthcare system overall.

Bruce Cranna – Leerink Swann

Okay. And then last question from me, I guess moving into validation on the colon cancer side, can we take that to mean that the signature is determined at this point?

Randy Scott

Yes, that is correct. We have 18 gene panels that is now being incorporated into the final assay.

Bruce Cranna – Leerink Swann

Great, thank you.

Operator

Your next question is from the line of Eric Criscuolo with Thomas Weisel Partners.

Eric Criscuolo – Thomas Weisel Partners

Hi, good afternoon, I'm filling in for Peter Wilson. Just as far as the price increases go, when you enacted that price increase, July 1, I believe, does that take effect right away, is it fully realizable or does it kind of take a couple of months to kind of work itself through?

Kim Popovits

Well, it takes effect right away. However, accounts that are currently contracted with us, it does not change their contracted price.

Eric Criscuolo – Thomas Weisel Partners

So it is just the new contracts coming in?

Kim Popovits

It is the new list price. So anybody that is not contracted with us that would the price as of July 1.

Eric Criscuolo – Thomas Weisel Partners

Okay, great. And I guess my final question, as far as the reimbursement goes, you said 6.9 million additional lives. Is that something that we can expect going forward, 5 million to 7 million or is there kind of like a couple of accounts still out there that are relatively larger, that you can still kind of take down?

Kim Popovits

We have pretty much taken down the really big ones, so I think that we are now in a position where it is going to be – as you saw this quarter, individual Blues plans and some smaller regional plans that we will begin to add. There are a couple out there that are a little bit larger, but for the most part, you are going to see what you saw this quarter, until at some point we reach them all, given that we are over 80% right now, so –

Eric Criscuolo – Thomas Weisel Partners

Great, thanks a lot.

Operator

(Operator instructions) Your next question is from the line of Scott Gleason with Stephens Incorporated.

Scott Gleason – Stephens Incorporated

Hey Randy and Brad, thanks for taking my question and great quarter. First, as far as you guys could revise an update on your backlog of tests that have been shipped but not billed, can you give it to us both in tax and total revenue?

Brad Cole

Well I think Scott you are probably referring to the fact that over the course of the launch of Oncotype DX, we build payers and have not always gotten paid until we have policies contracts in place and so that number still well over $50 million, but it gets payers [ph] over time and it gets resolved over time too. So it is not coming down dramatically and we are shipping more and more every quarter. So it really isn’t that much changed.

Scott Gleason – Stephens Incorporated

Brad, can you give us an idea what that number is on a test basis?

Brad Cole

It varies from your $100 left over a test to $3000 left over to be paid, so there isn’t really any test number I can give you that would make it any more meaningful.

Scott Gleason – Stephens Incorporated

Okay, and then on the SG&A side, as those prices see a down sequentially, quarter to quarter, can you just give us maybe some granularities there looking forward what we should expect for the rest of year, based on the fact that you mentioned your sales force is going to stay relatively flat?

Brad Cole

Yes. The difference in the spend there is really primarily the educational push that takes place after ASCO, where we spend a lot of educational seminars and what have you in this quarter, excuse me, I said ASCO, Randy just corrected me, San Antonio. So the San Antonio conference there is lots of promotional opportunities in the first quarter and some in the second quarter as well, but that is the primary change.

Scott Gleason – Stephens Incorporated

Okay. And this last question, you know, if you look at the strength in the quarter, you know, clearly your guidance for the year seems potentially a little conservative. Can you provide any commentary in regard to that?

Brad Cole

Well we think the guidance is appropriate given that we have increased the range from – the midpoint of the range certainly has gone up as well as the number of tests that will be delivered and so we are more bullish on the top end of the range than we ever have been.

Scott Gleason – Stephens Incorporated

Okay, thanks a lot.

Operator

Your next question is from the line of (inaudible) with JP Morgan.

Tycho Peterson – JP Morgan

Hello? – This is Tycho here actually. Just wanted to actually clarify, Kim you had I think made a comment about patient pull around node positive. I am just wondering if you can elaborate a little bit as to overall, not just node positive, but node negative and in general what you are seeing in terms of patient pull these days?

Kim Popovits

I'm sorry? Patient pull?

Tycho Peterson – JP Morgan

Exactly.

Kim Popovits

That is a marketing term, Tycho, so I can tell you in terms of online patient education that we are doing, we are doing a lot of outreach to educate the community, we are doing it both through our own website that you have probably looked at and it is giving very positive feedback and the number of hits on that site is really growing dramatically. The other thing that we are doing is working through a number of the advocacy organizations to help them also with their own educational efforts in terms of just overall breast cancer education and specifically tools that are available to help in treatment planning. So we will continue our trust in putting resources there because we do hear quite frequently from oncologists that patients are now coming in asking for a recurrence score.

Randy Scott

We actually regard mytreatmentdecision.com as a good place where you can see some of that information.

Tycho Peterson – JP Morgan

I mean is there a way you can just try to take a stab at how often that is happening? Patients, are they coming in and asking oncologists for the test?

Kim Popovits

Well, we don’t know how much they are asking oncologists but we are tracking the hits on mytreatmentdecision.com and that has grown significantly. In fact, we are nearing 18,000 to 20,000 hits a month on that site, so it is significant, between patients and caregivers.

Tycho Peterson – JP Morgan

Okay. On the pharma collaborations, I mean I understand you know you cant give a lot of visibility to how we think about collaborate revenues going forward, but maybe can you talk just qualitatively as to how much demand you have seen increase in terms of your discussions with pharma companies, if you like coming out of AACC last week, there was certainly a lot of talk from Roche and Abbott, and these are the companies about personalized medicine and so they are clearly moving in that direction. Can you just comment as to the level of dialogue you are having with pharma these days?

Randy Scott

Tycho, great question. I think the interest in this area is really increasing but I would also say it is still very early stage. The K-ras discussion at ASCO, demonstrating that testing patients for K-ras mutation has a big impact on whether or not you may choose to treat certain antibodies. It is just another example that is really – I would say, beginning to rock the pharmaceutical world to understand that the future really is in personalized medicine and in the future, we think it is highly unlikely that any new drug will go into development a few years hence in which they are not thinking seriously about the right predictive test for that drug. So I would say most of the upside is ahead of us, at the same time I would challenge the pharmaceutical industry to say that I think they continue to move very slowly and very methodically.

I think there is a lot of concern inside the pharmaceutical industry around what the impact might be on drug sales and that is something that we as an industry have to work through within because we believe that ultimately this is going to be a policy for the industry. It is going to accelerate drugs coming to market, it is going to improve the ability to identify new indications for already existing drugs, and I think it is going to be a powerful upside for the pharmaceutical industry. So I would say that the handwriting is on the wall, the pharmaceutical industry is increasingly in debate discussion around this, we would expect that to continue to accelerate but it is still not where we would like to see it right now and we want to be part of the movement that helps to accelerate that.

Tycho Peterson – JP Morgan

Okay, that is helpful. And then just finally a quick one on reimbursement; I guess CMS had put out a NCD topic list at the end of July, I mean it looks like it just opened for public commentary. Can you give us a sense as to – I mean, is this part of routine protocol, or how should we think about that?

Kim Popovits

Yes, Tycho it is routine protocol based on a prior guidance document that was issued, where CMS committed to posting topics that they were considering potential topics for future national coverage decisions. So what you recently saw was their list of now – at this point 20 different topics that are actually quite broad, one of which is gene expression profiling, which you could imagine Oncotype DX and a number of other tests would fall under. So, the process is simply that these 20 topics are put out there for comments on, whether any of them go forward for a national coverage decision review, we don’t know. It would be hard to imagine that all could, given just resource constraints.

The process itself, once the decision is made to take something forward, generally it can be up to 12 months before anything happens. So, we have no idea whether Oncotype DX is of interest in it, we would assume it falls under the gene expression profiling category. As I mentioned earlier, if in fact that is the case, we would move forward in the same way that we did with NHIC and a number of other reviewers of the actual price of Oncotype DX in terms of the established evidence and the tech reviews and usage and the fact that Palmetto has already established an LCD on it consistent with NHIC. So, that is as much as I can tell you, but as you started out with protocol and the procedure and profit that CMS uses just to tell people what is on their minds, not necessarily what they are moving forward with.

Tycho Peterson – JP Morgan

Okay, that is great. Congratulations on the quarter.

Kim Popovits

Thanks.

Operator

There are no further questions at this time. Mr. Scott, do you have any closing remarks?

Randy Scott

Yes, so I would just like to say thank you for participating in today’s call and for your continued interest in Genomic Health. Have a great afternoon.

Operator

And this concludes today’s Q2 conference call for Genomic Health. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Genomic Health Inc. Q2 2008 Earnings Call Transcript
This Transcript
All Transcripts