Via Facsimile and U.S. Mail
Mail Stop 6010
August 11, 2005
Randal W. Scott
Chief Executive Officer
Genomic Health, Inc.
301 Penobscot Drive
Redwood City, CA 94063
Re: Genomic Health, Inc.
Registration Statement on Form S-1
Filed July 15, 2005
File Number 333-126626
Dear Mr. Scott:
We have reviewed your filing and have the following comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
FORM S-1
General
1. We note your graphics following the cover page of the
prospectus.
These graphics present your product and studies of the product in
an
out-of-context and unbalanced manner. Although you recognized
limited sales of your product, further sales of Oncotype DX may be
halted should the FDA determine pre-market review of the product
is
necessary and you have experienced some difficulties in
reimbursement
attributable to uncertainty regarding the clinical efficacy of
Oncotype DX. Furthermore, your studies are not the equivalent of
FDA
approved clinical studies. Therefore, please eliminate the
graphics
located in the forepart and the back page of the prospectus.
2. Should you include any additional graphics, visuals, or
photographic information, please provide proofs of any such
information you will provide in the printed prospectus prior to
its
use. Please note we may have comments regarding any additional
graphics or visuals you may include.
3. Please note that when you file a pre-effective amendment
containing pricing-related information, we may have additional
comments. As you are likely aware, you must file this amendment
prior to circulating the prospectus.
4. Please note that when you file a pre-effective amendment that
includes your price range, it must be bona fide. We interpret
this
to mean that your range may not exceed $2 if you price below $20
and
10% if you price above $20.
5. Please note that where we provide examples to illustrate what
we
mean by our comments, they are examples and not complete lists.
If
our comments are applicable to portions of the filing that we have
not cited as examples, please make the appropriate changes in
accordance with our comments.
6. We note that you have requested confidential treatment for
several
of your exhibits under Rule 406 of the Securities Act; we will
furnish comments for your request under separate cover. Please be
advised, we will not act on any request for acceleration of
effectiveness until we have cleared comments on your request for
confidential treatment.
Prospectus Summary, page 1
7. Please revise to state how many of the patients diagnosed with
early stage node negative or estrogen receptor positive breast
cancer
are treated with only tamoxifen.
8. Please revise to quantify the degree of statistical
significance
in order to provide information about the predictive power of the
Recurrence Score at the second study conducted with Northern
California Kaiser Permanente about breast cancer survival at 10
years.
9. We note your statement, "[w]e currently have contracts in place
with commercial third-party payors covering over nine million
lives,
or approximately 3.1% of the United States population." Please
revise to clarify what the nine million lives represents. Are
they
all women? How many of them have been diagnosed with breast
cancer
and specifically early stage node negative or estrogen receptor
positive breast cancer?
10. As you have chosen to present the positive aspects of your
company, please balance this discussion by including a discussion
of
the risks and obstacles you must address in implementing this
strategy. This discussion should be at least as prominent as the
discussion of your strategy.
11. Supplementally please provide independent third-party support
for
the following statements:
* "Approximately half of the 230,000 patients expected to be
diagnosed with breast cancer in the United States in 2005 are
predicted to be early stage cancer patients that are N- and ER+."
* "Over 550,000 treatment decision are expected to be made in the
United States in 2005 for patients diagnosed with early stages of
breast cancer and these cancers."
12. Please eliminate jargon and technical terms from the forepart
of
the prospectus and provide a "Plain English" explanation or
substitute. For example, these words and phrases appear in your
summary in other parts of the prospectus:
* "taxanes"
* "aromatase inhibitors"
* "bioinformatic analysis"
* "fixed paraffin embedded tissue"
* "formalin fixed"
If you must include technical terms in the body of your prospectus
that are understood only by industry experts you must make every
effort to concisely explain these terms where you first use them.
Risk Factors
If third-party payors, including managed care organizations and
Medicare, do not ..., page 6
13. Please disclose approximately what percentage of your revenues
derived from the sale of Oncotype DX to date have been paid from
third-party reimbursement.
14. Please revise to disclose that the Medicare contractor to
which
you refer is located in Northern California, as noted in your
supplemental letter dated August 3, 2005 to the Staff.
If the U.S. Food and Drug Administration, or FDA, were to begin
regulating ..., page 7
15. Please include a stand-alone risk factor that addresses the
risks
and costs associated with FDA premarket review should the FDA
determine Oncotype DX is subject to it. Please be as
comprehensive
and complete in your discussion of this risk.
16. In addition, please add a risk factor which discusses the
risks
involved in conducting pre-market clinical trials. For example
you
may consider discussing the risk of using third parties in
administering or conducting the trials, finding appropriate trial
participants, etc.
Complying with numerous regulations pertaining to our business
....,
page 8
17. Please provide disclosure regarding problems or adverse
condition
citations by CLIA inspectors, if applicable.
Our competitive position depends on maintaining intellectual ...,
page 10
18. If your business has been materially and adversely affected by
the disclosure of proprietary information, please discuss the
situation and its consequences.
If we are unable to compete successfully, we may be unable to
increase ..., page 11
19. To the extent easily obtainable, please disclose your
competitors` share of the target market.
The loss of key members of our senior management team or our
inability ..., page 13
20. If you have had problems attracting or retaining qualified
employees, please revise to describe the problems you have
experienced. Additionally, if any key employee has plans to
retire
or leave your company in the near future, please revise the
discussion to disclose this information.
Changes in healthcare policy could subject us to additional
regulatory ..., page 14
21. As currently written, this risk factor could apply to any
issuer
or offering. See Item 503(c) of Regulation S-K. While we
understand
that the risks you describe in this subsection are risks the
company
encounters because it is in the healthcare business, you should
state
how this risk relates specifically to your company.
We rely on a sole supplier for some of our laboratory instruments
...., page 14
22. If obtaining needed supplies has ever caused a material delay
or
disruption to your business, please discuss.
If we were sued for product liability, we could face substantial
liabilities ..., page 15
23. Please disclose the amount of your insurance coverage, or in
the
alternative, please indicate if you believe such coverage amount
is
reasonably adequate to insulate you from potential product
liability
claims.
Purchasers in this offering will experience immediate and
substantial
dilution ..., page 18
24. Please revise this risk factor to explain that investors who
purchase shares will:
* Pay a price per share that substantially exceeds the value of
your
assets after subtracting its liabilities; and
* Contribute ___% of the total amount to fund the company but will
own only ___% of the shares outstanding.
Future sales of shares by our stockholders could cause the market
price ..., page 18
25. In addition, please revise to include information about the
registration rights agreement described on page 77 pursuant to
which
additional shares of common stock upon conversion of the preferred
stock could be registered for resale by shareholders.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 27
Financial Operations Overview, page 28
Research and Development Expenses, page 28
26. Refer to the Division of Corporation Finance "Current Issues
and
Rulemaking Projects Quarterly Update" under section VIII -
Industry
Specific Issues - Accounting and Disclosure by Companies Engaged
in
Research and Development Activities, located at
http://www.sec.gov/divisions/corpfin/cfcrq032001.htm#secviii, and
disclose the following:
a. The costs incurred to date and the reason you do not maintain
and
evaluate research and development costs by project. Provide other
quantitative or qualitative disclosure that indicates the amount
of
your resources being used on the projects;
b. The nature, timing and estimated costs of the efforts necessary
to
complete each project;
c. The anticipated completion dates for each project;
d. The risks and uncertainties associated with completing
development
on schedule, and the consequences to operations, financial
position
and liquidity if the projects are not completed timely; and
finally
e. The period in which material net cash inflows from each of the
significant projects are expected to commence.
Regarding b. and c., disclose the amount or range of estimated
costs
and timing to complete the phase in process and each future phase.
To
the extent that information is not estimable, disclose those facts
and circumstances indicating the uncertainties that preclude you
from
making a reasonable estimate.
Deferred Stock-Based Compensation Expense, page 29
27. Please disclose whether the fair value used in determining
stock
compensation was a contemporaneous valuation or a retrospective
valuation. Disclose that you did not rely on a third party
valuation
to determine this amount. In addition, disclose the following
information related to the valuation methodology used by
management:
f. The significant factors, assumptions, and methodologies used in
determining fair value;
g. A discussion of each significant factor contributing to the
difference between the fair value as of each grant date and the
Series E financing and the IPO price for later grants; and,
h. Why you chose to use retrospective methodology instead of a
contemporaneous, unrelated third party valuation.
Contractual Obligations, page 34
28. Please explain why you did not include $2.5 million milestone
payments disclosed in Note 3 to your financial statements are not
included in this table.
Use of Proceeds, page 34
29. Please identify with more specificity the uses that you
currently
categorize as "general corporate purposes," and state how much of
the
proceeds you plan to put toward each such use.
30. We note you expect research and development expense levels to
remain high, therefore, please approximate how much you anticipate
spending for product development. Specifically, please disclose
the
amount of proceeds you anticipate spending for the expansion of
Oncotype DX, development of Oncotype DX Second Generation, new
products and product development opportunities in other cancers,
as
reflected in the tables on pages 47 and 49. Also, please indicate
where in the development process you expect to be after the
expenditure of these proceeds for each of the projects enumerated
in
the tables.
Business
Competition, page 54
31. To the extent known or easily obtainable, please identify your
principal competitors` share of the market.
Roche License, page 62
32. We note your development or license agreements with Roche and
Incyte Corporation. Also we note the security agreements and
promissory notes with Oxford Finance creating a security interest
in
certain collateral. Please describe the material provisions of
these
agreements in the Business section. Your discussion should
include:
* All material rights and obligations of the parties to the
agreement;
* Duration of the agreement;
* Payment terms;
* Termination provisions, including consequences of early
termination; and
* Any other terms that may be considered material.
Properties, page 62
33. Please revise to disclose the amount of your annual lease
payment
and if you plan to renew the lease upon its expiration in February
2006.
Management, page 63
34. Please disclose any familial relationship that may exist
between
Joffre B. Baker and Julian C. Baker or advise us if there is none.
Executive Compensation, page 67
35. We note that all of the executive officers you describe in
this
section receive stock option awards as part of their compensation.
Please describe how these individuals` performance is determined
and
what factors are considered in evaluating it. For example, if the
grants are based on company performance, please describe how
company
performance is measured.
Related Party Transactions, page 71
Agreements with Incyte Corporaton
36. Please disclose the terms of the series C Preferred Stock that
Incyte received, including the conversion ratio.
Underwriting, page 82
37. Please tell us if you plan to conduct a directed share
offering.
Please provide us with any material you intend to use to sell to
potential purchasers such as a "friends and family" letter. Tell
us
when you intend to send them to these potential purchasers. In
addition, tell us the procedures you will employ in making the
offering and how you will assure that this offer will meet the
requirements of Section 5 of the Securities Act and Rule 134. We
may
have further comments.
38. We note that certain of the underwriters may distribute
prospectuses electronically. Please tell us the procedures they
will
use in their selling efforts and how they intend to comply with
the
requirements of Section 5 of the Securities Act of 1933,
particularly
with regard to how offers and final confirmations will be made and
how and when purchasers will fund their purchases. Provide us
copies
of all electronic communications including the proposed web pages.
39. Please tell us and briefly disclose in the prospectus whether
you
intend to use any forms of prospectus other than print and
electronic
version, such as CD-ROMs, videos, etc., and provide all such
prospectuses for our examination. Please refer to SEC Releases
No.
33-7233 and NO. 33-7289. We may have additional comments.
40. Please indicate if your underwriters have arrangements with a
third party to host or access your preliminary prospectus on the
Internet. If so, identify the party and provide the address of
the
website. Please also describe the material terms of the agreement
and provide us with a copy of any written agreement. You should
also
provide us with copies of all information concerning your company
or
the offering that appears on the third party website. We may have
further comments.
Consolidated Financial Statements, page F-1
Consolidated Balance Sheet, page F-3
41. Please disclose the terms that require the convertible
preferred
stocks to be classified outside of equity.
Notes to Consolidated Financial Statements, page F-7
Note 1. The Company and Summary of Significant Accounting Policies
- -
Revenue Recognition, page F-10
42. Please refer to your disclosure in the first sentence of the
first paragraph and expand your disclosure about "delivery has
occurred or services rendered" to specify when this occurs in your
facts and circumstances. We would presume it occurs after you
have
completed processing and analyzing the tumor sample and deliver
the
report to the treating physician.
43. Please refer to your disclosure in the last sentence of the
first
paragraph and tell us how recognizing revenue on a cash basis when
the criteria set forth in "(1) to (4)" are not met complies with
GAAP.
44. Please refer to the second paragraph particularly the last
sentence and clarify the relevance to your revenue recognition
policy
discussed in the first paragraph.
45. Please refer to the third paragraph and clarify what factors
determines whether revenue is recognized on a "when costs are
incurred" basis or on a "at risk milestones are achieved" basis.
Also
clarify what you mean by "at risk milestones".
Item 16. Exhibits and Financial Statement Schedules, page II-3
46. Please file your remaining exhibits, including the legal
opinion
with your next amendment or as soon as it becomes available as we
will review it prior to granting effectiveness of the registration
statement.
Supplemental Materials
47. Please file on EDGAR, the supplemental information dated
August
3, 2005 you provided to the Staff.
* * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
You may contact Keira Ino at (202) 551-3659 or Oscar Young at
(202) 551-3622 if you have questions regarding comments on the
financial statements and related matters. Please contact Albert
Lee
at (202) 551-3654 or me at (202) 551-3715 with any other
questions.
Sincerely,
Jeffrey Riedler
Assistant Director
cc: Justin D. Hovey
Pillsbury Winthrop Shaw Pittman LLP
P.O. Box 7880
San Francisco, CA 94120
Randal W. Scott
Genomic Health, Inc.
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