Genomic Health's (GHDX) CEO Kim Popovits on Q4 2016 Results - Earnings Call Transcript

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Genomic Health, Inc. (NASDAQ:GHDX) Q4 2016 Earnings Conference Call February 14, 2017 4:30 PM ET

Executives

Emily Faucette - VP of Corporate Communications, IR

Kim Popovits - Chairman, CEO & President

Brad Cole - COO & CFO

Steve Shak - Chief Scientific Officer

Phil Febbo - Chief Medical Officer

Fred Pla - Chief Business & Product Development Officer

Analysts

Nicholas Jansen - Raymond James

Laura Sand - Piper Jaffray

Sara Silverman - Wells Fargo

Mitchell Petersen - Barclays

Operator

Good afternoon. My name is, Chelsea, and I will be your conference operator today. At this time, I would like to welcome everyone to Genomic Health's Fourth Quarter and Year End 2016 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 be given at that time. [Operator Instructions] As a reminder, this call is being recorded.

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

Emily Faucette

Thank you. Good afternoon everyone. And welcome to Genomic Health's conference call to review our fourth quarter and year end 2016 financial results.

Before we begin, I'd like to remind you that various remarks that we make on this call that are not historical, including those about our future and full-year financial and operating results, guidance for full year 2017, our plans and prospects, our ability to leverage our existing commercial channel and infrastructure, the success and focus of our business strategy, economic benefits and value of our tests, growth opportunities, future products, product launches and our product pipeline, demand for our tests and drivers of demand, as well as correlations between test demand to present or future revenue, payer coverage, timing of revenues from payers and progress in reimbursement and patient access, effects of foreign exchange rates, international expansion, clinical outcomes and timing of clinical studies and publications, and our expectations regarding potential FDA or other regulation, constitute forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act.

We will refer you to our Annual Report on Form 10-Q for the quarter ended September 30, 2016, filed with the SEC, in particular, to the section entitled Risk Factors, for additional information on factors that could cause actual results to differ materially from our current expectations. These forward-looking statements speak only as of the date hereof, and we disclaim any obligation to update these forward-looking statements.

Joining me today are Kim Popovits, our Chairman of the Board, Chief Executive Officer and President; Brad Cole, our Chief Operating Officer and Chief Financial Officer; Steve Shak, our Chief Scientific Officer; Phil Febbo, our Chief Medical Officer; and Fred Pla, our Chief Business and Product Development Officer.

I'll now turn the call over to Kim.

Kim Popovits

Thanks, Emily. Good afternoon everyone and welcome. 2016 was the year of consistent execution across our business as we delivered double-digit revenue in test growth for the year, improved the bottom line significantly for the full-year and achieved profitability in the fourth quarter.

Generated 40% operating leverage and more than $10 million in adjusted EBITDA, increased our U.S. invasive breast cancer market penetration to 55%, delivered double-digit international revenue growth with increasing reimbursement in Western Europe and accelerated adoption in revenue growth of our Oncotype DX prostate score and advanced our pipeline in later stage cancer with the introduction of Oncotype SEQ Liquid Select and a collaboration agreement with Epic Sciences to commercialize the Oncotype DX, AR-V7, nuclease detect test for metastatic prostate cancer in 2017.

In the fourth quarter, we delivered a 10% increase in revenue marking our fourth consecutive quarter of double-digit revenue growth and an 8% growth in test delivered. Importantly, during the quarter we achieved record levels in our U.S. prostate business with a 29% increase in test volumes compared to the same period last year and $3.6 million of revenue representing a 56% sequential increase. International revenue grew 15% on a constant currency basis and tests delivered increased 22% compared to 2015.

Finally, we are pleased to have delivered a $1.5 million profit for the quarter. With substantial opportunity for growth in our global breast and U.S. prostate business and leverage of our unique commercial channel with the planned launch this year of Oncotype DX AR-V7, we expect to deliver long-term revenue growth and improve profitability.

I will now turn the call over to the team to provide further detail on our fourth quarter and year-end financial results for worldwide commercial and operations progress in recent scientific updates. Brad?

Brad Cole

Thanks, Kim. In 2016 we delivered double-digit revenue growth each quarter resulting in 14% revenue growth for the year. Total annual revenue was $327.9 million compared with $287.5 million in 2015. U.S. product revenue increased 14% to $280.1 million compared with $246 million in 2015. Prostate revenue was $10.8 million in 2016 and contributed to approximately 3% of total product revenue growth in the year or 20% of total revenue growth.

International revenue for the full year was $46.8 million, an increase of 13% compared with $41.5 million in 2015. On a constant currency basis, international revenue increased by 15% compared with a year ago.

We delivered more than 118,570 Oncotype test results in 2016 an increase of 11% compared with 2015 driven by consistent execution across all of our key markets including 7% growth in our U.S. oncology test delivered, 16% growth in U.S. prostate tests delivered which represented approximately 8% of total test volume in 2016 and 23% growth in international test delivered which represented approximately 24% of total test volume in 2016.

In 2016 we continue to improve our operating leverage as planned with $0.40 of every dollar dropping to the bottom line. Operating loss was $15.4 million in 2016 compared with $34 million in 2015 or a $19 million improvement. Net loss was $13.9 million for the year compared with a net loss of $33.3 million in 2015.

Now turning to our quarterly results; importantly, we achieved profitability in the fourth quarter with $1.5 million in operating income compared with an operating loss of $3.1 million in the fourth quarter of 2015. Net income was $1.4 million for the fourth quarter of 2016.

Total revenue was $82.7 million in the fourth quarter of 2016, an increase of 10% compared to the previous year. Revenue results were impacted sequentially by a stronger dollar and fluctuations in cash revenue, specifically the impact of revenue was approximately $300,000 from the stronger dollar; and $500,000 from cash revenue. Additionally, in the last two weeks of December, U.S. oncology tests delivered were approximately 200 less than expected.

At this point, halfway through the first quarter of 2017, we are pleased to report that test orders have increased over fourth quarter levels consistent with our expectations for 2017 and our U.S. invasive breast cancer growth is consistent with historical sequential growth of between 3% and 5%. I will now walk you through our results delivered across each of our key markets.

Our U.S. Oncology franchise; that is invasive breast, DCIS and colon grew 11% in revenue and 7% in test delivered in 2016. In the fourth quarter of 2016 revenue from our U.S. invasive breast cancer revenue grew 6% and tests delivered grew 4% year-over-year. As reminder, the fourth quarter of 2015 was an especially strong comparator following momentum from the initial TAILORx data.

In prostate cancer, we are very pleased with our fourth quarter acceleration of growth driven by the successful optimization of our sales team structure and rollout of a new test report. As a result, we delivered a 29% increase in Oncotype DX prostate test delivered compared with the prior year, as well as double-digit quarter-over-quarter test growth.

Prostate revenue was $3.6 million in the fourth quarter compared to $2.3 million in the third quarter and contributed 20% of revenue growth in the year. Approximately half of prostate revenue in the quarter was from tests delivered for Medicare patients.

As you look to calculate relative market share, it is important to remember that Genomic Health reports test results delivered to physicians for treatment decisions rather than the orders received. Additionally, the opportunity for the utilization of the Oncotype DX Genomic prostate score is 140,000 patients in the United States each year who were designated as either very low, low or favorable intermediate risks by NCCN guidelines and does not include high-risk patients or other intermediate risk patients.

Based on our fourth quarter performance and tests delivered and reported revenue, we believe we are now the leader in low and intermediate risk prostate cancer.

Looking ahead, we believe that topline data that we announced in November which strongly differentiate Oncotype DX as the first and only genomic prostate test validated to measure all major short and long-term endpoints will provide additional competitive advantage to increase adoption and reimbursement in coming quarters. We look forward to presenting the full results of the study and multiple medical meetings in the first half of this year.

International tests delivered during the quarter grew 22% compared with the prior year and represented approximately 24% of total test volume in the fourth quarter of 2016. Key Western European markets led the way with 35% year-over-year growth. International product revenue was $12 million in the fourth quarter 2016 compared with $10.6 million a year ago, an increase of 13%.

International revenue on a constant currency basis increased by 15%, 59% of tests delivered and 70% of product revenue were recorded on an accrual basis in the fourth quarter of 2016. As expected our gross margin rate was 83.9% in the fourth quarter.

Turning to financial guidance; in 2017 we plan to deliver total product revenue between $355 million and $370 million, representing growth of between 9% and 13% compared to 2016; and positive net income at the midpoint of revenue guidance. We expected gross margin rate of between 83% and 84%.

In 2016 we improved the bottom-line by $19 million and expect similar leverage in 2017. Importantly, in order to continue to deliver 40% operating leverage and thereby improved profitability, we plan to manage operating expense growth at approximately half the rate of revenue growth or between 5% and 6% in 2017. Additionally, in the first quarter we sold our remaining position in VTA [ph] representing more than a $1.5 million gain and will no longer have our results impacted by this investment after the first quarter.

At the midpoint of revenue guidance, we expect to deliver 11% revenue growth with the following assumptions; low to mid-single digit growth in U.S. oncology, U.S. prostate test growth above 30% and revenue including CMS intermediate coverage in the first half contributing approximately 40% of revenue growth, and continued double-digit growth for international tests and revenue.

We expect revenue growth to accelerate in the latter half of the year due to anticipated reimbursement progress both in the U.S. prostate and international breast markets. As you will notice we're not providing tests delivered guidance for 2017. The reason for this change is that revenue has become the more relevant business metric as we launch new tests and the reimbursement environment continues to evolve.

Despite this change, and how we approach guidance we will continue to provide tests delivered details as part of our financial results announcements. It is important to note we expect reimbursement progress to accelerate revenue growth later in the year.

With this in mind, we anticipate revenue of approximately $86 million in the first quarter which is factored into our 2017 revenue guidance. We expect an operating loss of up to $3 million in the first quarter of 2017 compared to the approximate $9 million operating loss in the first quarter of 2016.

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

Turning now to reimbursement; we established additional coverage for the Oncotype DX Genomic prostate score bringing the total number of prostate cancer covered to U.S. lives to more than 65 million. In France, we have started to receive payment under the Ministry of Health funding and in Germany, [indiscernible] one of the country's largest public health insurance funds began offering Oncotype DX to early stage breast cancer patients through an exclusive agreement bringing the total number of German private cover lives to nearly 9 million.

I will now turn the call over to Steve to discuss recent oncology clinical milestones. Steve?

Steve Shak

Thanks Brad. In 2016 we continue to achieve major medical milestones further establishing the Oncotype DX breast recurrence score as the standard-of-care. Most recently, the American Joint Commission on Cancer or AJCC which establishes restaging rules for all cancers announced in December the inclusion of Oncotype DX in the eighth edition of its cancer staging manual.

Representing a rigorous multi-disciplinary assessment, the new criteria identified Oncotype DX as the only multi-gene test with level one evidence to determine formal staging of breast cancer patients based on clinical evidence in more than 63,000 patients. Importantly, based on the New England Journal of Medicine Publication of the TAILORx study, patients with node-negative disease or micro-metastases in the nodes who have low Oncotype DX recurrent scores of less than 11 will now be considered stage one A regardless of age, tumor grade or tumor size up to 5 centimeters.

Effective January 1, 2018, the new AJCC prognostic stage groups will add for the first time molecular features including Oncotype DX, as well as ER, PR and HER2 status to tumor size, presence of metastases, nodal status, and tumor grade for staging breast cancer. In the meantime this year, the College of American Pathologists or CAP and the National Comprehensive Cancer Network also known as NCCN, are developing and updating protocols to facilitate the successful implementation of the new staging rules. A significant effort is underway to incorporate the new cancer staging roles into electronic health records and into cancer registry software.

The Oncotype DX breast cancer test can now be used for treatment decision-making and staging and has transformed cancer diagnosis and care to truly personalized medicine. This unprecedented inclusion of Oncotype DX in clinical staging reflects the rigor and breadth of the studies that support its use and the profound impact of the first TAILORx publication in patients with recurring scores less than 11. We along with the global breast cancer community eagerly await the TAILORx Data Monitoring Committee's decision to release the results from the group of patients with a midrange recurrent score that is between 11 and 25 who are randomized to hormonal therapy alone or hormonal therapy combined with chemotherapy.

As a reminder, the primary goal of TAILORx is to characterize the benefit of chemotherapy in women whose tumors meet establish clinical guidelines for adjuvant chemotherapy and fall into this midrange category which is the primary study group. Per study protocol, the Data Monitoring Committee is conducting interim analyses until either the criteria for stopping the trial early or met or the total planned number of disease-free survival events have been reported.

The nearly 7,000 midrange TAILORx patients have now been followed prospectively for between 6 and 11 years. We hope the results from this group will report out sometime this year and expect that they will provide more precise estimates of the benefit of chemotherapy for patients with recurring scores between 11 and 25.

To date, the Oncotype DX breast recurrent scores have been used to guide treatment decisions for more than 700,000 patients. Furthermore, the original clinical validation results have been confirmed prospectively through outcomes data from four large independent studies demonstrating the patients with node-negative disease or positive nodal disease with up to three positive nodes and low recurrent score results of less than 18 are effectively treated with hormonal therapy alone and spared the toxicity of chemotherapy.

The conclusions of the New England Journal of Medicine publication of the TAILORx results in patients with recurrent scores less than 11 were reinforced an extended by multiple presentations at the San Antonio Breast Cancer Symposium in December highlighting the accuracy of Oncotype DX in predicting clinical outcomes and its unique value in providing physicians with critical genomic intelligence to enhance breast cancer treatment decisions and patient benefit.

First, a presentation of SEER clinical outcomes data from 9,201 patients with node negative or node positive disease and poorly differentiated tumors confirmed that the test is a strong predictor of breast cancer specific survival. Most importantly, although patients with poorly differentiated tumors generally have a worse prognosis, those with the recurring score of less than 18 had excellent five year breast cancer specific survival of greater than 99% regardless of tumor size or nodal status.

A separate SEER analysis focused on the use of Oncotype DX in women older than 70 was also presented in an educational session on breast cancer treatment for the elderly, clearly demonstrating the need for Oncotype DX in this population based on the high rate of breast cancer specific mortality in women diagnosed with breast cancer over the age of 70, the relative under-treatment of these women compared to younger women and the strong association between outcomes and the breast recurring score results.

We also continue to build on the impressive body of evidence supporting the use of Oncotype DX in node positive disease with the new comprehensive overview across seven studies of more than 8,000 patients demonstrating that women with a low number of positive nodes and a low recurrent score have good clinical outcomes without chemotherapy.

Additionally, the results showed that use of Oncotype DX in node positive breast cancer significantly decrease the frequency of adjuvant chemotherapy recommendations providing a cost saving approach worldwide. The authors of this overview strongly support the use of Oncotype DX in node positive patients in an interview with the ASCO Post, Dr. Kathy Alben [ph] from Loyola University Hospital in Chicago said "for our study team, these data inform our clinical practice and indicate we are giving too much chemotherapy to this low biologic risk group. We hope that ASCO will quickly evaluate the new data and its recommendation."

In DCIS a recent publication in the Journal of The National Cancer Institute demonstrated the validity of the Oncotype DX DCIS score in women who had radiation therapy following breast conserving treatment. It demonstrates that women with a high DCIS score continue to have high risk of local recurrence and may benefit from more aggressive therapy underscoring the value it provides in identifying women who can be spare treatment as well as those who will benefit.

Looking ahead, we will have a strong presence at the upcoming St. Galan International Breast Cancer Conference and the Miami Breast Cancer Conference with the acceptance of multiple clinical utility, outcomes and physician experience studies.

I will now turn the call over to Phil to discuss the exciting advances in urology and our liquid biopsy programs.

Phil Febbo

Thanks, Steve. We continue to generate best-in-class data that support increased adoption and reimbursement of our Oncotype DX Genomic Prostate Score or GPS. Specifically, we have data from 21 clinical studies in more than 3,600 patients including prospective data from community-based clinical settings that reconfirm the independent predictive value of the GPS.

As we highlighted during our third quarter call last November, we now have new data making GPS the first and only genomic prostate test validated in all major short and long-term endpoints including adverse pathology, biochemical recurrence, the development of metastases and prostate cancer specific death. This means that we can provide physicians with an assessment about the current state and future risks of their prostate cancer based on biology.

We look forward to presenting details from this trial at three upcoming medical meetings in the first half of this year including the 2017 ASCO GU Symposium later this week, The European Association of Urology Congress in March, and The American Urologic Association annual meeting in May. Also to be presented at the GU Symposium are three additional studies that continue to illustrate the clinical utility of the GPS for men who are trying to decide between active surveillance and immediate treatment. We expect these data as well as all the clinical data generated to-date to support our efforts to gain Medicare coverage for men with intermediate risk disease and increased coverage by private payers.

Turning now to our collaboration with Epic Sciences; AR-V7 is the most exciting biomarker in metastatic castrate-resistant prostate cancer and we look forward to launching the Oncotype DX AR-V7 nucleus detect liquid biopsy test for metastatic prostate cancer later this year. Supported by a recent European urology publication, we are confident that detection of AR-V7 using the Epic Sciences no cell left behind platform will be the best test in the field.

This study conducted by Dr. Howard Scher of Memorial Sloan Kettering Cancer Center demonstrated that AR-V7 expression in the nucleus of circulating tumor cells was required for the test to be predictive of the benefit from taxane's versus continued hormonal treatment. While patients with any expression of AR-V7 nuclear, cytoplasmic or both had less benefit from androgen-receptor signaling inhibitors, there was no prediction of benefit for taxane therapy unless nuclear expression was present.

Given that other available tests cannot distinguish between cytoplasmic and nuclear staining, we are confident that Oncotype DX AR-V7 nucleus detect will continue to have greater specificity and clinical performance and establish the whole standard in the field. Furthermore, we expect this compelling and unique clinical evidence to drive adoption and reimbursement.

With the Oncotype DX Genomic Prostate Score and the Oncotype DX AR-V7 Nucleus Detect Genomic Health will bring two best-in-class molecular diagnostics into prostate cancer care underscoring our commitment to deliver precision medicine to the field of urology. We are also excited about our progress with Oncotype SEQ Liquid Select which is currently available to lung cancer patients and select oncology practices across the United States.

As a reminder, Oncotype SEQ is a targeted blood-based test that was designed to empower community-based physicians to provide precision medicine to their patients within the challenging settings of their clinical practice. This cell-free DNA based panel focuses on 17 genes including within a drugs FDA label or NCCN guidelines, and has demonstrated analytic sensitivity and specificity that is as good or better than competitive tests.

Furthermore, Oncotype SEQ results are delivered through an easily interpretable report that does not require the physician to survey literature, guidelines, or colleagues to provide immediate actual care for their patient.

Since the start of our targeted launch last June, 71% of the Oncotype SEQ reports issued have identified a variant in one of the 17 genes associated with an available therapy driving appreciation for the value Oncotype SEQ is bringing to cancer care among physicians and patients.

In 2017 we plan to complete accrual in our global concordant study, publish results from our analytic validation study and work toward submission of our dossier to support reimbursement. All the tests I have discussed today reflect our vision to address unmet clinical needs across the cancer patient journey.

Our goal is to deliver a robust Oncotype IQ portfolio of clinically actionable tests through both internal development as evidenced by GPS and Liquid Select and via partnerships with companies like Epic Sciences to commercialize AR-V7 nucleus detect. With our unique product portfolio leading global brand and unmatched commercial channel, we believe Genomic Health is the partner of choice to help oncologists and urologist bring precision medicine to their patients.

With that, I will now turn the call back over to Kim to review our 2017 priorities.

Kim Popovits

Thanks, Phil. The value we created this past year in delivering double-digit growth, improved operating leverage and positive EBITDA has generated momentum we expect will lead to full year profitability in 2017.

With the successful execution of our strategic initiative we will deliver double-digit revenue growth and profit for the full year at the midpoint of revenue guidance, continue to grow the U.S. invasive breast cancer invasive business, increase reimbursement for the genomic prostate score in the U.S. and for the breast recurrent score in key international markets, launch Oncotype AR-V7 for metastatic prostate cancer and expand our Oncotype IQ platform through internal product development and strategic partnerships.

With more than 700,000 cancer patients served to date, Genomic Health is delivering on the promise of precision medicine every day. We have invested in infrastructure and commercial channel that are both unmatched in the industry and position to deliver future leverage. Importantly, we have pioneered the path to establish high value reimbursement and a new standard of care that has changed clinical practice.

We look forward to continuing to update you on our progress this year. I'd now like to open the line for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Nicholas Jansen with Raymond James.

Nicholas Jansen

Congrats on the good end of the year. Just in terms of the prostate growth, certainly a significant acceleration relative to what you saw in the second and third quarter; just wanted to kind of get your sense of -- what you thought were the primary drivers behind that improvement? And then encouragingly as you think about the first half of 2017, how do we think about that 29% kind of continuing in the short-term? Thanks.

Kim Popovits

Well, I'll comment on how pleased we are. And I will let Brad take on the number question there. But -- yes, we are going into the quarter -- I think feel very positive about the traction that we were making throughout the year, both in terms of just the sales force hitting their stride, really getting to know these large customer groups better and actually just getting better at the whole data collection piece for Medicare. So you're really seeing the fruit of our labor in those few areas. We still clearly want to get more private payers on board and we need to get to some work with the Medicare and intermediate reimbursement coverage that we think we're very close in that regard as well. So we feel that that momentum will carry us nicely into this year and we're really looking forward to maintaining our market leadership here.

I think it's also just important to know that physicians are seeing that our test and the clinical data and the differential factors about it, so it's just something we had to do a better job of educating on but with the new data in hand, I mean that's not even something that we been able to get out and talk in a robust fashion about yet -- that will be coming with the presentations at the upcoming meetings that still highlighted. So we have a lot of good things coming in prostate, the data, new reports and again, just these growing relationships and our ability to differentiate this test for the specific population that we developed it for.

So Brad, do you want to comment on this?

Brad Cole

Yes, we too are pleased with what you saw and test growth, the 29%. And we've said for a while that sequential growth in double-digits is what the prostate business could deliver and we saw that here in the fourth quarter. Continued growth at those levels put us in a competitor that's well above 30% on a quarterly basis as we look back at the prior year. And we -- my comments around guidance, revenue guidance requires that the prostate contribution contribute at that level and will be a big contributor to growth, nearly 40% of revenue growth we think is going to come from the prostate business next year and we're off to a great start and the table has been set very well.

Nicholas Jansen

Great. And then secondly, on just the U.S. press franchise, certainly the back half of '15 and the first half of '16 benefited from the TAILORx data. I think your guidance for '17 calls for a relatively decent slowdown versus that. And I'm just trying to better understand if that's just the overall market dynamics waiting to get to next round of TAILORx intermediate way out or is there a competitive noise – I know out there as we think about that growth trajectory for 2017 before you bridge the gap in 2018. Thanks.

Brad Cole

Nick, I think you're noting the right things. Before the TAILORx low risk or low recurrence score data was available we were going in the low to mid-single digits and that really did change the game when we ended up delivering high single digit growth across the full of the year. And we think until there is new data of significance that we can still deliver the kind of growth we saw pre-TAILORx which is in the 3% to 5% range, which we saw delivered here in the fourth quarter where our tests were up 4% year-over-year in the fourth quarter against a tough competitor back to TAILORx level of data, that was in late '16.

So we're continuing growth is in front of us without new data and we think AJCC is just another bit of data that could give us even another boost but it's too early to tell how much that might be but stay tuned.

Nicholas Jansen

Thanks. I will hop back in queue.

Operator

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

Unidentified Analyst

Hi, this is Adam on for Doug. Thanks for taking my questions. I have two on the international reimbursement outlook. I know you consider Germany a key market for 2018; can you provide the update on when you expect a coverage decision by the GBA? And how that outlook currently looks versus for a successful coverage decision? Thank you.

Brad Cole

Yes, the GBA does look to -- much like NHS looks to NICE. So GBA has the ability to make a decision that would cover broadly, publicly but we're probably delayed some from that decision in 2017 as a result of the quick decision to not cover any tests in late 2016. So we're not expecting broad coverage decisions from GBA in '17 as you pointed out, more likely a 2018 event. However, I'd like to point out that other more progressive payers in the German market have moved ahead and as we saw this last quarter an op-shot increase to our coverage in Germany where we have 9 million live. So I think '17 is going to be about kind of one payer at a time and '18 is more likely to be where we see a GBA determination. It may happen sooner, but that's not our expectation.

Kim Popovits

I would probably just add to that; pending the TAILORx intermediate result, we would be looking for Epic [ph] to go back and reevaluate because one of the things you may have noticed in there; analysis was -- they clearly left the window open as differentiating Oncotype DX with the prospective outcomes data in the intermediate range. So assuming we get that result this year, we'll be certainly bringing that to them.

Unidentified Analyst

Okay. Thank you. And you also mentioned that you're now recognizing reimbursement revenue from France, we're just trying to understand the potential size of that. Could you provide your current penetration in the French market? And considering you now have essentially full coverage, do expect revenue growth to track more line of volume growth this time? Thanks.

Brad Cole

There is still going to be a lag. I think I would take you back to what this look like in the UK, whether it's a number -- quite a bit of demand actually and it took time to get contracts in place, take advantage of the funding that was there. So, yes it will start to track test growth overtime but in the short-term it's going to be like getting contracts in place. So we're not going to looking for a company level a material amount of revenue from France but on the international growth it will be an important contributor to overall growth in the international markets.

Unidentified Analyst

Okay, great. Thank you.

Operator

Thank you. And our next question comes from the line of Bill [ph] with Piper Jaffray. Your line is now open.

Laura Sand

Great, thank you. This is Laura Sand on for Bill. So nice growth in prostate; can you provide some color on what drove growth between like increased utilization or expanded adoption? And then what's the latest on the negotiation for expanding Medicare reimbursement into intermediate risk?

Brad Cole

Yes, so I'll make a comment just on revenue. About half of the revenue comes from Medicare patients these days. So we're getting paid significantly higher rate for Medicare. So volume does matter but coverage is going to matter more; and so we look forward into 2017; the significant market to penetrate, we've got a lot of room to grow but probably two-thirds of the revenue growth next year is going to come from reimbursement progress. And one of those key progress points is CMS intermediate.

Steve Shak

Yes, and we are very pleased to see that -- the DX program was willing to provide coverage for intermediate risk prostate cancer patient, so it's a different place than they were a year ago. And we've had a very positive meeting with them, and when we're able to provide the recent results from the study that we announced this fall and then I spoke to just a few minutes ago, and we anticipate a positive issuance of a LCD-CDD sometime this half.

Operator

Thank you. And our next question comes from the line of Derek [ph] with Bank of America. Your line is now open.

Unidentified Analyst

Hi, this is Ann [ph] calling in for Derek. I was wondering if you could breakdown your prostate volume as it stands currently between low and intermediate risk?

Brad Cole

Okay. About 60% of our volume comes from low or very low risk patients by NCCN guidance which is at least in six patients and about 40% of our volume comes from intermediate patients who have favorable risk factors. That's split kind of 50-50 Medicare after you make that split about which type of patient shows up about half the patients, little more than half the patients are Medicare patients. And today about 25% of our volume is billable to Medicare, a combination of Medicare and Medicare Advantage patients.

Unidentified Analyst

Got it, thanks. And did you say it's the AFP that you achieved in the prostate business and Q4 is going to be sustainable. Going forward it keeps grows, keeps growing from here; how should we think about that?

Brad Cole

Well, we do think it's sustainable. I mean, I think one of the reasons is the CMS coverage that Phil referred to we changed in a significant way up. And so we expect revenue growth to be much faster than test growth with reimbursement success. So although in my prepared remarks I said that 30% growth in tests; we expect much, much higher growth in revenue than 30% as a result of CMS coverage for intermediate and some private coverage the back half of the year.

Unidentified Analyst

Got it, thank you.

Operator

Thank you. And our next question comes from the line of Tim Evans with Wells Fargo.

Sara Silverman

Hi, this is Sara Silverman on for Tim. You guys noted the U.S. oncology test volume in the fourth quarter was a little lower than expected; can you talk about what drove that? When you look at total volume maybe more broadly, it's sequentially last year as well, is there any sort of seasonality we should be thinking about?

Brad Cole

Yes, I think we're seeing something now, until last two years it was little different than we'd seen in prior years where we saw sequential growth across most of our markets in the fourth quarter and when our business has been dominated by breast cancer, the San Antonio Breast Cancer Conference had an impact on that and I think there has been less foundational or data changing data at San Antonio, we haven't seen the same kind of sequential growth the last couple of years but we have seen here in the first quarter that kind of new year growth that we've seen for the last decade and so our test volume growth in oncology coming out Q4 is up in Q1 like it has been at historic levels. But no other observation other than that with little softness in this back half December but in total it looks a lot like it has the last couple of years.

Sara Silverman

Okay, great. Thank you.

Operator

Thank you. And our next question comes from the line of Tycho Peterson with JP Morgan.

Unidentified Analyst

This is Steve [ph] on for Tycho. Thanks for taking my question. First, just understanding you want to drive some leverage in your sales infrastructure; can you talk about some of the commercial investment priority at 2017 and kind of what specific areas you're looking to build out?

Brad Cole

Well, I think there is a couple of things to think about -- the growth that we've been talking about in prostate which is significant and we saw this quarter we think can be delivered this year with little new headcount investment in prostate. Little new headcount investment, there will be investments in programs and some promotional programs but we think there is leverage there. Again, we're going to grow operating or manage operating expense that have the growth rate of the business in total. So that's a big point of our spending in the sales and marketing area; so that's leverage just in aggregate. But we think there is room to grow again in prostate with the same footprint. And we've added to that team, a strategic manager who have been helping us in breast, kind of get systemic adoption and standing orders. So we're taking those kinds of approaches that have worked in breast with our prostate team. And we're also planning to launch the AR-V7 test in combination with Epic, that can be sold by both channels to both, the urology market and the oncology market for this patients; so a couple of good things happening in that regard.

Unidentified Analyst

Got it. And just kind of following up on that, Epic Sciences piece, and this was touched on briefly during the remarks but are you having conversations about other companies out there that would you allow you to enter into different partnerships and I hope you leverage your commercial channel. That is something where we could see it kind of being announced over the next couple of quarters or years?

Kim Popovits

Fred, do you want to…

Fred Pla

Sure. This is Fred Pla. We're also taking partnerships to leverage our oncology and our urology channel. So we're always canning the landscapes out there, talking to a lot of people and looking for opportunities similar to Epic that allow us to bring more products in that channel and be accretive in the relatively short-term.

Brad Cole

And as a financing guy, I love to the Epic deal. Right?

Kim Popovits

Well, it really is a perfect fit, both channels, you know, near term launch we believe has the clinical evidence we're going to need to gain reimbursement quickly with it. So we'll look for more things like that.

Unidentified Analyst

Got it. And just quickly on the model, as you switch over to kind of sustained profitability, what tax rate are you assuming in your model?

Brad Cole

So we're not assuming that we'll have what the auditors and we deemed sustained profitability and cumulative profits for three years, so we won't have a tax rate, it looks to have a fully reserve number this year. When that happens, there will be a big swing and then a tax rate will probably be -- I will be really dangerous here, say between 30% 40%. How is that? So there is any near-term requirement to build that in your model. We're paying a few hundred thousand dollars per quarter I think that will be the case to year when we have a relatively small profit.

Unidentified Analyst

Got it. That's all for me.

Operator

Thanks. Your next question comes from Jack Meehan of Barclays. Your line is now open.

Mitchell Petersen

Thanks. This is actually Mitchell Petersen filling-in for Jack. So given that one of your competitors is given up for launch in invasive breast in 2017, 2018 timeframe, I was just hoping to get your views on how you believe the launch will impact the competitive landscape and specifically if you have any thoughts around potential pricing or market share impacts? That will be great. Thanks.

Brad Cole

Yes, I can, I just comment on what we think will continue to differentiate Oncotype DX in the marketplace and I think that has gotten stronger with the AJ cc recommendation. So what we know is that had competitors in the space actually for -- you know, since we've launched in 2004. And I think what you see from the past is that the clinical evidence is really driving the decision-making year and the decision around chemotherapy benefit is what keeps Oncotype DX as the market leader.

We don't see that changing, you know, we don't see that there's clinical evidence with any of the in the competitive tests that are answering those specific questions around chemotherapy benefit and now that you've got Oncotype DX in levels a GCC station process that's really pretty compelling suite of evidence keep the market leadership here.

That doesn't mean that would take competitors lightly or that they can be disruptive and certain areas of the country for certain periods of time but we've not seen any kind of significant shift in our market share through – I guess that decade plus, in this area.

Mitchell Petersen

Okay, that's helpful. And then I know you said low single digit to mid-single digit growth in oncology for 2017, does that assume any conservatism from change in any competitive dynamic?

Brad Cole

Well, I'll just reiterate what Kim said. Excuse me; what Kim said, we've had 90% plus share, we're not expecting that to change significantly this year. And you know that doesn't really consider much of a shift at all.

Mitchell Petersen

Okay, thanks a lot.

Operator

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

Kim Popovits

Thank you for joining us today and for your interest in Genomic Health. We will look forward to seeing some of you at upcoming investor conferences and medical meetings, and Happy Valentine's Day.

Operator

And this concludes today's fourth quarter and year end conference call for Genomic Health. You may now disconnect.

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