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Genomic Health Inc (GHDX) Q1 2019 Earnings Call Transcript

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Genomic Health Inc (NASDAQ: GHDX)
Q1 2019 Earnings Call
May. 7, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Jamie, and I will be your conference operator today. At this time, I would like to welcome everyone to Genomic Health's First Quarter 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder, this conference 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 call.

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

Thank you. Good afternoon, everyone, and welcome to Genomic Health's conference call to review our first quarter 2019 financial results. 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. Additionally, Fred Pla, our Chief Operating Officer; and Rick Baehner, our Chief Medical Officer, will be available during Q&A at the end of the call.

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, and a reconciliation of non-GAAP numbers referenced in these remarks can be found in our first quarter of 2019 earnings press release.

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 & President

Thanks, Emily. Good afternoon, everyone, and welcome. In the first quarter of 2019, we delivered $108.8 million in revenue or growth of 17.4% and $13 million in profit, driven by significant growth across all key product areas. These strong results are based in part on the impact of the landmark TAILORx trial results, which are continuing to drive increased Oncotype DX Breast Recurrence Score test usage globally. We also continued to generate further adoption and private reimbursement for our prostate cancer tests.

I'd like to take a moment to highlight the important accomplishments across our key product areas that drove this quarter's performance, positioning us for double-digit revenue growth for the year.

In our core invasive breast cancer business, the practice changing TAILORx trial results are continuing to elevate 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. With this definitive evidence, it has never been as clear which patients need chemotherapy based on Oncotype DX. Following the roll out of our new test report and physician campaign in December, we recently launched a digital advertising campaign targeting underpenetrated US market with a branded message encouraging patients to put chemo to the test with Oncotype DX.

In March, at the St. Gallen International Breast Cancer Conference in Vienna, we presented results from five studies, including real-world evidence that reinforces the treatment paradigm established by the TAILORx trial. Data from decision impact studies was also presented, highlighting the value of Oncotype DX in personalizing and improving the quality of clinical decisions for patients with early stage breast cancer, including those with node positive disease. We expect these new data, which are based on results from thousands of patients in the US and Europe, will support increased uptake globally as they further reinforce the value of Oncotype DX testing. And on the reimbursement front, with IQWiG's exclusive recommendation for Oncotype DX, we continue to anticipate a final national coverage decision in Germany in the second quarter.

Turning now to our oncology -- urology franchise, we have two market-leading prostate cancer tests that represent a growth opportunity greater than $500 million. Multiple private insurers established new coverage for the Oncotype DX Genomic Prostate Score or GPS test during the first quarter, bringing the total number of US covered lives to more than $114 million, including Medicare.

We also made progress securing additional reimbursement for the Oncotype DX AR-V7 Nucleus Detect test, building on the Medicare coverage that was established in December. During the first quarter, we secured coverage from our first private payor, bringing the total number of US covered lives to more than 61 million. Importantly, in April, NCCN strengthened its prostate cancer guidelines recommending the consideration of AR-V7 testing in metastatic castrate resistant prostate cancer patients following initial treatment with abiraterone or enzalutamide to help guide the selection of further therapy.

Finally, we are continuing to advance the development of a sample-to-answer IVD offering of the Oncotype DX breast cancer test on the Idylla platform. We plan to place this unique and differentiated system at clinical validation sites in France and Germany in the second half of 2019.

I will now turn the call over to Brad to provide further detail on our first quarter financial results.

G. Bradley Cole -- Chief Financial Officer

Thanks, Kim. We are off to a very strong start in 2019 with double-digit growth in both revenue and tests delivered in the first quarter compared to last year. We delivered double-digit revenue growth for all key product areas and strong profit for the quarter, marking our 15th consecutive quarter of improved non-GAAP profitability.

Total revenue was $108.8 million for the quarter, an increase of more than 17%, compared with total revenue of $92.6 million for the first quarter of 2018. On a non-GAAP constant currency basis, total revenue for the quarter grew 18% compared to last year. Net income for the quarter was $13 million or earnings per share of $0.34 on a diluted basis, an improvement of $16.8 million compared with a net loss of $3.8 million for the same period in 2018. Our gross margin rate was 84.4% for the quarter and is consistent with our expectations for the full year of 2019.

In the first quarter, we delivered more than 37,580 Oncotype DX tests, an increase of 16% compared to a year ago. This strong test growth reflects performance across our business. Notably, both our international and US GPS product areas increased 28% and 25%, respectively, compared to the first quarter of last year. Our GPS product area was lifted by contributions from our urology salesforce expansion and strengthened guidelines compared to a year ago.

Before walking you through the revenue results across each of our key product areas, I want to point out that the increased revenue recognition rates in our revenue portfolios in the second half of 2018 positively impacted revenue comparisons by approximately 3% in the first quarter of 2019. Without these positive changes to our revenue portfolios, revenue growth would have been approximately 14% at the high end of our revenue guidance for 2019.

US invasive breast cancer revenue was $79.8 million for the quarter, an increase of 12.5%, compared to revenue of $71 million for the same period in 2018. The increase to revenue portfolios from late in 2018 impacted the revenue comparisons by approximately 4% for the first quarter of 2019. Without these increases, revenue growth would have been over 8%. US invasive breast cancer test volume increased 9% for the quarter, driven in large part by the continued rise in adoption following the TAILORx results that were presented and published in June of last year.

International product revenue was $17.8 million for the quarter, an increase of 29%, compared with revenue of $13.8 million for the same period in 2018. On a non-GAAP constant currency basis, international revenue for the quarter grew 32.9% compared to last year.

As we experienced -- excuse me, as we experienced in the US, the TAILORx trial results continued to have a strong impact internationally. The number of international tests delivered in the first quarter grew 28% compared with the same period in 2018. International test growth continues to be robust and above overall test growth levels, raising international test mix to 25% of total test volume in the first quarter, up from 22% of total test volume a year ago.

US prostate GPS test revenue was $8.5 million for the quarter, an increase of 47%, compared with revenue of $5.8 million for 2018. As expected, the strong revenue growth was due in part to additional price strength from the new CMS PLA code that took effect in January and increases in private payor reimbursement.

GPS test volume increased 25% for the quarter. We believe class penetration is approximately 30% with Oncotype DX GPS continuing to be the market leading test in low and intermediate-risk prostate cancer test adoption and revenue.

Similar to the fourth quarter of 2018, Company operating margin exceeded 10% of revenue in the first quarter, more than double the percent of revenue in the first quarter of 2018, as all operating ratios continue to improve. We expect operating margin to continue to be above 10% for the year. We delivered more than $21 million in adjusted EBITDA for the quarter. These continuously improved financial results are positively impacting our financial position and allowing for further investment as we expand our business.

Cash, cash equivalents and short-term marketable securities at March 31st, 2019 were $205.9 million, a decrease of $3.8 million from the end of last year. Cash flow for the quarter was impacted by routine annual payments related to employee compensation.

As a reminder, achieving the high end of our 2019 revenue guidance of $448 million assumes: US invasive breast test volume growth in the mid-to-high single digits with revenue at similar levels of growth; Prostate GPS test volume growth of approximately 20% and continued pricing strength from the CMS PLA code effective in 2019; and international test volume growth above 25% with national reimbursement coverage in Germany positively impacting the second half of the year.

Additionally, we continue to expect that our revenue growth will be higher in the first half of '19 than in the second half of 2019 given: first, the step up in test and revenue growth experienced in the back half of last year in our global invasive breast cancer business following TAILORx results presented at ASCO in June 2018; and secondly, increases to our accrual rates for revenue portfolios made in the second half of 2018.

We expect approximately $80 to $90 million in adjusted EBITDA for the year. With our strong first quarter results and continued adoption and reimbursement across our Oncotype IQ portfolio globally, we believe we are well positioned to deliver double-digit revenue growth and improved profitability in 2019.

I will now turn the call back to Kim.

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

Thanks, Brad. As we have seen in the first quarter, we expect the TAILORx results to continue to have a practice-changing impact globally. We look forward to national reimbursement progress in key European markets, including Germany, which is expected to have a positive revenue impact in the second half of the year, and we anticipate increased adoption and private reimbursements for Oncotype DX GPS test and Oncotype DX AR-V7 Nucleus Detect test, both of which are now covered by Medicare. With these growth drivers, we believe we are well positioned to continue to drive both near and long-term shareholder value.

Looking ahead, we are more optimistic than ever about further transforming cancer outcomes for patients, physicians and healthcare systems around the world. With multiple platforms and partnerships, we plan to diversify our Oncotype IQ portfolio with an expanded menu of tests that we deliver globally through our established oncology and urology channels.

Specifically, we believe our development of a unique and highly scalable sample-to-answer IVD version of the Oncotype DX Breast Recurrence Score test positions us for further long-term growth and diversification by: accelerating access in key European markets with a localized solution; opening global access to emerging large markets; providing us with a proprietary platform to build a menu of locally distributed tests to be offered through our global commercial channels; and facilitating broader collaboration opportunities with partners seeking localized diagnostic solutions.

Importantly, as a reminder, we recently expanded our exclusive collaboration with Biocartis into the field of urology allowing for the development of an IVD version of our Oncotype DX GPS test. This decision reflects our confidence in the Idylla platform and belief that it will be a differentiated solution to accelerate adoption of both our current test and future offerings to meet the needs of physicians and patients globally.

In closing, with our proven business model and track record of profitable growth, we are well positioned to further our mission of developing and delivering high value tests that improve treatment decisions and outcomes for cancer patients around the world while continuing to save healthcare systems billions of dollars.

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

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from Mark Massaro with Canaccord Genuity. Your line is now open.

Mark Massaro -- Canaccord Genuity -- Analyst

Hey guys, thanks for taking the question. My first one is on Biocartis. I know you guys mentioned that you plan to -- I think place systems in France and Germany in the second half of '19. Can you just clarify if that will be for the Oncotype Breast cartridge? And then, can you provide a little more granularity on the roll out of the breast cartridge and the prostate cartridge?

Frederic Pla -- Chief Operating Officer

Yeah, so Mark, this is Fred Pla here. So you're right. We're planning and we're on track to install our first systems at our clinical validation sites in France and Germany by the end of the year. This will be the breast product. And right now, we're planning on launching that at the end of 2020. As far as the prostate product is concerned, we're in feasibility stages right now. Our plan today is to launch this one first in the US. So this will be -- we'll have to go through FDA approval for that and we're looking at 2022 as a timeframe for that one.

Mark Massaro -- Canaccord Genuity -- Analyst

Okay. And then maybe one for Brad. I think you indicated adjusted EBITDA guide between $80 million and $90 million. I think previously you were at $90 million plus. Can you clarify that, and if that's the case, where do you expect the incremental investment to go?

G. Bradley Cole -- Chief Financial Officer

We don't really think we changed our view on EBITDA. I mean, the guidance for the bottom line is unchanged and you've seen in this quarter, the other items, stock-based comp and depreciation, amortization added almost $10 million in the quarter. So we should be in the range of $40 million above our guidance. Our guide is $48 million to $54 million. So we're going to be in the mid to high 80s and we could be above $90 million, yes.

Mark Massaro -- Canaccord Genuity -- Analyst

Okay. And then my last question relates to the new report you've rolled out, I guess not that new, but can you just give me a sense for the type of feedback you're getting from the Oncotype breast report? And then, any color as it relates to the digital ad campaign, can you remind us when you launched this and whether or not you're seeing any potential increase in demand as a result of either the ad campaign or the report?

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

Yeah, this is Kim. I'll comment on the patient report and maybe new campaign, and I'd love for Emily to talk a bit about the digital campaign, we're very excited about those. So we did launch the new reports in December. We rolled it out at San Antonio. We've received great feedback around the simplicity and the clarity that the report is providing, as well as the new campaign that has never -- it's never been as clear campaign. So it's resonating very well with our audiences, in particular, with the audience that we really need to direct a lot of our efforts toward, which is that group of physicians that is not using the test routinely on all eligible patients.

So where we see the largest potential for growth is where we're seeing greatest movement right now, which is wonderful. So we want to see and we're also getting really good feedback on the campaign. We have, however, gotten some request to include more of the clinical data in some of the curves that we had on the former report. So we're looking at ways to be able to provide that added information to physicians, because they really like the continuous biology and certainly respect the development work that we've done over the years and love having that to show some of their patients. So we may be adding more of that back, but the clarity and the simplicity of what we rolled out in December is really we believe making a significant impact.

And Emily, maybe comment on the campaign?

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

Sure. Yeah, we launched our PET chemo to the test campaign in late March and this is a targeted digital campaign as part of this broader strategic effort to reach patients in markets where physicians are not using the test as consistently as they could be. And so because of our analytics, we know exactly where these physicians are and accreted a very compelling online campaign involving seven women who have used the tasks and encouraging patients with a very strong branded message to put chemo to the test with their Oncotype DX Score, and we're running those ads online in those markets in a targeted fashion where we are able to intercept both patients and their caregivers through very targeted placements and that allow you to ask questions that when you are serving up the ad, we know that we are giving it to a person who has likely been diagnosed with breast cancer.

So it's a series of video ads, a landing page with very specific calls to action that in doing so indicate that there is a likelihood that they are going to talk to their doctor about the test. So it's very early days, but we're pleased with the online traction, traffic, and conversion rates that we're seeing in these early days, and we'll continue to optimize the campaign as we learn more about what's working over the course of the next couple of months and look at how that activity is playing out.

Mark Massaro -- Canaccord Genuity -- Analyst

Great. Thank you so much and nice quarter.

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

Thanks.

Operator

Thank you. And the next question comes from Brandon Couillard with Jefferies. Your line is now open.

Brandon Couillard -- Jefferies -- Analyst

Thanks, good afternoon. Kim or Brad, I would love to hear an update about how you think the new prostate reps from -- which you added last year kind of developing, and with reimbursement improving, what's your appetite for perhaps adding additional headcount there? And Brad, could you spike out the impact of the PLA codes on prostate, specifically in the quarter?

G. Bradley Cole -- Chief Financial Officer

Yeah, in terms of the reps, we have typically seen the ramp uptake, two to three quarters, and we are now out at quarter three and we think we saw the impact in the quarter of continued traction from the reps. We don't have any current plans to expand the sales force. In the current year, we believe the optimal size is probably in the 60 to 70 range and we were below 50 today as there is room to grow. If we see continued traction, our imagine is probably in 2020, we make another investment in the field force.

PLA code was significant in the quarter, probably approximately and we reported 47 points of growth, less than half of that was from the PLA code. We had 25% growth in volume, and probably 15% to 20% of the growth was from the PLA code. So a significant change. I remind you that, why would a PLA code be so significant, because the prostate test is -- nearly half of the volume come from Medicare. So a change like we saw in pricing that was quite significant move from the low 3,000s to the high 3,000s on such as a significant piece of our volume had a nice impact on overall revenue reported and the growth of revenue.

Brandon Couillard -- Jefferies -- Analyst

Thanks. And more of a higher level question for you Kim. I mean, you've done a pretty good job. I think a pretty prudent job last couple of years, calling lower prospect partnerships in a pretty quick fashion. Just curious how you're thinking about the strategic sort of business development pipeline, I mean, you got $200 million of cash on the balance sheet. Are you actively pursuing other sort of similar partnerships and curious if M&A might be on the table or not? Thanks.

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

Well, it remains on the table and something that we're very interested in, and it's great to be sitting in a position now where we have significantly increased, of course, the value of the Company and we've got growth moving in a really nice direction. So, Fred and his team are constantly looking at opportunities that would best fit our channels across the globe and would offer us potential good partnerships in that way. That could be near term accretive. So stay tuned. We are looking at a number of things and of course interested in pursuing some of the things like you saw in the game board that we laid out earlier in the year. So looking at opportunities that expand beyond early stage diagnosis into disease monitoring -- recurrence monitoring and all of which are of significant interest to us. And I would also add with that, having now the ability to work with multiple platforms, whether it be NGS or PCR or now having the opportunity to work within the IVD platform with the Idylla system, we really think it expands the many of opportunities that we can pursue and then offer also to collaborators.

Brandon Couillard -- Jefferies -- Analyst

Great. Thank you.

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

Thanks for your questions.

Operator

Thank you. And our next question comes from Bill Quirk with Piper Jaffray. Your line is now open.

Daniel Macek -- Piper Jaffray -- Analyst

Hi, thanks. This is Dan on for Bill. So you guys previously communicated that $5 million target for AR-V7. One, I was just wondering if you could give us an update there. I'd say, it sounds like you're happy with where you're at? And then, two, given that, now that you're seeing reimbursement for AR-V7, could you give us an idea of what 2018 might have looked like given the reimbursement levels you guys are currently seeing. Thanks.

G. Bradley Cole -- Chief Financial Officer

Yes, AR-V7, you're right, good memory, but we thought the upside was as high as $5 million. So we're expecting $7 million from AR-V7. It could be as high as what you cited as $5 million, and we're off to a good start. CMS reimbursement just occurred late December that was operationalized in the quarter and we are seeing first row revenues from AR-V7 and we think it'll make a meaningful difference over time.

In terms of reimbursement from '18, I think you asked about, there was virtually no reimbursement before Medicare happened in the fourth quarter, and so we don't really have any revenues reported in '18. So everything in '19 is incremental and a growth driver in that sense, because all compared back to virtually nothing in '18.

Daniel Macek -- Piper Jaffray -- Analyst

Okay. Got it. And then lastly from me, could you just provide some color on that reimbursement opportunity in Germany. It sounds like you're comfortable at the high end of your revenue guidance right now. I'm just wondering what kind of outlook you guys are baking in for the rest of the year there and if it's still in line with your initial expectations?

G. Bradley Cole -- Chief Financial Officer

Yeah, so you're right to have cited that the national reimbursement decision which we expect here in the next few couple of months was a growth driver in our high-end guidance and we still think that's on track and should that happen as planned. We will be tracking toward the high end of guidance. I'll point out that if you look at all metrics in Q1, they all track very nicely with the guidance we gave around the high end with the exception of Germany which was going to impact the second half. So it wouldn't have been a part of the Q1 metrics. But we're highly confident that we're on track to see a decision this quarter.

Daniel Macek -- Piper Jaffray -- Analyst

Great. Thanks a lot.

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

Welcome.

Operator

Thank you. And our next question comes from Doug Schenkel with Cowen & Company. Your line is now open.

Adam Wieschhaus -- Cowen and Company -- Analyst

Hi, guys. This is Adam Wieschhaus on for Doug. Thanks for taking my questions. It was a strong international test growth this quarter driven by TAILORx and it looks like International ASPs went up as well. So with International growth, primarily driven by uptake in the UK market, where you have reimbursement today? And then second part of my question is, do you see a lot of potential for international ASP upside from here as you penetrate markets like Germany and France? I think you've mentioned a EUR2,000 target or higher might be acceptable just considering the adoption is pretty low there? Thank you.

G. Bradley Cole -- Chief Financial Officer

It was a strong quarter for international. We've been targeting growth above 25%, and we saw 28% this quarter in test growth. Revenue on a reported basis was 29% and you're correct to point out that we were above 30% on a constant currency basis. So ASP hasn't changed much, it changed a little bit, a couple of 3 percentage points. This is why we're tracking a little bit higher in revenue, they were in test. It hasn't been in any one particular market that warrant new reimbursement decisions or new coverages in the quarter. I think we just had continued success with collections and maybe the test mix was a little more toward the UK and Canada.

As for what happens when we get reimbursement, the ASP and International is running around $1,900 or so. If the IVD gets reimbursed at EUR2,000, say for example, that may not be what we yield from it, but we soon will yield EUR2000 or so, then ASP would track pretty much where it is today. So -- we are not expecting a big lift from IVD pricing. We're expecting a big lift from access to the market to build and grow the penetration in these key markets in Western Europe. It is the primary driver of this program and it's less about ASP and more about access.

Adam Wieschhaus -- Cowen and Company -- Analyst

Okay. That's super helpful. And then maybe I missed it, but did you provide any update on where you stand with the French reimbursement?

G. Bradley Cole -- Chief Financial Officer

We did not. We're still getting reimbursed through the same multi gene assay access program that is for the last several years. We would hope to move that forward. Frankly, France is a bit of a laggard and some of the other countries in Europe. Germany is probably a good year ahead of them in their decision processes and we're working hard to move the parties a bit forward in France.

Adam Wieschhaus -- Cowen and Company -- Analyst

Okay. Thank you.

Operator

Thank you. And our next question comes from Kevin DeGeeter with Oppenheimer. Your line is now open.

Kevin DeGeeter -- Oppenheimer -- Analyst

Hey, thanks guys for taking my question. I just want to follow-up on some of your earlier comments with regard to digital ad campaign. And specifically, I guess, two lines of thought, first, should we think about this is really a recurring piece of the sales and marketing budget, where you continue to benefit from ongoing touch in the market you identified? And then, can you just sort of define for us some metrics you may use to think about whether it's appropriate to explore other options to de-leverage digital channels, maybe in conjunction with your sales people in certain situations perhaps even in lieu of adding additional ramps?

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

Hey, Kevin, it's Emily. Thanks for the question. Yes, this -- you can think of this as an ongoing effort and in fact it is something we've been doing digital activity and outreach to patients specifically for years now, this is more of a -- kind of an enhanced bolder direct message in light of TAILORx. And so we will continue to target and look at ways to reach patients with this message and the beauty about digital is that we can optimize the campaign in real time, we can shift where we're running it, how we're running it and really look at almost on regular basis, the activity that we're seeing whether it's traffic to our website and most importantly conversions. So are these patients and their caregivers who we are targeting online, are they taking action that leads us to believe that they are going to ask their doctor or have a conversation with their doctor about the Oncotype DX test.

So digital is something that's been part of our marketing mix, if you will, for a long time and it is now in even more enhanced level and something that we plan to continue to do, but obviously we'll be looking very closely at how the campaign is performing so that we can continue to be active and efficient in our use of resources toward this. But we believe now especially with TAILORx is the time absolutely to be going directly to patients to make sure that all medically eligible women and men who get breast cancer have access to Oncotype.

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

Yeah, I would just add to that. What we do know from market research that we've done along the way is that when patients ask for the test, they get it. And so we think the timing of this campaign and I'd compliment Emily and her team did a brilliant job, we've already we've seen such positive feedback on it, but it is extremely compelling to intercept, educate and motivate those patients to be asking for this test before making their treatment decision around chemo.

Kevin DeGeeter -- Oppenheimer -- Analyst

Great. And then maybe my follow-up question. For the International market, can you remind us to the level of confidence you have in Germany around a decision in the second quarter. What are the parameters, in terms of, they drive to achieve some sort of requirement to actually communicate an outcome? And then, perhaps on a different note but also pertaining to international, as that piece of the business continues to grow and be a bigger piece of total revenue, are there differences in relative seasonality with regard to pull-through in Europe than you see in the US that perhaps we should be mindful?

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

Well, I'll start with our expectations around the decision. What we go by is what is reported and what is being told to us just in terms of the process and what we publicly know about how this process happens with GBA. So our expectation is that they will have an upcoming meeting where this decision will be finalized and then there is a process beyond that, but it seems pretty well laid out. So we don't want to get out of our space here. We kind of -- I think remain toward being a little bit more conservative, but we do expect that we'll have that decision in this quarter. And given the exclusive recommendation from IQWIG and already the public statements around having an impact on the decision from GBA, we're still confident that we'll see a decision shortly.

And regarding the seasonality, I think we can say the same thing for the business in Europe as the US summer tends to be the slow downtime there, but otherwise, I don't think anything has been...

G. Bradley Cole -- Chief Financial Officer

Yeah, I mean, this is sort of little less seasonality in the spring versus what we experienced in the US with primary (Technical Difficulty).

Kevin DeGeeter -- Oppenheimer -- Analyst

Great. Thanks for taking my questions.

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

You're welcome.

Operator

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

Tejas Savant -- JP Morgan -- Analyst

Hey, guys. This is Tejas. Thanks for taking the questions. So just one big picture question here on guidance. Kim, it sounds like you guys are very confident in the German decision coming through in the second quarter. France, I mean, no change versus sort of your prior timeline expectations of likely being a 2020 event. And then the AR-V7 as well, I mean, sounds like it's off to a good start, you've got north of 60 million lives in the US now. So given all of the positive sort of incremental updates and the fact that you came in sort of slightly ahead of expectations this quarter as well. Are you sort of like comfortable guiding toward the higher end of the guidance range or do you think it's still prudent to be conservative and the midpoint is where kind of like baseline expectation should be?

G. Bradley Cole -- Chief Financial Officer

Well, I think our guidance range is there for reasons. So I think there are things that could go differently. Certainly, the Q1 is off to a fantastic start. I'd just remind you that when you adjust for the growth rate on a kind of equal basis taking into account the revenue portfolio upgrades we made late in '18 that we grew 14%. So we're right on track from the high end of guidance. The German reimbursement decision is a factor in staying at the high end of guidance and you are hearing comments around Germany and you're hearing comments around the business, but one quarter does in the year make and we're feeling good about the year?

Tejas Savant -- JP Morgan -- Analyst

Got it. And then in terms of the German decision, has the GBA put out an agenda yet or if not, I mean, do you have any sort of expectations around timelines for that occurring. And I believe in the past you've talked about sort of a 60-day period post the GBA decision before it gets operationalized. Is that still the expectation?

G. Bradley Cole -- Chief Financial Officer

I don't think the operationalization decisions any different and our expectation has met -- the decision gets made in the second quarter, then we would see our revenue starts to come in the third quarter. A code wouldn't get assigned but they can reimbursed without a code in the German system and the code in the private site to more -- like the end of the year. So all the things are in place. Of course, we'd love to have a decision in March or February or January, of course. So it does change a little bit of the dynamic in the back half of the year, but again back to -- after such a strong start overall that we're still tracking toward the high-end.

Tejas Savant -- JP Morgan -- Analyst

Got it. And then one final one from me here on AR-V7. Following sort of the first private payor coming on board here. I mean, how should we think about the cadence for the rest of the private to sort of sign on to paying for the test?

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

Well, that's I think -- maybe the same song third or fourth quarter. So it's a little bit difficult to predict, but if we think about how fast the Medicare came around and reimbursing post launched at certainly a good time to have a private payor onboard as soon after Medicare is, we take that as another good sign. But you also look at just the nature of what this test does and that really acts more like a companion diagnostic to two very expensive treatments in a situation where men have a critical decision to make. So it is a compelling story with a really solid health economic benefit behind it. The conversations that we're having with private payors seem to be going very well, but the timing in which they'll make decisions which is always really difficult to predict, but we think the story is a really compelling one.

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

The other favorable factors that recently strengthened guidelines, the prostate cancer treatment guidelines that now recommend considering AR-V7 and men who have been treated with an AR inhibitor to help them make their decision on for their therapy and that was just a recent development. So you can be assured that is entering our conversations now and moving them forward.

Tejas Savant -- JP Morgan -- Analyst

Got it. Thank you so much guys. Appreciate the color.

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

You're welcome. Thanks for the questions.

Operator

Thank you. And our next question comes from John Hsu with Raymond James. Your line is now open.

John Hsu -- Raymond James -- Analyst

Good afternoon. First question, could you just give a quick update, I know it's still early, but just any development updates you can provide on IVD for urology?

Frederic Pla -- Chief Operating Officer

This is Fred Pla here. So we announced the expansion of our collaboration a few months ago. We are in feasibility stages, right now, so a kind of following the lesson that we've learned from iPCa, kind of following that process here to start developing it. So it's looking really good right now and we'll keep you guys updated on a regular basis.

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

And I might just add on to that. One of the real drivers of our interest in the GPS test is, if you think about how urology is practiced in the US and where we are currently with an overall market penetration that's well less than 50%. With the desire from a lot of large practices where they do their own pathology and have large pathology groups within them. The desire to have a test that they can perform on site and have it done more quickly along with the other pathology that they're doing. Just you can imagine is really high. So we believe that the place to start there is in the US and in addressing this need, so that we can really fully penetrate that market, which again provides a lot of growth opportunity for us.

John Hsu -- Raymond James -- Analyst

Okay, great. And then just as a follow-up, anything to call it as we think about the year as far as how margins and expenses should be tracking, specifically it looks like gross margin for the year came in a little bit higher than the 84% that you're talking about for the year. So is there any kind of mix factor to be considering as we move forward?

G. Bradley Cole -- Chief Financial Officer

Well, I think the only thing to consider is that we're tracking where we thought we would. There's going to be a little pressure from there if there seven ramps so fast and we think given the margins on every seven or just structurally lower than the average for the Company. But other than that, we're tracking really well there. The reimbursement gains will obviously add to the uplift in what could be possible in gross margin rate. I think across the year, we're still expecting greater than 10%. Operating income and continued leverage of the business, we saw that our operating regions grew from Q1 consistently across every line of the P&L not promising that every quarter that'll be the case, but we do expect over time like the last three years to see operating ratios improved as we see operating leverage in the business and (Technical Difficulty) in line with our guidance range.

John Hsu -- Raymond James -- Analyst

Great. Thank you so much.

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

Welcome.

Operator

Thank you. And our next question comes from Jack Meehan with Barclays. Your line is now open.

Mitchell Petersen -- Barclays -- Analyst

Hey, thanks for taking the question. This is actually Mitch Petersen on for Jack this afternoon. In the breast franchise, did you see any commercial pricing benefits in the quarter that's outside of the revenue recognition tail end and then just to confirm the pair upgrade tailwind that's going to annualize in the second quarter.

G. Bradley Cole -- Chief Financial Officer

No, we didn't see a real change and the coverage has continued to be strong and reimbursement is tracking where it was exited 2018, particularly in the IBC, which is the majority of the business. So, no change there. There, when you've heard of a tailwind, you really make sure you're talking about the kind of comments I made around the increased revenue portfolio rates in the back half of '18 and the impact they might have on Q2. Is that your question -- was?

Mitchell Petersen -- Barclays -- Analyst

Yeah, exactly. It sounds like that's going to annualize after 2Q, just wanted to confirm.

G. Bradley Cole -- Chief Financial Officer

Well, I think what's going to happen is that in Q2, we started booking some adjustments, in Q3 and Q4 the adjustments were larger. So the difference between those two numbers and it was like 3 points on growth in Q1 that will get smaller in -- the impact will be smaller in Q2, because we did have some portfolio adjustments in Q2. As we go to the back half of the year, we'll now be looking at, which you're calling annualization and we'll have to keep this in front of you, because it will go the other way. The adjustments were bigger than what we're going to see the benefit from as there's some catch-up in Q3 and Q4.

Mitchell Petersen -- Barclays -- Analyst

Got it. That make sense. And then internationally, I think last quarter, you called out revenue growth -- revenue growth target of about 50% for 2019. Is that still the target and obviously the growth rate in the first quarter was a little bit lower than that. So is Germany, the primary driver of that's going to get you to that 50% target for the year as that accelerates and adds to revenue in the back half of the year?

G. Bradley Cole -- Chief Financial Officer

Yeah, so I'll clarify that. Our revenue target is more in the 40% range. I know 50% got into the script, 40% was the target which would be in the mid $80 million, $80 plus-million, and the delivery of 33% this quarter was right on target where we think it would be on a constant currency basis and we could get into the higher 30s with the reimbursement from Germany and into 40% range if things go swimmingly.

Mitchell Petersen -- Barclays -- Analyst

Got it. Thank you.

Operator

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

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

Thank you for joining us today and as always for your interest in Genomic Health. We're certainly very pleased with the progress we made in the first quarter and very confident about the future. So we look forward to seeing at some upcoming investor conferences and look forward to our one-on-one conversations. Thanks.

Operator

And this concludes today's first quarter 2019 financial results conference call for Genomic Health. You may now disconnect.

Duration: 44 minutes

Call participants:

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

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

G. Bradley Cole -- Chief Financial Officer

Frederic Pla -- Chief Operating Officer

Mark Massaro -- Canaccord Genuity -- Analyst

Brandon Couillard -- Jefferies -- Analyst

Daniel Macek -- Piper Jaffray -- Analyst

Adam Wieschhaus -- Cowen and Company -- Analyst

Kevin DeGeeter -- Oppenheimer -- Analyst

Tejas Savant -- JP Morgan -- Analyst

John Hsu -- Raymond James -- Analyst

Mitchell Petersen -- Barclays -- Analyst

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