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Genomic Health Inc (GHDX)
Q3Â 2018 Earnings Conference Call
Nov. 06, 2018, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good afternoon, my name is Carmen and I will be your conference operator today. At this time, I would like to welcome everyone to Genomic Health's Third Quarter 2018 Financial Results Conference Call. All participants are in a listen-only mode to prevent background noise. (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.
Emily Faucette -- Vice President of Corporate Communications and Investor Relations
Thank you. Good afternoon everyone and welcome to Genomic Health's conference call to review our third quarter 2018 financial results. Please note a copy of the prepared remarks we are about to make is available to download on the Investors section of our corporate website, genomichealth.com. Before we begin, I'd like to remind you that some of the information presented today may contain projections or other forward-looking statements regarding future events or the future financial performance of the Company. These statements are based on management's current expectations and the actual events or results may differ materially and adversely from these expectations. We refer you to our most recent Annual Report on Form 10-K and quarterly report on Form 10-Q as 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 to make prepared remarks are Kim Popovits, our Chairman of the Board, Chief Executive Officer and President; and Brad Cole, our Chief Financial Officer. I'll now turn the call over to Kim.
Kimberly Popovits -- Chairman of the Board, Chief Executive Officer & President
Thanks, Emily. Good afternoon, everyone and welcome. We continue to deliver record top and bottom line results in 2018. In the third quarter specifically, we generated 23% revenue growth and a $13 million profit on a non-GAAP basis. Importantly, we achieved our 13th consecutive quarter of improved non-GAAP profitability. This strong performance reflects increasing global demand and revenue for the Oncotype DX Breast Recurrence Score test, continued adoption and growing reimbursement for the Oncotype DX Genomic Prostate Score, and success in driving operational efficiencies across our business. With three quarters of record results this year, we are raising our full-year 2018 revenue and net income guidance, and now expect to deliver approximately 17% revenue growth for the year, surpassing the top-end of our original full-year revenue guidance of 15%.
We believe we are well-positioned to continue accelerating adoption, reimbursement, and revenue growth across our business in the near-term with the achievement of several recent milestones, which include positive guideline recommendations that demonstrate global support for the Oncotype DX Breast Recurrence Score test following publication of the landmark TAILORx results. Specifically, NCCN updated its 2018 breast cancer guidelines, elevating Oncotype DX to its preferred category with a strongly considered designation as the only multi-gene test to predict chemotherapy treatment benefits for patients with node-negative early stage breast cancer. In addition to this guideline inclusion with Level 1 evidence for node-negative breast cancer, NCCN also elevated Oncotype DX into the chemotherapy treatment pathway for patients with micro metastases and for patients with up to three positive lymph nodes.
Guideline momentum also continued in Europe as the German Institute for Quality and Efficiency in Health Care or IQWiG, concluded in its updated assessment of breast cancer gene expression profiling test that only the Oncotype DX test has sufficient evidence to guide breast cancer adjuvant chemotherapy treatment decisions. As IQWiG's positive technical assessment informs G-BA's official national reimbursement decision, we believe we are one step closer to gaining reimbursement for tens of thousands of breast cancer patients diagnosed in Germany each year. Together, these new exclusive guidelines globally distinguish Oncotype DX from other genomic tests based on the clinical evidence and the critical importance of predicting chemotherapy benefit. We continue to expect decisions from G-BA as well as NICE in the UK in the coming months.
Important reimbursement wins across our urology franchise including Medicare's final local coverage determination or LCD that will become effective in December for use of the Oncotype DX AR-V7 Nucleus Detect test for men with castrate resistant metastatic prostate cancer. As a reminder, of the 50,000 eligible patients in the United States, approximately 25,000 are covered by Medicare. In early stage prostate cancer, Blue Shield of California established reimbursement for the Oncotype DX GPS test, bringing the total number of US covered lives to more than 100 million. Importantly, we continue to make progress in our development of a sample-to-answer version of the Oncotype DX Breast Recurrence Score Test on the Idylla platform with the successful completion of technical feasibility and the selection of validation study sites. We believe the development of this unique and highly scalable sample-to-answer IVD capability positions us for further long-term growth and diversification by accelerating access in key European markets where a localized solution is required, opening global access to emerging large markets such as China, Brazil and India, providing us with a proprietary platform to build a menu of locally distributed tests to be offered through our global commercial channel, and facilitating broader collaboration opportunities with pharmaceutical companies seeking localized diagnostic solutions. I'll now turn the call over to Brad to provide further detail on our third quarter financial results and updated annual guidance. Brad?
G. Bradley Cole -- Chief Financial Officer
Thanks, Kim. We are very pleased with our third quarter financial results, during which we delivered revenue growth above 22% in all of our key product lines, continuing the strong revenue growth throughout 2018. As a reminder, effective January 1, 2018, we adopted the new ASC 606 accounting standard for revenue, using the modified retrospective method, which applies the new standard prospectively and does not impact prior years' financial statements. Since the as-reported 2017 quarterly and annual financial statements will not be restated to reflect the new accounting standard, we have provided a supplemental financial schedule in the non-GAAP tables in our press release, reflecting an estimate of revenue as if the new standard had been applied as of January 1, 2017, which we will refer to as pre-ASC 606 adjusted figures in our comparative comments.
In the third quarter of 2018, total revenue was $101.3 million, an increase of 23% compared to the pre-ASC 606 adjusted revenue of $82.2 million for the third quarter of 2017. For the nine months ended September 30, 2018, total revenue was $289.5 million compared with pre-606 adjusted revenue of $248.2 million for the same period in 2017, an increase of 17%. In the third quarter of 2018, we delivered a non-GAAP profit of $13.3 million, an improvement of $12.2 million compared with the same period in 2017. These strong results mark our 13th consecutive quarter of improved non-GAAP profitability. For the nine months ended September 30, 2018, we delivered a non-GAAP profit of $27.3 million, an improvement of nearly $32 million compared with a non-GAAP loss of $4.5 million for the same nine month period in 2017. These strong non-GAAP net income results represent continued and improved operating leverage above our stated annual target of 40%. Third quarter revenue growth of 23% was driven primarily by test volume, up over 10% compared to the third quarter of 2017 to more than 34,810 tests delivered and improved average selling price from reimbursement improvements and collection of efficiencies, which had a 13% impact on revenue growth.
The increased realized price was boosted by PAMA pricing effective January and improved collection levels from process and system changes and enhancements implemented throughout the year. As payers require additional payment criteria, we have invested to meet the needs of these requirements and are seeing the results in improved average selling prices across product lines. The third quarter revenue result of $101.3 million and 23% growth includes approximately $2 million of revenue from upgrading payers into higher revenue recognition portfolios as we continue to see strong payment performance. Without this year-to-date effect on third quarter results, revenue would have been $99.3 million and revenue growth would have been 20%.
I will now walk you through the results across each of our key product lines. US invasive breast cancer revenue was $76.7 million in the third quarter of 2018, an increase of 24% compared to pre-ASC 606 adjusted revenue for the same period in 2017. Revenue was up 17% for the nine months ended September 30, 2018. The accelerated revenue growth in the third quarter was driven by increased test volume of 12% compared to last year as a result of the TAILORx presentation and publication driving further demand. We estimate an increase of 6% test growth based on these definitive 10-year results. Test volume growth contributed half of the revenue growth. CMS pricing has increased through PAMA adding 3% to revenue growth and contributing to approximately 12% of total revenue growth. Stronger ASP overall, a result of contract renewals and collection efficiency through process change and system enhancements contributing 5% to revenue growth and to more than 20% of total revenue growth. And finally, upgrading certain payers to higher revenue portfolio rates on a year-to-date basis, a result of improved payment performance above their initial portfolio rate estimates. This contributed to approximately 4% to revenue growth and to approximately 15% of total revenue growth.
US invasive breast cancer test volume increased 12% year-over-year in the quarter and 7% year-to-date. Looking ahead to the fourth quarter, we expect US invasive breast cancer revenue to continue to grow in mid-to-high teens. International product revenue was $15.5 million in the third quarter of 2018, an increase of 22% compared to pre-ASC 606 adjusted revenue. On a constant currency basis, revenue grew 20%. International revenue increased 13% for the nine month period ended September 30, 2018. On a constant currency basis, revenue grew 9%. Similar to the US, the TAILORx results have had a positive impact internationally. The number of international tests delivered in the third quarter of 2018 grew 6% compared with the same period in 2017 and represented approximately 25% of total test volume in the quarter.
Excluding Germany and Italy where we changed the ordering model late last year to require committed payment Prior to accepting orders and the conclusion of certain studies for which we provided tests, international volume was up 15% year-over-year in the third quarter. While these changes have impacted tests delivered as expected, we are seeing progress in both payer engagement and coverage. Looking ahead to the fourth quarter, we expect international tests growth to be in the mid-to-high teens and revenue growth above 20%.
In US prostate, our GPS test continues to contribute to strong test and revenue growth, increasing 15% and 28% respectively. GPS revenue of $6.9 million in the third quarter was equally driven by higher test volume and increased payments from qualified billable tests with Medicare and further coverage and increased payments from private payers. For the nine months ended September 30, 2018, GPS tests delivered were up 24% and revenue grew 54%. It's important to note that GPS revenue in the third quarter of 2017 included reimbursement payments from prior periods. When adjusting for this occurrence, growth would have been 70% in the third quarter of 2018.
Additionally, with our sales force expansion complete and the full team now in place, we continue to expect full-year GPS revenue growth above 50% and test volume growth to be approximately 24% (ph). We believe we are continuing to lead the market for low and intermediate risk prostate cancer patients using genomic tests for treatment decisions. And with the Oncotype DX AR-V7 Nucleus Detect test, excuse me -- finalization of the Medicare LCD is expected to have a positive impact on both test and revenue growth beginning in 2019. The final LCD coverage posted by Palmetto expected to take effect in December once the notice period ends.
Gross margin was 85% in the quarter. Moving forward, we expect our gross margin rate to be 84%, in line with our year-to-date gross margin rate. Cash and cash equivalents and short-term marketable securities at September 30, 2018 were $183.3 million, an increase of $53.7 million from December 31, 2017. In the third quarter, non-GAAP adjusted EBITDA was $22 million. For the first nine months of the year, Non-GAAP adjusted EBITDA was $52 million.
Based on our strong performance during the first nine months of the year, we are raising our guidance for the year ending December 31, 2018. Total revenue of between $389 million and $391 million, representing growth of 17% compared with 2017. In the fourth quarter, we expect revenue growth of between 17% and 19% or between $100 million and $102 million. Net income or profit between $26 million and $28 million on a GAAP basis, up from our original guidance of between zero and $5 million. Non-GAAP net income of between $37 million and $39 million, up from our original guidance of between $14 million and $20 million.
As a reminder, our non-GAAP estimate excludes clinical and commercial development milestone expense and program cessation charges. Delivering revenue growth in our new guidance range of 17% for the full-year will exceed our annual growth goal of 15%. Delivering net income in our new guidance range will exceed our operating leverage target.
Looking ahead to the fourth quarter and 2019, we anticipate increased spending associated with post-TAILORx sales and marketing activities and the ramp-up of our IVD product development. Additionally, as our business continues to diversify with multiple products, new testing platforms, and expanding geography, we are investing in state-of-the-art systems to enhance order processing, test delivery, and revenue collection, which includes online ordering with automated prior authorization support and real-time insurance verification, central lab test result processing with maximum efficiency and quality, delivery of best-in-class test reports, and infrastructure to support a sample-to-answer platform for global markets. Reflected in our 2018 financial results, we are seeing the benefits of these investments with consistent reimbursement traction, strong collections, and greater internal efficiencies. Moving forward, it is our goal to leverage these capabilities to seamlessly integrate new products into our commercial channel. I will now turn the call over to Kim to provide closing remarks.
Kimberly Popovits -- Chairman of the Board, Chief Executive Officer & President
Thanks, Brad. At the beginning of the year, we made a commitment to deliver near-term growth and increased profitability with a focus on catalysts to drive further adoption and reimbursement of our portfolio globally. With our third consecutive quarter of double-digit revenue growth and profitability, it's clear our strategy is working. Furthermore, the achievement of several milestones laid out in January position us for further growth, including: presentation and publication of the landmark TAILORx study results that used Oncotype DX to precisely define the effect of chemotherapy for all early stage breast cancer patients, achieving a 10% increase to our Medicare rate for the Oncotype DX Breast Recurrence Score test through PAMA market-based pricing, strengthened NCCN guidelines for both the Oncotype DX Breast Recurrence Score and GPS tests, increasing reimbursement for our Genomic Prostate Score test, international reimbursement traction with decisions in Germany and the UK expected soon, and the US commercial launch and final Medicare LCD for the Oncotype DX AR-V7 test. And certainly for us, the most rewarding milestone of the year is expected to occur in the fourth quarter when we deliver our one-millionth Oncotype DX test, an impressive accomplishment demonstrating Genomic Health's pioneering impact in delivering precision medicine to cancer patients around the world. I'd now like to open the line for your questions.
Questions and Answers:
Operator
Thank you. (Operator Instructions). Our first question is from Brandon Couillard with Jefferies. Your line is open.
Brandon Couillard -- Jefferies -- Analyst
Thanks, good afternoon. If we look at Germany, if you can help us just kind of understand how fast do you think reimbursement can ramp there and kind of what the process looks like in terms of getting each of the individual payers on board and just remind us about the actual market size for the breast test there in Germany?
G. Bradley Cole -- Chief Financial Officer
We're expecting given the positive IQWiG assessment recently announced that there will be a decision for public coverage later this year. The process happens pretty quickly once a payment pathway is established, like I said, we expect a decision later this year and we would be offering that through all of the sick funds who would have to go to the new recommendation immediately and it would happen pretty quickly, and we go to a list price yet to be determined and yet to be established. Eventually a code would be assigned and the system will work more smoothly and may look like a different price, but it should happen pretty quickly over a few (ph) months following a decision. Now the size of the market is a quarter of the size of the US, so 30,000 patients to 40,000 patients if we can address all the indications that we have here in the US. And so the TAILORx study, which is being considered as node-negative only, we do have some volume in Germany in node-positive patients, but the coverage would be for node-negative patients initially. So it might be closer to 30,000 patients.
Brandon Couillard -- Jefferies -- Analyst
Thanks and then just one quick one on AR-V7, it looks like you got the final LCD there I guess late in the third quarter. Can you just update us on what you have penciled in for contribution from that test in the fourth quarter and how you think about the adoption ramp for that product as you look out into '19 and the incremental revenue contribution from that test next year? Thank you.
G. Bradley Cole -- Chief Financial Officer
Brandon, we don't have much expectation for Q4 given that it should finalize in December and that would turn quickly into revenue, but there'll be a limited amount of time to bill Medicare. So in our guidance, there's limited if any contribution from AR-V7. I'll just remind you that the market for AR-V7 is about 50,000 patients a year. We don't have a price point yet for Medicare, but that should be forthcoming in the next few weeks or month, but we think the value add is much like IVC and should be a price well above $3,000, representing $150 million or so market opportunity in the US. We're the only tests available, and so our expectations are significant, but we haven't -- we are not ready to provide specific guidance on '19 until we get a little more time under our belt with reimbursement in place.
Brandon Couillard -- Jefferies -- Analyst
Got you, thank you.
Operator
Thank you. Our next question comes from Jack Meehan with Barclays. Please go ahead.
Mitchell Frank Petersen -- Barclays Bank PLC, Research Division -- Analyst
Hey, thank you. This is actually Mitch Petersen on for Jack. Appreciate the detail on the TAILORx volume benefit in the quarter. Is the third quarter consistent with what we should expect going forward and I guess how should we think about the sustainability of these tailwinds going into 2019? Thanks.
G. Bradley Cole -- Chief Financial Officer
Yes, we think the fourth quarter will have similar growth rates. TAILORx has added as we said about 6 points to growth. We were growing in the kind of 3% to 4% range before that. So a normalized growth rate is about 9% to 10% for Q3. There was an easier comparator a year ago. Q4 is a strong quarter generally for IBC on a sequential basis off the Q3 levels and we'd expect to see continued benefit from the TAILORx results, which were, you know (multiple speakers).
Mitchell Frank Petersen -- Barclays Bank PLC, Research Division -- Analyst
Okay, that makes sense. And then on prostate, could you just provide some detail on the Medicare versus commercial mix of revenue in the quarter. And when you think about some of these new commercial contracts that are coming in place on the prostate side, could you just elaborate on how the pricing is trending relative to your list price around like $4,500 (ph)? Thanks.
G. Bradley Cole -- Chief Financial Officer
Yes, so the contracts of which there are a number and many more to go are well above $3,000. So we like the pricing -- price points for our GPS in the private market. I'll remind you that the price with Medicare is just above $3,000 and that is set to change in 2019 with a new PLA code, to be closer to our breast price. So pricing has been strong and coverage is starting to build. You had asked something else at the front-end of your question? Oh, the split between the two. Yes, we continue to see about a 50:50 split on revenue. What we saw this quarter was an acceleration in private reimbursement. So we're seeing a little bit higher contribution from private.
Mitchell Frank Petersen -- Barclays Bank PLC, Research Division -- Analyst
Okay and then if I could just squeeze one more in. The pull forward of revenue in the third quarter of 2017 for prostate, did that impact volumes at all or was that simply a revenue headwind in the quarter?
G. Bradley Cole -- Chief Financial Officer
That was simply a revenue benefit in the quarter. So my comments were to kind of normalize the quarter for you at about $99 million. Given that, the new revenue standard has been in place for nine months and it took us and it has taken -- every -- all companies a number of months to identify what the payment trends are and to identity whether they've got the right revenue recognition rates in their system, we took the nine months to assess that and we've been able to determine that as I commented, strong payment collection processes, our system enhancements are pulling through more revenue on an average selling price basis. So we've been able to turn up a number of the payers on the front-end recognition and we just normalize that for the year-to-date. So we had to book all the tests that have been shipped for the year-to-date, it was about $2 million effect in the quarter. So to put it simply, if you could book 90% of what you bill and if you've got nine months of history, and now you could book 93% of what you build because you've demonstrated that your initial estimate was a little shy, you then have to record all that revenue if you were getting paid at the higher level. So we did that across a number of payers. So we're very pleased with the performance we're seeing and the ability to pull that in.
Mitchell Frank Petersen -- Barclays Bank PLC, Research Division -- Analyst
Got it. That makes sense. Thank you.
Operator
Thank you. Our next question comes from Doug Schenkel with Cowen & Company. Please go ahead.
Adam Wieschhaus -- Cowen and Company -- Analyst
Hi there, this is Adam Wieschhaus on for Doug, thanks for taking my questions. Maybe to piggyback on the last question around the HTT business. You noted that the ASPs in that business tracked up in the quarter due to strong collections, contract renewals and upgrading of payer portfolios. So can you provide any color on how you're viewing the remaining opportunity for ASP increases in HTT through those aforementioned upgrades, contract renewals or perhaps other methods and then maybe also on that question, how have payers reacted to the recent NCCN guideline update in terms of your competitive differentiation and your ability to gain price? Thanks.
G. Bradley Cole -- Chief Financial Officer
Well, there was a lot in that. Okay. So indeed, IBC revenue in the quarter was strong. So a significant contribution of (ph) ASP. So the first bit was what I just was describing, there was about 4% of year-over-year growth that came from getting the portfolios right from strong performance during the year. We've continued to see strong reimbursement and contract renewals and collection pull through from how our systems are set up to identifying the criteria and then collect off that criteria and then PAMA contributed 3%. But think about the things that aren't going to repeat, the portfolios are now where they need to be for these payers that had this effect in the quarter. So going forward, there won't be an incremental acceleration from those. PAMA is in place so in'19, there won't be incremental acceleration from PAMA. So we think that Q4 there should still be higher revenue growth than test growth because of these factors, but in, when we going into '19, there will be less differentiation between revenue growth and test growth in IBC.
Kimberly Popovits -- Chairman of the Board, Chief Executive Officer & President
And you question around the impact of NCCN guidelines, we're absolutely thrilled to have that exclusive differentiation. It's not really the impact that we're seeing is on pricing or payer coverage because we have broad payer coverage already. With payers, it really is on more our ability for penetration, market share and really strengthening our performance there as we aim to reach all patients, you know, not (ph) the 60%, little bit north of 50% that we are reaching right now.
Adam Wieschhaus -- Cowen and Company -- Analyst
Thanks for that. And then just switching to prostate, I'm just trying to think about the impact of recent developments you've had in that business. I think you recently boosted your sales force to 50 reps and you recently received CIGNA reimbursement. Did either of those impact Q3 or should we think about those as kind of developments or tailwinds for 2019? Thanks.
G. Bradley Cole -- Chief Financial Officer
Think of those as going forward. The reps were higher July August, it takes what months certainly and couple of quarters for them to be fully effective. So we think we'll start to see some effect in the fourth quarter and the primary benefit will now come in 2019 on both fronts, both Cigna and the expansion of the field team.
Adam Wieschhaus -- Cowen and Company -- Analyst
Okay, great.
Operator
Thank you. Our next question comes from Tycho Peterson with JPMorgan.
Tejas Rajeev Savant -- JPMorgan -- Analyst
Hi guys, this is Tejas on for Tycho. Just one quick follow-up here on AR-V7 traction once the LCD is in place. How should we think about you penetrating that opportunity in 2019. Can you perhaps help us sort of dimension some of the upside drivers to how you can go about penetrating that versus perhaps what might be a slow start out of the gate with a ramp in the back half of the year. Just trying to bookend the possibilities for next year for AR-V7 now that you have reimbursement from Medicare.
G. Bradley Cole -- Chief Financial Officer
Well, I think it's a little early to be giving ranges and possibilities, but clearly we're delighted that the LCD is in place, Half the market is driven by -- is Medicare age eligible. So the revenue generation will come quickly much like it did in prostate with test volume. We do think it's important. An important driver of uptake will be that there's coverage in place. So privates will be important. So we enter the year with just Medicare and so we don't think the other half of the market is going to grow like the Medicare market, it could grow, but it is going to take some time. So we'll be more prepared with a couple of months behind us with coverage to have that discussion in February.
Kimberly Popovits -- Chairman of the Board, Chief Executive Officer & President
Yes, I just might also add on to that to keep in mind that product will be sold by both our sales forces. So we have both the medical oncology sales force and the urology sales force on it, so a good field force.
Tejas Rajeev Savant -- JPMorgan -- Analyst
Got it. That's helpful and then just a follow-up there on the breast cancer side of US, do you still expect the EAG recommendation to be in place or rather the reimbursement part of that to be in place by year-end and sort of the door (ph) for Germany as well or is there a possibility here that despite the favorable recommendations that the actual coverage might be more of 1Q '19 or 2Q '19 event?
G. Bradley Cole -- Chief Financial Officer
I think all possibilities are possible. Given our experience with international reimbursement and spend, we eventually get it, but it takes time and so again, we're delighted that IQWiG is positive, G-BA has agreed to make some decision here in the fourth quarter, which we expect to be positive. Could it go into Q1? Yes. Could it go into Q2? We don't think so, but yes, it could.
Kimberly Popovits -- Chairman of the Board, Chief Executive Officer & President
Even if they make a decision in December, the impact will be next year. (multiple speakers) We are not expecting any impact in 2018.
G. Bradley Cole -- Chief Financial Officer
I mean it is an administrative process to finalize things regardless.
Tejas Rajeev Savant -- JPMorgan -- Analyst
Got it. And then one final one here for me, just on the outlook, I mean you increased your sort of revenue numbers here by $8 million to $9 million, but your net income went up by a lot more about $21 million, $22 million or so. Is any of this related to perhaps a slight push out in your investment timeline and the IVD development sort of project that you had going on or perhaps some other business process enhancements or is it just good operating leverage this quarter and you are being sort of relatively conservative in terms of your spending plans for the next few quarters or -- just trying to get some sense around the leverage that you're seeing here on the revenue line versus the net income line?
G. Bradley Cole -- Chief Financial Officer
I think you make good observations. I think the primary driver of more income dropping to the bottom line than the revenue growth is really the fact that in the first half of the year, we had already exceeded and we are on track to exceed our guidance. We have had the kind of efficiencies we're hoping for were coming to fruition and revenue growth was beating our expectations, which is why the bottom line was so much better through the first half of the year and that just continued into the third quarter. So it's primarily the cumulative effect of that when we are now adjusting our guidance late in the year. It's not so much investment (ph) getting pushed out although we have a lot of investments to make, it isn't obvious that we've been able to execute on all of them in the time frame we would like to. So some spending has been lighter than expected as well, but it's not been the primary driver.
Tejas Rajeev Savant -- JPMorgan -- Analyst
Got it. Thanks so much guys.
Operator
Thank you. Our next question comes from Mark Massaro with Canaccord Genuity. Please go ahead.
Mark Massaro -- Canaccord Genuity -- Analyst
Guys, thanks for the questions and congratulations on the strong beat on top and bottom. I guess my question is really around TAILORx, the volumes are the strongest I have seen in years. I know you guys did quantify the impact from TAILORx on volumes, but should we be thinking of maybe low-double digit volumes as almost a pro forma growth rate as we contemplate our models into 2019. I'm just curious as to what the duration of this uptake in volumes is from TAILORx?
G. Bradley Cole -- Chief Financial Officer
Let me restate what we really think the volume kind of baseline volume was this quarter, we reported 12% growth in tests delivered. If you look back to the prior year and the comparative quarter, there was what we believe a hurricane effect when we had a pretty soft Q3 a year ago. We think that took about 3% out of third quarter of last year. So we think the 9% is the real apples-to-apples growth that we're reporting here, 6% of that we believe is from TAILORx. So we've been growing at 3% to 4% sans TAILORx data. So going forward, do we think we can be in the high-single digits? Yes, I think for a while, we felt that way and I think we were signaling that in late '16 if TAILORx had come at ASCO in '17 that we would move into the high-single digits. And so I think we're more comfortable there Mark than we are in the low-double digits, but you know, time will tell and we've got a lot of work to keep the momentum going too. It's certainly -- there was a lot of attention paid to the results as there should have been and I think we have to invest in programs and education and keeping people at the forefront to keep that momentum going.
Mark Massaro -- Canaccord Genuity -- Analyst
Great and then just on the gross margin metric came in at very close to 85%, is that a reasonable run rate to think going forward recognizing that you may be incurring some additional costs through that line into next year, especially on the IVD front?
G. Bradley Cole -- Chief Financial Officer
I think that is a higher figure than we're going to put up going forward, I'm thinking more like 84% for the year. Keep in mind that as delighted as we are with the LCD approval of AR-V7 that we're in a situation where margins there because of the collaboration with Epic are significantly less on that product. So it will be a small contributor to overall revenue next year, a significant contributor to growth we anticipate, but it will have a bit of a drain on gross margin rate, given that the rate of gross margin there is going to be significantly less. That's just one factor. The other factor is that 85% reported in the these 90 days includes $2 million of year-to-date catch up on revenue. If you back that out, the gross margin rate isn't 84.9%, but it's something below 84.5%. So 84% is a more normal number and then we've got to layer in AR-V7 and we're going to continue to invest in efficiencies and programs to generate higher ASPs and keep our costs under control. So we expect a significantly good gross margin rates, but aren't anticipating 85% for the reasons I just gave.
Mark Massaro -- Canaccord Genuity -- Analyst
Great and then I know that your goal on the EBITDA line on an adjusted basis was to exceed $50 million this year, you've already done that, plus $2 million -- $52 million through nine months. I know you've given the net income range, but where do you see yourself finishing the year on adjusted EBITDA?
G. Bradley Cole -- Chief Financial Officer
You know, $70-ish million. We're at $52 million. Our implied Q4 non-GAAP net income range is $10 million to $12 million and we've got about another $8 million a quarter of other non-cash items such as depreciation, amortization and stock comp. So, we reported $22 million. If we just repeat the $22 million from (ph) this quarter, we'll be at $74 million. So we're pretty confident about $70 million of EBITDA.
Mark Massaro -- Canaccord Genuity -- Analyst
Great and I might have missed this earlier, I hopped off, but can you provide any update on your expectations around additional commercial payer coverage decisions over the next couple of quarters?
G. Bradley Cole -- Chief Financial Officer
You didn't miss anything because nobody asked that, but we continue to expect like the GPS, the prostate, we've had traction this year and we expect to continue to have wins throughout 2019. We expect to have some progress with AR-V7 payers in the private market in the US and then there's international markets. So we commented on G-BA, we expect a decision in the fourth quarter and we may be fortunate enough that sometime late in 2019 to see some more progress in France as well. (multiple speakers) Emily is reminding me that NICE is updating their policy -- it is up for renewal. We are confident that it will include us and that should come out in the next number of months.
Mark Massaro -- Canaccord Genuity -- Analyst
Great and if I can sneak one last one in, I guess for you, Kim, what has surprised you the most about the TAILORx decision in terms of the uptake? Could some of it be potentially bleeding into the international markets and any surprises at all would be helpful as we think about modeling et cetra.
Kimberly Popovits -- Chairman of the Board, Chief Executive Officer & President
Yes, I don't know if I would say there are surprises, I think maybe the surprise was how rapidly NCCN moved to change their guidelines, the immediate impact we saw with IQWiQ. We absolutely feel that will have an impact on G-BA, of course. We think that NICE has taken pause with their original guidelines and taking a look at this and incorporating it. So it's very clear that those that are monitoring guideline standard of care have taken the data and are making some pretty important decisions with it. We I would say anecdotally very positive reception from customers and I would also note that we haven't even yet launched the new report. So that will be a year-end focus for us. We have built a new report that we think is going to simplify things for physicians. We know that one of the biggest push backs before addressing the question on the intermediate range group was from the very base of customers that where we can achieve the greatest penetration increase. So just the early work that we've done with them, we're seeing a big impact in movement there. So we believe that will continue. Launching a new campaign, launching a new report, we think San Antonio is going to be a fantastic meeting for us doing a record number of programs. So momentum is strong and we're just very encouraged with the positive feedback we're getting.
Mark Massaro -- Canaccord Genuity -- Analyst
Thanks so much. See you next week.
Kimberly Popovits -- Chairman of the Board, Chief Executive Officer & President
Okay, great. Looking forward to it.
Operator
Thank you. And we will now conclude the Q&A portion of the call. At this time, I will now like to turn the call back over to Kim Popovits.
Kimberly Popovits -- Chairman of the Board, Chief Executive Officer & President
Well, thank you for joining us today and always for your interest in Genomic Health. We'll look forward to seeing some of you next week at the Canaccord Conference and then as well in San Antonio in December.
Operator
And this concludes today's third quarter 2018 financial results conference call for Genomic Health. You may now disconnect.
Duration: 41 minutes
Call participants:
Emily Faucette -- Vice President of Corporate Communications and Investor Relations
Kimberly Popovits -- Chairman of the Board, Chief Executive Officer & President
G. Bradley Cole -- Chief Financial Officer
Brandon Couillard -- Jefferies -- Analyst
Mitchell Frank Petersen -- Barclays Bank PLC, Research Division -- Analyst
Adam Wieschhaus -- Cowen and Company -- Analyst
Tejas Rajeev Savant -- JPMorgan -- Analyst
Mark Massaro -- Canaccord Genuity -- Analyst
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