Genomic Health is one of the big success stories of the past decade in the diagnostics business, and an early leader in the movement toward more personalized medicine. The Redwood City, CA-based company generated $150 million in revenue last year, saw sales climb almost 20 percent in the second quarter, and has reached cash flow break-even. So why is the company’s stock (NASDAQ: [[ticker:GHDX]]) down about 25 percent this year?
Twin threats of cost containment from federal healthcare reform and possible increased FDA regulation certainly are on some investors’ minds. Today, Genomic Health will talk in more detail during its quarterly earnings call about where this is all heading in the quarters and years to come.
Genomic Health has its work cut out in sustaining the quarter-by-quarter momentum it has built since it introduced its first marketed product in 2004. The diagnostic test, Oncotype DX, is designed to predict whether women diagnosed with breast cancer are likely to relapse after their tumors are surgically removed, and whether they are likely or not to benefit from a round of preventive chemotherapy.
In the six years since this test hit the market, Genomic Health has performed it for 160,000 women; it now charges $4,000 per patient. The company needs to constantly to justify the price, which it says can save Medicare an estimated $2,000 per patient by guiding doctors and patients to avoid futile rounds of chemotherapy that can cost the system $30,000 to $40,000 per patient plus the needless suffering from side effects. This has been a long slog for Genomic Health as it seeks to change the way doctors and insurers think about diagnostics, which are traditionally a low-cost, low-margin business that takes up less than 1 percent of the nation’s healthcare budget.
But fuelled by its early success at persuading doctors, patients, and insurers to pay for a predictive test, Genomic Health is seeking to take the next steps, expanding its reach across the breast cancer market and building a market for tests that predict relapses of colon cancer, kidney cancer, prostate cancer. This mission will take years, and Genomic Health will have to overwhelm insurers and government officials with proof that its tests are scientifically accurate, they influence medical decision-making, and they save the system money. But that’s what the company aspires to do.
“We put all our resources into the therapeutic side, doing the procedures and prescribing the drugs. Very little goes into diagnosing disease,” says Kim Popovits, Genomic Health’s CEO. “If you can move the dollars to predisposition, screening, and diagnosing better, and not spend 80 percent of the money in the last few months of life trying to do heroic things that mostly don’t improve quality of life and don’t extend life very long, that’s a great solution to the health dilemma. Right now, less than 1 percent of healthcare resources are put into diagnostics. That’s crazy.”
This conversation about the healthcare system is unavoidable when you sit down to analyze Genomic Health’s business, and the world it operates in, which I did a few weeks ago when I visited Popovits at her office in Redwood City.
Genomic Health was founded in 2000 when
