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Genomic Health, Inc. (NASDAQ:GHDX)
Q4 2018 Earnings Conference Call
February 20, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Michelle and I will be your conference operator today. At this time, I would like to welcome everyone to the Genomic Health fourth quarter and full year 2018 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require operator assistance for today's conference, please press * then 0 on your touchstone telephone. As a reminder, this conference is being recorded.

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

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 fourth quarter and year end 2018 financial results. Joining me today to make prepared remarks are Kim Popovits, our Chairman of the Board, Chief Executive Officer, and President, Brad Cole, our Chief Financial Officer, and Steve Shak, our Chief Scientific Officer. 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. I'll now turn the call over to Kim.

Kimberly Popovits -- Chairman of the Board, Chief Executive Officer and President

Thanks, Emily. Good afternoon, everyone and welcome. 2018 was a record year for Genomic Health. We delivered $394.1 million in revenue or growth of 18% and $39.7 million in profit on a non-GAAP basis compared to a $1.6 million loss in 2017.

In doing so, we exceeded both top and bottom line expectations for the year and delivered our 14th consecutive quarter of improved non-GAAP profitability. This strong performance reflects increasing global demand and revenue for our Oncotype DX breast recurrent score test and continued adoption and growing reimbursement for our Oncotype DX Genomic Prostate Score or GPS test as well as success in driving operational efficiencies across our business.

In collaboration with divisions around the world, we have now delivered more than 1 million Oncotype DX tests to cancer patients. Since launching in 2004, more than 53,000 physicians in 90 countries have used Oncotype DX to optimize treatment decisions for patients with breast, prostate, and colon cancers. With this impressive and rewarding achievement, we are delivering on the promise of precision medicine by improving outcomes for cancer patients while saving healthcare systems around the world billions of dollars.

I'd like to take a moment to highlight the important accomplishments that drove this year's strong performance and position us for continued growth in 2019. In our core invasive breast cancer business, we've reached a long-awaited clinical milestone and business catalyst with the publication of the landmark TAILORx trial. They used Oncotype DX to precisely define the effect of chemotherapy for all early stage breast cancer patients. These practice-changing results are already making an impact on elevating Oncotype DX to a new global standard of care with increasing traction among physicians with high-growth potential to use Oncotype DX more consistently for all medically eligible patients.

Additionally, exclusive guideline endorsements from NCCN and IQWiG in Germany and an expanded recommendation from NICE in the UK globally distinguish Oncotype DX from other genomic tests based on clinical evidence and the critical importance of predicting chemotherapy benefits. With an anticipated reimbursement decision from GBA in Germany in the coming months combined with continued TAILORx momentum, we expect to drive meaningful growth in our core invasive breast cancer business in 2019.

I'd now like to turn to our urology franchise, where we have two market-leading prostate cancer tests representing a growth opportunity greater than $500 million. With strength in NCCN guidelines for the Oncotype DX GPS test and additional data reinforcing its clinical utility, we secured multiple private reimbursement decisions this year, including a top five national payer.

This brings the total number of US covered lives to more than 100 million. In early 2018, we launched the Oncotype DX AR-V7 Nucleus Detect test to help physicians select the most effective treatment for patients with metastatic castrate-resistant prostate cancer.

Medicare's final local coverage determination or LCD became effective in December, establish coverage for approximately half of the 50,000 eligible patients in the United States each year. We expect this to have a positive impact on both test and revenue growth in 2019.

Now, updating our progress to broaden global access and expand our business through the development of a sample to answer version of the Oncotype DX Breast Recurrent Score test on the Idylla platform, in 2018 we completed and met our goals for technical feasibility, recruited clinical validation sites in France and Germany, and expect to place IBD instruments at those sites in 2019.

Based on the successful progress in December, we expanded our exclusive collaboration with Biocartis to include urology for the development of an IDV version of our Oncotype DX GPS test here in the United States. This decision reflects our confidence in the Idylla platform as a best in class solution to acceleration access to Oncotype tests around the world and diversify our test portfolio for longer-term growth.

Finally, I would like to highlight an exciting appointment to our executive management team with the promotion of Dr. Rick Baehner to Chief Medical Officer. Rick has served cancer patients for more than 20 years at the University of California, San Francisco and began his career at Genomic Health 17 years ago. He has held various leadership roles at Genomic Health, most recently as Vice President of Oncology and Pathology Development. As Chief Medical Officer, Rick will oversee our global medical and pathology organizations reporting directly to Fred Pla, our Chief Operating Officer.

I'll now turn the call over to Brad to provide further detail on our fourth quarter and year-end financial results. Brad?

G Bradley Cole -- Chief Financial Officer

Thanks, Kim. We are very pleased with our fourth quarter and full year 2018 financial results. We delivered double-digit revenue growth across all key product lines and significantly improved our profitability and operational efficiency. And with our strong fourth quarter results, we exceeded expectations for the year while achieving our 14th consecutive quarter of improved non-GAAP profitability.

As a reminder, effective January 1st, 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 year's 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 1st, 2017, which we will refer to as the pre-ASC 606-adjusted figures in our comparative comments.

I will begin with our full year results. Total revenue was $394.1 million in 2018, an increase of 18% compared with pre-ASC 606 adjusted revenue of $334 million for 2017. The implementation of PAMA, a positive driver for our US invasive breast price in particular and the new revenue recognition accounting standard under ASC 606 positively impacted full year 2018 revenue by approximately 4%. Excluding these effects, overall revenue growth on an adjusted basis was 14% in 2018.

Test volume drove 8 points of growth and reimbursement improvements contributed another 6 points of growth. GAAP net income for the full year was $25.7 million, an improvement of $29.6 million, compared with a net loss of $3.9 million in 2017. On a non-GAAP basis, net income was $39.7 million for the year, an improvement of $41.3 million compared with a $1.6 million non-GAAP net loss in 2017. In 2018, our gross margin rate was 84%, consistent with 2017 and our expectations for the full year 2019.

Now, turning to our fourth quarter results, total revenue was $104.6 million for the quarter, an increase of 22% compared with pre-ASC 606 adjusted revenue of $85.7 million for the fourth quarter of 2017. This fourth quarter revenue result includes approximately $3.5 million on a year to date basis to reflect ASC 606 portfolio adjustments. Without this adjustment, fourth quarter revenue would have been $101.1 million in line with our recent expectations in revenue growth would have been 18%.

GAAP net income for the quarter was $8.9 million, an improvement of $7 million compared with the same period in 2017. On a non-GAAP basis, net income was $12.4 million for the quarter, an increase of $9.5 million compared with the fourth quarter of 2017. In the fourth quarter, we delivered more than 35,530 Oncotype tests, an increase of 11% compared to a year ago, following the third quarter, which also posted year over year double-digit test growth.

The double-digit test growth is a result of global invasive breast strength following TAILORx results and strength in US GPS prostate test growth, which increased 19% as compared to the fourth quarter last year. Sequentially, GPS test growth was up 9%, lifted by early contributions from our recent urology salesforce expansion. For the full year, we delivered more than 136,380 Oncotype tests, an increase of 8% compared to 2017, led by GPS growth of 23%.

I will now walk you through the results across each of our key product lines. US invasive breast cancer revenue was $299.4 million for the year, an increase of 18% compared to pre-ASC 606 adjusted revenue of $254 million for 2017. In the fourth quarter, revenue was $79.3 million, an increase of 22% compared to pre-ASC 606 adjusted revenue of $64.7 million for the same period in 2017. US invasive breast cancer test volume increased 7% for the year and 9% year over year for the quarter. This strong growth in the back half of the year was driven by TAILORx.

International Oncotype DX product revenue was $59.4 million for the year, an increase of 14%, compared with pre-ASC 606 adjusted revenue of $52 million for 2017. On a non-GAAP constant currency basis, international revenue for the year grew 12%. In the fourth quarter, international revenue increased 19% to $16 million, compared to pre-ASC 606-adjusted revenue of $13.4 million for the same period in 2017.

On a non-GAAP constant currency basis, international revenue for the quarter increased 21%. As we experienced in the US, TAILORx results continue to have a strong impact internationally. The number of international tests delivered in the fourth quarter grew 15% compared with the same period in 2017 and represented 24% of total test volume in the quarter.

For the full year, international test volume increased by 4%, which represented 24% of total test volume in 2018. Excluding Germany and Italy, annual international test growth was up 13% for the year. US prostate revenue was $26.8 million for the year, an increase of 50% compared with pre-ASC 606 adjusted revenue of $17.9 million for 2017 and led overall company test growth in 2018.

During the fourth quarter, revenue grew to $7.4 million, increasing 48% compared to pre-ASC 606-adjusted revenue of $5 million for the same period in 2017. US prostate test volume increased by 23% for the year and 19% year over year for the quarter. We believe class penetration now exceeds 30% and growing with the Oncotype DX GPS tests continuing to the be the market leader in low and intermediate risk prostate cancer test adoption and revenue.

We delivered more than $72 million in adjusted EBITDA for the full year, significantly exceeding expectations from the beginning in 2018. These improved financial results have further translated into a significant increase in our cash position at the end of 2018. Cash and cash equivalents as short-term marketable securities at December 31, 2018 were $209.8 million, an increase of $80.2 million from last year.

Turning now to 2019 guidance, we are guiding to total revenue of between $436 million and $438 million, representing growth between 11% and 14% compared with 2018. It is important to note that without the effect of PAMA and the new revenue recognition standard, full-year revenue growth in 2018 would have been 14%, consistent with the high-end of our 2019 revenue guidance.

Non-GAAP net income between $54 million and $60 million representing growth between 35% and 50% compared with 2018. This level of net income growth is consistent with our commitment to 40% operating leverage. With our anticipated double-digit revenue growth range and even greater net income growth in 2019, we expect to deliver more than $90 million in adjusted non-GAAP EBITDA for the full year 2019.

The high end of our 2019 revenue guidance range is based on the following -- in our US invasive breast business, mid to high-single-digit volume growth contributing to approximately 30% of expected company revenue growth for the year. For prostate GPS, continued volume growth of approximately 20% and additional pricing strength from the new CMS PLA code, driving revenue growth above 30% all together contributing approximately 20% of expected company revenue growth for the year.

For our international business, revenue growth above 50%, driven by test volume growth above 25% and expanded public reimbursement coverage in Germany beginning in the second half. This would contribute to approximately 40% of expected revenue growth for the year. Additionally, we expect our AR-V7 tests for metastatic prostate cancer will make its first contribution to revenue with our first full-year of medical coverage.

The low end of our 2019 revenue guidance range is based on volume growth below high-end guidance estimates and in delay in German public reimbursement. We expect greater year over year revenue growth in the first half of 2019 when compared to our expectations for the second half of 2019. This is a result of the strong uptick in the second half of 2018 following the publication of TAILORx results in June. We expect to deliver our 15th consecutive quarter of year over year improved non-GAAP profitability in the first quarter.

I'd like to remind you the expected increase in expenses from the fourth quarter of 2018 to the first quarter of 2019 is in line with our historical trend, primarily due to personnel costs being reset in the new year and training and education programs that are more concentrated in the early part of each year.

We have entered 2019 with strong momentum in our business and expect to deliver revenue growth between 11% and 14%, significantly greater improvement in our profitability for the full year with continued operating leverage and non-GAAP operating income as a percent of revenue above 10%.

Additionally, we expect 2019 operating margin expansion to deliver net income growth between 35% and 50% for the year on a non-GAAP basis. We believe we are well-positioned to drive further adoption and reimbursement across our Oncotype IQ portfolio globally and even greater improvement in profitability for the full year.

I will now turn the call over to Steve to discuss our recent clinical milestones and clinical data.

Steven Shak -- Chief Scientific Officer

Thanks, Brad. The positive TAILORx results made 2018 a momentus year for the advancement of personalized breast cancer treatment. In meeting its primary endpoint, this study, presented in the plenary session at ASCO and simultaneously published in the New England Journal of Medicine provides the highest level of clinical evidence for Oncotype DX, defining a new standard of care.

TAILORx established that Oncotype DX definitively identifies the vast majority of women with early stage breast cancer who receive no benefit from chemotherapy and also the important minority for whom chemotherapy can be life-saving.

In addition, TAILORx also confirmed that patients will be frequently mistreated when decisions are based on clinical risk features alone, specifically 25% of patients with a low recurring score from zero to 25 had high clinical risk. Therefore, based on clinical risk alone, patients would be significantly over-treated without Oncotype DX. Conversely, 43% of patients with a high recurring score from 26 to 100 had low clinical risk. Therefore, based on clinical risk alone, patients would be significantly under-treated despite their cancer having a high likelihood of a preventable distant recurrence that is much more difficult and expensive to treat.

The practice-changing impact of this largest ever breast cancer treatment trial is further supported by rapid guideline changes, including exclusive endorsements from NCCN now recommending Oncotype DX as a preferred test and IQWiG, which we expect will lead to broad national reimbursement later this year in Germany.

Applying the patient criteria from TAILORx, NCI-sponsored investigators recently conducted a new analysis in 569 patients from its previously completed NSABP B20 study, reconfirming that Oncotype DX predicts which patients with early stage HER2-negative breast cancer will derive life-saving benefit from chemotherapy treatment. The new results published in the Nature Partner Journals-Breast Cancer show a large statistically significant benefit from the addition of chemotherapy to hormonal therapy in patients with recurrent score results of 26 to 100.

With unparalleled evidence from randomized patients in this NSABP analysis and the landmark TAILORx trial, physicians can now tell every patient more confidently based on Oncotype DX whether they should receive chemotherapy or not. It has never been as clear.

In addition, Oncotype DX is the only test that improves the outcomes and lowers cost compared to other prognostic tests or to no testing at all. Multiple studies have consistently shown that Oncotype DX's cost savings and its use has delivered billions of dollars in healthcare savings globally to date. When we started offering Oncotype DX, more than 70% of women were being treated with chemotherapy. We now know based on TAILORx that a great many patients were being overtreated.

With the use of Oncotype DX over the past 15 years, we are seeing increasing de-escalation of unnecessary chemotherapy in clinical practice and the associated cost savings to the healthcare system. Just this month, a health economics analysis was published in the Journal of Comparative Effectiveness Research indicating that Oncotype DX is the only genomic breast cancer test associated with both a reduction in distant recurrences and a decrease in chemotherapy utilization, lowering both unnecessary toxicities and healthcare costs.

At the San Antonio Breast Cancer Symposium in December, results from multiple presentations reinforce the value of Oncotype DX in optimizing treatment and outcomes in patients with node negative and node positive disease. This new data included two independent analysis, led by TAILORx investigators, which provided further information about the value of the recurrent score result regardless of race or ethnicity, and highlighted the negative impact of chemotherapy on patient quality of life.

Real world evidence from an analysis of more than 70,000 patients with node-negative disease in the SEER Registry who are treated based on the Oncotype DX breast recurrent score results were consistent with the findings of TAILORx. Importantly, an analysis of more than 10,000 patients with node-positive disease in the SEER registry who are treated based upon the recurrent score results indicated that the node-negative results can be extrapolated to node-positive disease. Specifically, low recurrent score results identified node-positive patients for whom hormonal therapy alone is an appropriate option.

Finally, a multi-center prospective study in 500 young women with node-positive and node-negative breast cancer demonstrated very good outcomes for those with a recurrent score up to 25 who were not treated for chemotherapy, reinforcing the value of testing in patients age 40 or younger.

It is notable at San Antonio that there were many presentations by leaders in the field that highlighted the importance of the updated NCCN guidelines and the preference for Oncotype DX over other prognostic tests. In addition, over the last six months, dozens of independent medical education programs around the world have highlighted the TAILORx results and Oncotype DX has practiced changing, setting the new standard of care.

Several leading organizations, including the New England Journal of Medicine and the National Cancer Institute have identified the TAILORx study as one of the top medical advances in the year 2018.

Turning now to prostate cancer, last month, the Journal of Urology published results of a multi-center study in men who elected immediate radical prostatectomy after receiving the Oncotype DX genomic prostate score. With these results, GPS became the first genomic test with prospective validation for predicting adverse pathology in newly diagnosed patients.

This also represents the third published validation study of the Oncotype DX GPS test to predict adverse pathology at the time of radical prostatectomy as well as the first truly prospective validation of this critical endpoint. Providing more precise estimates of disease aggressiveness beyond clinical factors the GPS tests can help physician who are appropriate for active surveillance, while importantly, identifying men with more aggressive disease who may consider immediate surgery with more confidence.

In fact, 90% of both physicians and patients reported that GPS testing provided increased confidence in treatment decision making. With this unparalleled suite of evidence supporting the Oncotype DX test in both our oncology and urology franchises, we believed we are well-positioned to continue increasing physician adoption and patient access to our tests around the world.

I'll now turn the call back to Kim.

Kimberly Popovits -- Chairman of the Board, Chief Executive Officer and President

Thanks, Steve. We founded Genomic Health nearly 20 years ago with the goal of improving the quality of treatment decisions for cancer patients by ending a one-size-fits-all treatment approach. In delivering our one-millionth Oncotype DX test, we have spared cancer patients around the world from either over-treatment or under-treatment of their disease.

Looking ahead to 2019, we expect to deliver double-digit revenue growth and even greater improvement in profitability for the full year by continuing to increase penetration of our Oncotype DX test and broadening global access with national reimbursement. We expect the TAILORx publication to have a practice-changing impact globally and look forward to national reimbursement progress in key European markets, including Germany.

We plan to increase adoption and private reimbursement of our Oncotype DX AR-V7 nucleus detect test now that we have Medicare coverage. And finally, we intend to continue to diversify our portfolio and expand the menu of tests that we deliver globally through multiple platforms and partnerships, leveraging our established oncology and urology channels.

With these catalysts, we are well-positioned to continue to drive both near and long-term shareholder value as we continue to pursue our mission of developing and delivering high-value tests to help physicians and the next million patients around the world make confident individualized treatment decisions that result in improved outcomes.

I'd now like to open the line for your questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, if you have a question at this time, please press * then the number 1 on your touchstone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the # key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. We also ask that you limit your questions to two. If time permits, we will come back to those who have reentered the question queue.

Our first question comes from the line of Doug Schenkel with Cowen and Company. Your line is open. Please go ahead.

Adam Wieschhaus -- Cowen and Company -- Analyst

Hi, there. This is Adam Wieschhaus on for Doug. Thanks for taking my questions. Your overall average revenue per test in breast took another sequential step up this quarter. How much of a sequential ASP increase in Q4 was driven by ASC 606 versus other dynamics such as revised contracts or improved collections?

G Bradley Cole -- Chief Financial Officer

A majority of it was a result of ASC 606 on a sequential basis. In my prepared remarks, I said there was about $3 million in the quarter that was a year to date adjustment and that was virtually all in the IBC area. So, virtually all of it was through that.

Adam Wieschhaus -- Cowen and Company -- Analyst

Okay. That's helpful. I don't think you're guiding to any improvements in gross margin in 2019 despite expecting some reimbursement improvement both in US and internationally. Can you provide any color on why you don't see any further growth in the gross margin line in 2019? Thanks.

G Bradley Cole -- Chief Financial Officer

Primarily, it's a function of costs go up and we've shown operational efficiencies even in our lab processing over the years. But the growth is primarily coming out of international markets where the ASP is lower. Also, the margin on our AR-V7 test is lower than the average for the company. So, most of the growth is coming in areas where the margins are below the 84%. So, we're seeing improvements in areas, certainly, but it's a mix. The mix is changing a bit.

Operator

Our next question comes from the line of Mark Massaro with Canaccord Genuity. Please go ahead.

Mark Massaro -- Canaccord Genuity -- Managing Director

Thanks. Brad, can you give us a sense of the 11% to 14% guide for '19, it comes in above the Street at the midpoint. You referenced the four points of contribution largely as a result of the panel last year. On an apples to apples basis, is it right to think that X the one-time bump from PAMA that revenue growth would be more like 15% to 18% for 2019 just on an apples to apples basis?

G Bradley Cole -- Chief Financial Officer

Yes, Mark. I think I flipped it the other way for apples to apples. If you look at '18 through the lens of '19 where you don't have the uplift from PAMA, '18 would have been 14% at the high end of where we're guiding for '19. We're not going to get a lift from PAMA although PAMA stays in place. On a year over year basis, there's no lift. ASC 606 was a one-time minor contributor.

So, the high-end of our guidance at 14% reflects the same level of growth on the topline on apples to apples basis as we delivered in '18, which exceeded expectations at the beginning of the year. So, a really robust year in '18 to be followed by what would be at the high-end of guidance an equivalent year of growth.

Mark Massaro -- Canaccord Genuity -- Managing Director

Great. You talked about Germany, your hopes for Germany to kind of come on more meaningfully in the second half of '19. Can you just remind us exactly what needs to happen there? Related to that, can you also talk about your expectations for reimbursement in France in the back-half?

G Bradley Cole -- Chief Financial Officer

So, what has to happen in Germany, the first step has already happened. IQWiG had to evaluate on a technical basis whether this was ready for primetime. That recommendation happened in September, where they recommended only Oncotype to go forward for coverage. That's been pushed forward to GBA, which is the healthcare policy body, which will make a determination, we believe, early this year, certainly in the first half regarding multi-gene assays and particular Oncotype.

Once that happens, within a very short period of time, they'll begin reimbursing at an established rate, which should happen in 60 days or so of the coverage decision and we'll get paid at that new rate. Eventually, there's a code that will be assigned usually within six months and then at code will become how we reply billing most likely in 2020. So, we're expecting something in the short-term. GBA meets from time to time and puts agendas out in advance. So, we would expect there to be an agenda coming forth in the next month or two.

Mark Massaro -- Canaccord Genuity -- Managing Director

One last one for me -- on AR-V7, I believe that your expectations were for a price somewhere in the $3,000.00 range. Can you just give us an update? I might have missed it, but what are your expectations for revenues on AR-V7 in 2019?

G Bradley Cole -- Chief Financial Officer

Experiences for revenue on AR-V7 are up to about $5 million. You are right about reimbursement. The CMS reimbursement, which went into effect late in December was above $3,000.00, as expected.

Mark Massaro -- Canaccord Genuity -- Managing Director

Thanks, guys. Congrats on a great year.

Operator

Thank you. Our next question comes from the line of Dan Leonard with Deutsche Bank. Your line is open. Please go ahead.

Nathan Treybeck -- Deutsche Bank -- Analyst

Hi, this is Nathan Treybeck on for Dan Leonard. Can you talk about how we should think about the pacing of growth of US invasive breast in 2019 given that you're kind of lapping TAILORx in the second half? Thanks.

G Bradley Cole -- Chief Financial Officer

So, I think it's a fair topic given that in our prepared remarks, we talk about the first half being stronger, given that we lapped the TAILORx result in June. So, the back-half of the year will be comparing to the significant uptick, the 7% to 10% uptick in our business immediately in the US and more than 10% outside the US that happened in Q3 and Q4 on a sequential basis. So, the first half, we'd expect revenue growth to be high single-digits and in the back half of the year, more the mid-single-digits. Our guidance was mid to high for the year, but it's going to be a dichotomous year in terms of growth because the TAILORx event happened in the middle of the year.

Operator

Thank you. Our next question comes from the line of Tycho Peterson with JP Morgan. Your line is open.

Tejas Rajeev Savant -- JP Morgan -- Analyst

Hey, guys. This is Tejas on for Tycho. Thanks for taking the questions. So, to start off, I know Kim and Brad, you spoke about Germany potentially coming in in the second half on reimbursement. Can you just talk a little bit about the situation in the UK following the NICE update that we got and the expansion of the recommendation for patients including micrometastases. How should we think about that impacting test volumes and revenue this year? Ditto for France -- I believe their body was also supposed to come in at some point in 2019. Does that fill the expectation?

G Bradley Cole -- Chief Financial Officer

Yeah. So, the UK continues to be a strong market for us. NICE did renew their coverage determination. So, we had continuous coverage for the Oncotype tests and they even expanded to cover micrometastases, as you mentioned. We expect continued growth out of the UK. Penetration rates there in the 40% range. There's still plenty of room to growth. The indication and reimbursement continues. UK is an important market, not only in Western Europe, but to our international business overall.

We did expect and do expect the French would make a coverage determination this year. They have recently decided to hold judgement and have made a -- I think in a sense they've delayed a final decision, but we are in conversation with them about determination. It currently sits, much like other countries, initially negative, and we believe over time we can turn that to the coverage determination during 2019.

It's important to point out even in France that even while the final determination of coverage is worked out, there's interim funding that stays in place and has been renewed for next year. It's minimal, doesn't move the needle much but it does allow patients to get access, albeit limited in France for the time being.

Tejas Rajeev Savant -- JP Morgan -- Analyst

That's helpful. Then in terms of the prostate ramp, obviously you have about 100 million lives covered, you have the salesforce expansion now behind you, and also the prospective validation study results that should help. How should we think about the ramp here? Is that 20% growth number perhaps too conservative? Can we see upside to that in 2019?

G Bradley Cole -- Chief Financial Officer

We'd like to think we can see upside to it, yes. But 20% growth in the market as it gets more penetrated -- there continues to be competition where we continue to win, but we believe this year is another year of 20% growth. We did expand the footprint of the salesforce. That gives us more confidence in the 20% and I guess it could give us more confidence and upside to that number, but 20% growth is what we're comfortable with.

I'll remind you that we also have a new price from CMS through a PLA code that was assigned in the fall as effective last month, which raises the level of reimbursement by about 15% for the GPS test from Medicare, which represents about half the patient population. Private coverage is growing, but not yet at the level that we think can make a difference.

Tejas Rajeev Savant -- JP Morgan -- Analyst

Just one final one here on OpEx spending in 2019 -- can you just highlight what are the key areas of investment for you? I believe half of R&D will be related to Biocartis and the IVD development process, but beyond that, any other major buckets to call out either in terms of salesforce expansion or other pipeline initiatives?

G Bradley Cole -- Chief Financial Officer

No. I think you have it about right. We're not expecting a large increase in spending to deliver the 35% to 50% bottom line in revenue growth and 40% leverage on incremental revenue requires that we grow the expenses at about half the level of revenue growth. So, growing expenses between 5% and 7%.

We have to be very selective in where we make investments, given that we have an employee base to support. The primary focus in R&D is on the IVD program, both our Oncotype DX breast, but also we've just recently exercised our option with Biocartis for the prostate platform in urology.

We'll be doing some early work on that. The primary investment in R&D will be that. Beyond that, we've got a full-year of the urology salesforce expansion in the US to pay for and we're also building out some sales and marketing capability around the German opportunity and getting ready for the IVD launch in 2020. It's not just an R&D spend line. So, sales and marketing will also grow somewhat during 2019.

Tejas Rajeev Savant -- JP Morgan -- Analyst

Thanks so much, guys.

Operator

Thank you. Our next question comes from the line of Lila Yousef with Oppenheimer. Your line is open. Please go ahead.

Lila Yousef -- Oppenheimer -- Analyst

Thank you very much for providing us an update. I'm on on behalf of Kevin Degeeter. So, my first question is in case we missed it, in terms of 2019 revenue guidance, can you provide us with a little more granularity on how much of the range is associated with the US versus international markets, especially when establishing the high end and lower end of this range?

G Bradley Cole -- Chief Financial Officer

Yes. So, about 40% of the growth, maybe above 40% is going to come from international markets. So, the great uptick we saw in the international markets post-TAILORx we believe is going to continue throughout the year, particularly in markets where penetration levels aren't like the US. So, there's a large opportunity for growth outside the US and in particular with German reimbursement anticipated will contribute to revenue in ways it hasn't in the past.

So, look for the international markets to contribute the majority or be the biggest contributor of overall revenue growth. But USIBC is still a significant contributor, as is GPS in the US. Those are the three biggest ones. If you rank them, certainly international would be the largest contributor to revenue growth at the high end of guidance.

Lila Yousef -- Oppenheimer -- Analyst

Great. Thank you. In terms of international revenue, should we think about this growth of being more back-end loaded or more consistent throughout 2019.

G Bradley Cole -- Chief Financial Officer

Well, I think it's like the rest of the business, front-end loaded, partly because we're not comparing back to the TAILORx numbers or any adjustments in our portfolios that happened later in the year, but primarily front-end loaded. As a whole to the business, it's probably about a 3% differential in year over year growth rates from first half into the second half. It will decelerate some as a result of the comparison back to the TAILORx quarters in the back-half of '18.

Operator

Our next question comes from the line of Bill Quirk with Piper Jaffray. Your line is open. Please go ahead.

Bill Quirk -- Piper Jaffray -- Managing Director

Thanks. Good afternoon, everybody. First question is just on the expected expanded German reimbursement -- can you elaborate on why you wouldn't build out the sales team a little more to try to take advantage of that?

G Bradley Cole -- Chief Financial Officer

Well, we are making some investments in the German team, but we had quite a large footprint there to begin with, but we are making some incremental investments, but it's not a large step-up. We're doing that even in advance of the GBA decision and in advance of full reimbursement. So, we're ready to go. We demonstrated that that market can be a robust grower and be much more highly penetrated in the past when we provided tests, sometimes for free.

Now, we remind you a year ago, we started requiring payment. I think there's an appetite for the product and we've got people back focused on driving volume in anticipation of that. So, you're right, we should not just turn current volumes into revenue. We need to drive higher volumes. We've got plans to do that.

Bill Quirk -- Piper Jaffray -- Managing Director

Great. Thanks, Brad. I appreciate the $5 million AR-V7 expectation for 2019. Two-part question -- one, does that include any type of catch-up from CMS for tests that had previously been run in 2018? If it does not, is there any way to give us an apples to apples, had you had reimbursement in place for the full year of '18, what that number would look like relative to your $5 million expectation?

G Bradley Cole -- Chief Financial Officer

I think when it's time to report results, we'll have more to say about that. I think once we've got a result to talk to, we can talk about what the growth would have been. I think you're tyring to get a sense for the penetration back-half of '19 versus the back-half of '18. I think your question is going the right direction. It's better when we've got real numbers to talk about. We can look back to what they would have been. An ability to get paid back will only happen through an appeals process. Of course, we'll be actively doing that, but there are limits to that. It won't be a big number if indeed it happens.

Operator

Thank you. Our next question comes from the line of John Hsu with Raymond James. Your line is open. Please go ahead.

John Hsu -- Raymond James -- Analyst

Good afternoon. First off, in the quarter, obviously nice outperformance on the revenue side, but can you just help us think -- the spending did come in a little bit higher than we were looking for, so it looks like some of that was for sales and marketing. Was that all related to IVD platform prep for Biocartis or was there something else in play as far as the step-up in OpEx?

G Bradley Cole -- Chief Financial Officer

I think there were a number of things that happened. If you're looking at the GAAP financials, clearly the urology option that we exercise is in the R&D line, not in sales and marketing. We continue to push to make sure the news gets out about TAILORx and running more programs than we've ever run. You would see more TAILORx investment in the fourth quarter than you would have otherwise seen.

I think the other thing you see in sales and marketing is international as we're getting ready for IVD there and even the German opportunity, whereas we spend a little more on the international line, which rolls up into sales and marketing as well. Further, with a good quarter, salespeople and the company had a higher bonus accrual in the fourth quarter than in the third quarter.

John Hsu -- Raymond James -- Analyst

Thanks. Just as a follow-up, you have a very strong balance sheet north of $200 million now in net cash. Can you remind us of your capital deployment opportunities or priorities, rather, and anything that you can be looking at either from an acquisition or partnership standpoint, any color with that would be helpful as well.

G Bradley Cole -- Chief Financial Officer

 [Inaudible] $200 million in the bank, a little more flexibility. One of the opportunities that we have is to be able to identify content that could fit on the Idylla platform and run through our channel. We're still very focused on our channel, using our existing oncology and urology channel, both here in the US and internationally to drive further tests into that channel.

That hasn't changed. I think we just have more flexibility to deploy it. We don't have any plans to buy back stock if that's what you're thinking, but we do believe that more arrangements like with Epic or others who are providers in our infrastructure and delivery platform are what we're focused on.

Operator

Our next question comes from the line of Jack Needham with Barclays. Your line is open. Please go ahead.

Mitch Petersen -- Barclays -- Analyst

Thank you. This is actually Mitch Peterson on for Jack. I was hoping you can comment on your pricing expectations in the invasive breast franchise in 2019 and if any of the revenue recognition dynamics in 2019 are expected to contribute to growth in 2019 or have these benefits annualized at this point?

G Bradley Cole -- Chief Financial Officer

For the most parts, the benefits have been realized on a full-year basis. A number of the things that we balanced were in the back-half of the year, so it will have an effect on how we report versus second-half growth rates. We'll give clarity to that when the numbers are reported. This will be a more normal year from a pricing standpoint.

We don't have PAMA, don't have 606. We've been instituting process improvements, so those will continue, but all of those things hit in '18, so it was all good news. So, we don't expect to see significant price improvement over the run rate or the baseline if you take the full-year into account.

Mitch Petersen -- Barclays -- Analyst

Okay. Then across your portfolio, can you comment on to what extent commercial pricing is tied to Medicare. I guess were any of the benefits that you saw in the 2018 breast pricing due to the PAMA update?

G Bradley Cole -- Chief Financial Officer

So, in 2018, we did get a price rise from PAMA, effective on January 1st from $3,400.00 up to about $3,800.00. It was a nice 10%+ price increase. There will not be an increase this year. I would say that commercial prices, which have been strong, have allowed us to have strength in PAMA, not the other way around. We generally don't give people better pricing than Medicare gets. A positive for 2019 is that not for invasive breast, but for the GPS test and for our DCIS test, both of them that walk to a new PLA code, which has had about a 15% price increase.

Mitch Petersen -- Barclays -- Analyst

Got that. Then maybe if I can sneak in one more -- just on LDT regulation, I'd be curious to get your view on the regulation, how you think that can impact your business. Does that influence your decision at all to adopt a kit-based strategy in the US with Biocartis?

Kimberly Popovits -- Chairman of the Board, Chief Executive Officer and President

So, I'll jump in here. This is Kim. It's not inclufenicng our decision to jump into the kit or the IVD piece. What's influencing our decision to do that, really, is global access and what is the best strategy to make sure all of our tests are available to all patients that can utilize them and physicians around the world. We see having multiple platforms and offerings as being very important for our future. We also see it being very important for our partnership opportunities as we look to explore and to expand those.

So, when it comes down to the LDT framework, we clearly are front and center in that dialogue. We are working very closely with other stakeholders that are involved. We think that the dialogue is going very well in terms of working with FDA and all of the regulatory bodies. So, our intention is that we clearly will be going down an FDA pathway, whether it be with an LDT or an IVD.

We look forward to doing both. I think that is going to be something that will become a competitive advantage for us. We're building systems and capabilities internally to be flexible and to go in either direction. We will be prepared. I don't think we'll be surprised as to where it lands.

Mitch Petersen -- Barclays -- Analyst

Thanks, Kim.

Operator

Thank you. We will now conclude the Q&A portion of this call. At this time, I would like to turn the call back over to Kim Popovits.

Kimberly Popovits -- Chairman of the Board, Chief Executive Officer and President

Great. Thanks for joining us today and always for your interest in Genomic Health. We're really pleased with the progress that we've made across the business in 2018 and are excited about the growth opportunities ahead this year. So, we'll see many of you at upcoming investor conferences and meetings and will look forward to updating you throughout the year. Please, you know where we are and thanks again for your interest in Genomic Health.

Operator

And this concludes today's fourth quarter and full-year 2018 financial results call for Genomic Health. You may all disconnect.

Duration: 56 minutes

Call participants:

Emily Faucette -- Vice President of Corporate Communications and Investor Relations

Kimberly Popovits -- Chairman of the Board, Chief Executive Officer and President

G Bradley Cole -- Chief Financial Officer

Steven Shak -- Chief Scientific Officer

Adam Wieschhaus -- Cowen and Company -- Analyst

Mark Massaro -- Canaccord Genuity -- Managing Director

Nathan Treybeck -- Deutsche Bank -- Analyst

Tejas Rajeev Savant -- JP Morgan -- Analyst

Lila Yousef -- Oppenheimer -- Analyst

Bill Quirk -- Piper Jaffray -- Managing Director

John Hsu -- Raymond James -- Analyst

Mitch Petersen -- Barclays -- Analyst

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