Q2 2019 Earnings Call
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Thank you for calling and conference Levy attending.
I would like to attempt in that period, our Q2 earnings call.
Okay I may have your first and last name.
David Brown.
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Good.
Third our dotcom.
Sit at I.R.R. Dot com.
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And a I.E.
That's correct.
Okay.
Oh go ahead and connect you now thank you.
Yeah.
In presented during the call may not contain current or accurate information the tear disclaims any obligation to update or revise any forward looking statements. We will provide guidance on today's call, but will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum.
We will quote a number of numeric or growth changes as we discuss our financial performance and unless otherwise noted each such reference represents a year on year comparison now I'd like to turn the call over to Steve.
Thanks, Mike Good afternoon, everyone and thanks for joining us I will cover our recent highlights and progress on the business side. Since we last spoke in May and Mike will provide additional detail on our financial progress as Mike mentioned, we will be referring to slides that were just posted at Investor day, the Terra dotcom.
A quick review of the highlights and then I'll go into more detail on each topic, we processed over 195000 tests in the quarter, which represents roughly 20% year on year growth versus Q2, 2018, consistent with a very strong growth rate. We saw in Q1 of this year.
We're seeing the improvements we discussed in ASP and we're continuing to hit our Cogs milestones along our path to $200 per test the volume ASP and Cogs are helping drive toward our goal of getting to reproductive health business cash flow breakeven, while maintaining our strong leadership position.
Total revenues in the quarter were up $74.4 million up 18% from this time last year and Q2 is actually a challenging comparison, because if you recall, we had a onetime spike in reported volumes in Q2 2018.
Included in our revenues for the current quarter is approximately $5 million in revenue generated from the achievement of significant milestones and for development work performed for BG.
And we are optimistic about the commercial launch of Signets era in China.
We do not believe this revenue from a partnership as a onetime event for US in fact, now that we've signed and expect to sign several multiyear development and commercialization partnerships, we expect to see a future stream of revenue from upfront payments milestones and royalties, making a meaningful contribution to our financials. The strength of the terrorists technology and our investment in innovation has unlocked these revenue streams with more to come.
We've also made significant progress toward achieving Medicare reimbursement for Cigna Terra in patients with local originally advanced colorectal cancer, an opportunity that we believe is four to five times larger than the kidney transplant market.
On the heels of our pre submission meeting we have submitted our formal coverage dossier to Medicare and we anticipate a response in late 2019 or early 2020.
We see it particularly acute unmet need in colorectal cancer. This signature is very well positioned to address and will spend a few minutes on that later in the call.
In addition to the major publications, we announced this spring in colorectal breast and bladder cancers. We also presented data at ASCO demonstrating signatures ability to measure patient response to keytruda across a range of 10 different cancer types.
Therapy effectiveness monitoring is enormous opportunity and increasingly we're seeing interest in this from pharma.
We believe we're on track for target of $40 million to $50 million, a cumulative total contracted value for pharma this year.
Our goal was to generate revenue growth in the oncology business through successful commercialization of Signet Tara.
We're pleased with our trajectory in pharma and now we're very excited about the clinical opportunity in colorectal cancer as likely the first among many future indications.
A kidney transplant were well along our goal of achieving coverage and commercializing prosperity in 2019.
We are very pleased to announce that we have secured one of the premier researchers and positions in the industry Dr., Jonathan Groberg from the University of Maryland, a top center in the United States and be the pie for the proactive trial. Our study. It's one of the largest known perspective kidney transplant trials ever announced represents another step towards commercializing prosperity.
We also received a favorable draft local coverage decision from Noridian, our local Medicare contractor.
As expected this determination was consistent with the Mol Dx draft coverage decision we received in the spring.
We believe we are on track to receive a final positive LCD and commercialize the test later this year.
Now, let me jump into the details.
Onto volume growth the 195000 test process in the quarter represents roughly 20% growth versus the same quarter last year consistent with our year on year growth in our strong Q1 and consistent with the overall volumes in Q1. Despite the fact that Q1 was one of the best quarters that we've ever had you can see here on the first slide that our first half growth represents yet another step function up from last year, which itself was very strong relative to 2017.
The next slide shows a year on year growth trends for our business you can see here than in Q1, we grew roughly 20% year on year versus Q1 2018, any Q2, we saw consistent performance with that very strong growth that we saw in Q1.
As we've discussed on seasonality in Q2, we typically only get about 90% of the volume received from our existing customers in Q1. So we need a very strong new account growth just to be flat sequentially. That's exactly what we got in Q2, we are very pleased with our growth in new accounts, which sets us up to achieve our performance objectives in the second half 2019, you may recall. This is our volume growth unfolded in 2018, and we expect a similar progression this year.
There have been some significant changes in the competitive landscape over the last six months, but this space has always been very competitive and we're pleased with how we're performing panorama and our Sip technology are highly differentiated and extensively published in the top peer reviewed journals. This scientific leadership combined with our commercial strength and focus on user experience has distinguished us amongst the field of massively parallel sequencing licensees.
In fact, we're now quickly moving toward our two millions and IP test, we're able to leverage our leadership position and extensive volume to further improve the performance of the assets and lower our Cogs with discrete projects, we intend on announcing in the future.
We will stay vigilant in protecting our market share.
The next slide covers average selling prices Im sure. Many of you are interested in the progress we are seeing with average risk and I became the average risk market remains largely untapped market opportunity. As we have described previously is only 15% to 20% print penetrated and we think the key driver for unlocking that market is a revision to the guideline on an IP and it was withdrawn last year.
We continue to believe that the update will be positive and of course, the timing of the new guideline remains uncertain.
In the meantime, we believe there are significant improvements to be made ensuring that we are reimbursed for every test that we ought to be covered today.
As we've described on our last two calls we saw unexpected different pricing in Q1 due to a variety of factors like changing prior authorization policies.
We expect that that pressure to continue in Q2, and then hope to see some progress in the second half of the year, we placed a lot of focus on execution in this area and we were pleased to see some positive results ahead of schedule.
As you can see our estimated revenue per test reported increased from Q1 and many of our improvements only hit partway through the quarter and wouldn't be fully reflected in our revenue accrual until Q3.
This increase is being driven by a reduction in denials related to prior authorization pricing negotiations and improvement in Medicaid coverage and reimbursement.
No for the calculation of ASP, we have excluded revenue from BG derived from our development work, obviously that work is valuable but the goal here is to give you a sense of the expected cash collections per test in the core business, Mike will talk more about these topic shortly but in summary, we try to be conservative in our revenue accrual and the recent trends we have seen bode well for the second half the year and I'll mentioned again, we don't want to dismiss the potential significant impact of our long term strategic partnerships.
The next slide describes our blended cost of goods sold progression as you can see on the slide we made significant progress over the past year and have a long track record of reducing our Cogs overtime, we posted $232 per unit in Q1, and this quarter, we were at $236 pro forma for onetime vendor charge, we were slightly higher in Q2 due to product mix, but the underlying operations clearly running much leaner than the 260 to 70 range, we posted last year and we remain on track to reach our goal to bring blended cogs below $200 per unit.
As we have described in the past we think the next wave of savings will come from larger projects underway that we think will hit in early 2020.
Now switching gears in oncology I think is worth reminder, on where we are positioned we're not focused on asymptomatic cancer screening or early detection as seen here on the left side of the slide moving over to the right to therapy selection, mostly the metastatic setting. This is typically when people talk about when the referring to liquid biopsy and where many of the commercial tested air position.
Moving to the Middle we think the biggest opportunities monitoring and R&D assessment, which we estimate to be roughly $15 billion market opportunity and thats exactly where our signature test is focused.
There are three key intended uses within this segment first patient stratification were minimal residual disease status can be used to determine the risk of recurrence and support better treatment decisions second serial testing after definitive therapy to detect recurrence earlier than imaging and third therapy effectiveness monitoring how well as model therapy. Working for example, we're making meaningful progress in each of these areas and now let me turn it over to Solomon Moskovitz to discuss the ongoing oncology opportunity and our progress in more detail.
Thanks, Steve.
The MRT space in solid tumors is definitely heating up in time, we believe him R&D testing will be compounds routine of CTG imaging is today across multiple cancer types.
The first indication we are pursuing for Cigna term is in local originally advanced colorectal cancer.
As you can see on slide while we are obviously excited about the kidney transplant opportunity, we estimate the addressable market and CRC is up to four or five times larger.
The American cancer Society estimates that about 145000 people will be diagnosed this year with colorectal cancer and that 1.4 million people are living in the U.S. today with the previous CRC diagnosis, if you only count local or regionally advanced disease amounts to approximately 100000 annual incidents and over 1 million prevalence.
Based on current testing schedules using standard biomarkers like CEA, plus our discussions with experts.
We believe patients will fest four times per year in the first two years after diagnosis and at least two times per year thereafter.
The CRC monitoring opportunities compelling.
The market is large our data is strong and we are now making significant progress with Medicare toward establishing reimbursement.
We see two major unmet needs in colorectal cancer, which leads to natural intended uses for signet Sarah.
First is the early detection of recurrence.
Approximately 25% to 30% of patients with local originally advanced CRC will relapse in colorectal cancer is a cancer type were early relapse assumption is known to improve outcomes.
Because some patients are eligible for curative surgery.
For this reason patients today are monitored closely using a combination of CG imaging and a serum biomarker CEA for at least five years.
Unfortunately, the vast majority of recurrences today over 85% are caught too late for curative surgery with most cases being diagnosed after clinical symptoms have already appeared.
In our Jama oncology paper, among 16 or relapsed efficiency of hot cereal Ctdna testing signatory detected relapse up to 16.5 months earlier than standard tools and 8.7 months earlier on average. This is a significant lead time that can result in more patients having a chance at curative treatment.
Therefore for patients in remission, who test positive signet, Sarah the physician could recommend a reflex to higher resolution imaging, such as Pat or try to locate the lesion as soon as possible.
In addition, CSC imaging suffer from high false positive rates with one recent studies showing 71% of all positive cc scans as false positives, implying a PPV as low as 29%.
By contrast in our gym oncology paper signatory reported only one false positive test results demonstrating positive predictive value over 97% per test.
In this regard segments, our could significantly reduce unnecessary clinical and diagnostic work ups and the anxiety associated with false positives. This extraordinary specificity is made possible because of our personalized and tumor informed approach.
The second major unmet need in colorectal cancer is around treatment decision, making in the occupant setting most local originally advanced patients are cured with surgery alone.
So the objective of chemotherapy after surgery is to eradicate any micro metastatic disease that may remain in the body. After surgery. The problem is that physicians today do not know who has micro metastatic disease. So the guidelines recommend identifying and treating patients at high risk based on prognostic factors like tumor stage or look node status.
But these are just proxies and they're often inaccurate.
As a result patients today are significantly over treated with toxic regimens that leads the treatment related mortality and up to 1% of patients and grade three or four toxicity, another 10% to 31%.
In the status quo, we estimate that 11 patients are treated to benefit just one.
Using signatory to stratify patients can lead to more patients getting treatment is needed and a significant reduction in unnecessary treatment potentially improving treatment efficiency to roughly three patients treated to benefit one.
We're getting very positive feedback from our initial physician interactions on these two key use cases, Marty after surgery and recurrence monitoring.
The next slide shows our progress toward Medicare reimbursement for these indications armed with the data we published in Jama oncology on the results. We've demonstrated in other cancer types. We recently submitted our das there to Medicare for a local coverage decision.
This plan is similar to the one that we followed in our kidney transplants effort and we're working with same team at movie extra the submission.
We have a small focused effort underway now to begin driving adoption in colorectal cancer.
And we would anticipate an expanded effort time roughly in line with a coverage decision for Medicare, which we think to happen in late 2019 or early 2020.
Once the CRC indication of secured we look forward to rolling out and pursuing reimbursement for a significant number of additional indications both directly and in some cases through collaborations with pharma as we've described previously.
One additional opportunity as highlighted in data that were recently presented at ASCO showing the ability of Signets air to evaluate patients response to immunotherapy in this case Merck strong keytruda.
In this study led by the Princess Margaret Cancer Centre in Toronto, We evaluated 70, metastatic patients with head and neck cancer breast ovarian cancer melanoma, and others and we show that signature outperform centered care imaging in two ways first secretary can differentiate between actual disease progression pseudo progression, which is what happens when the treatment is working but the tumor initially looks bigger on a scam.
The graphic on the right shows an example from the study where the Green line shows tumor volume as measured by CPCN and the Blue line shows tumor DNA levels in plasma in this regard cigarettes or is more accurate than imaging.
But it's also faster that's the second advantage Cigna Tera provides an earlier read out and imaging often months earlier. This has significant implications for pharmaceutical companies, who are looking to use et cetera, as a surrogate endpoint in clinical trials, so at a faster rate on treatment efficacy.
The study also shows significant potential for Cigna Terra in Eclinical metastatic setting for earlier identification of patients who are not responding to treatment and who may proceeds alternative treatment option sooner.
As well as identification of complete responders, who may safely de escalator therapy or take a drug holiday while under continued surveillance. We believe this can lead to better outcomes and significant cost savings for the healthcare system.
Turning it back to Steve now for details on the order transplant business.
Hey, Solomon.
We've also made steady progress toward our transplant launch later this year.
Many of you saw the announcement of the proactive registry trial.
This will incorporate more than 3000 patients across a broad range of leading transplant centers.
To our knowledge proactive as a largest prospective registry trial ever launched in kidney transplant monitoring and we've been very pleased with the response, we've gotten from the community for what we think will be a landmark trial. There are several key differences between this trial in the K OE, our study, including its size and its following of high risk patients for up to five years post transplant.
As I mentioned, we are very pleased to welcome Dr., Jonathan Bromberg from the University of Maryland.
As the principal investigator for this study.
We're hitting our internal milestones on the trial preparation and look forward to enrolling patients later this year.
We are also announcing a second prospective study using prosperity to assess kidney transplant rejection that will include an assessment on each patient's biopsy within novel molecular microscope diagnostic system.
The molecular microscope uses a gene shipper ray to measure transcript levels and biopsy tissue and then it applies and proprietary algorithm designed to more accurately assess rejection as well as other histologies.
The system was developed by Dr. Philip Halloran from the Alberta transplant applied Genomics Center and Dr. Halloran will serve as the pie owner study.
We anticipate that the study of at least 300 patients with biopsy match blood samples will provide further evidence of our assay performance, including new sub groups and then it will generate key insights into the benefits of monitoring patients with a full suite of molecular testing.
As we have announced previously we signed a partnership with Thermo Fisher's one Lambda division to commercialize prosperity.
One Lambda holds an exclusive license to commercialize and molecular microscope system.
The next slide shows our progress towards Medicare reimbursement.
We are ahead of schedule on this slide it with an Iridium draft LCD now complete we are closing in on our final LCD and release of final pricing, which we still anticipate happening in 2019 with that.
Let me turn it over to Mike to walk through the financials.
Mike.
Thanks, Steve.
Now to summarize our results for the quarter.
The results for the quarter crossed the wire this afternoon and for brevity on the call today Im going to focus on the key points of the Q2 results.
As Steve mentioned revenues for the quarter were 74.4 million up 18% versus Q2 last year.
Gross margins were 41% in the quarter of 600 basis points versus the same period last year, we benefited from our development efforts with BG in the quarter as Steve described but even without this development revenue. We estimate gross margins were better versus last year, given the significant drop in cost of goods sold we're seeing.
It's also worth noting on both revenues and margins that we did not materially benefit from recognition of cash based revenue from older People's in 2018, as a reminder, we booked approximately $10 million in revenues from older deals and although I do think that we can see some benefit.
From our efforts in 2020 with we don't have any.
Older Appeals revenue in the guide for this year.
Steve referenced average selling prices in the quarter as a reminder, we calculate that metric by dividing total revenues by test reported out of our lab and we try to be conservative and stripping out variables such as Red reserves and true ups that we don't think are consistently recurring events.
In the last three months, we have seen a significant improvement in our metrics related to prior authorization denials and if those trends holes. We think there is potential to see more of that benefit reflected in the revenue accrual in Q3 and beyond.
As discussed on our last two earnings calls, we expected pricing to be down in the first half of the year. So we are pleased to be ahead of schedule in this area.
Panorama revenues for the quarter were $36.5 million compared to $35.7 million in the second quarter of 2018, an increase of roughly 800 K.
Horizon revenues for the quarter were $24.3 million compared to $21.4 million in the second quarter of 2018, an increase of roughly $2.9 million as Steve mentioned, we had a spike up in Q2 2018 tests reported out as we caught up from from some delays in Q1 of last year. So that has muted the year on year revenue comparisons to a certain extent.
Total operating expenses for the quarter were $59.2 million compared to $49.3 million in the second quarter last year stock based comp charges related to the share price increase and litigation expenses that we don't think are permanent ongoing expenses contributed significantly to the increase we did see the expecting operating expenses ramp up consistent with our guidance as we prepare to launch transplant and expand our commercial footprint and oncology.
At the close of the quarter the company held $238 million in cash cash equivalents short term investments and restricted cash compared to roughly 129 million as of March 31 2019.
The capital structure remains in the same place at the end of Q2.
As you know, we closed an equity offering abroad, and net cash of roughly $108 million and received.
Roughly $28 million net cash from BG I in the second quarter as part of our collaboration.
Turning to our future outlook.
We are raising the top end of the range slightly to $305 million.
This accounts for the BTI revenue and reduces the impact of average risk.
The reimbursement in the second half of the year previously the guide for the full year anticipated a positive eight high guideline driving ASP is higher in the second half of the year.
Given that we are into August however, we think it's appropriate to modify that reimbursement assumption.
We are pleased with the volume performance.
And encouraged by the organic ASP trajectory in Q2 and expect to make more progress with BTI.
The remainder of the guide remains the same.
So with that I'll hand, it back to the operator for questions operator.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key once again to ask a question. Please press star and then one now.
And our first question comes from Bill Quirk from Piper Jaffray. Your line is open.
Thanks, Paul Good afternoon, nice quarter guys.
As Bill Hey, Bill.
So a couple of questions on the on the proactive study appreciate the additional details on the call today.
Maybe fill in a few.
Missing pieces here. So is Medicare again, thanks for this or is this a self funded.
Study and do you know yet how many centers you are going to be targeting for that and then I guess separately.
Steve with respect to the timing of the draft LCD going final.
Any feedback or any indication from palmetto at this point and it certainly sounds like it's on track, but just curious if you have any additional color there. Thank you.
Yes, Thanks Bill.
This is Steve So I'll just comment briefly on sort of the reimbursement timeline that we outlined in the slide deck, we feel things are very positive.
We announced previously we have this mall Dx.
Draft local coverage decision that was very positive and that was followed up by a draft local coverage from Noridian.
It was also very positive so we feel like things are on track and going well, there's sort of a set timeline out there for for how these things go and we feel like we're following that trajectory. We've said previously we think.
We think that will be announced some point in the second half of the year.
We are in that now and we're engaged with.
With multi acts and were eagerly awaiting a final coverage decision.
With respect to the registry trial I'll, let Paul talk about the number of centers in the size of the study.
Right. So thank you for the question.
First of all we're delighted to have Jonathan Bromberg as the lead for the study user renowned transplant medicine specialist and will certainly add to our ability to do the study. This is an enormous an exciting study.
We've had great response from centers, who have participated in previous studies, who are new to studying this issue oils have been very excited about the proactive study. So it's a large study 3000 patients we expect to have many centers enrolling.
In the first quarter of goods, so rollout and.
Our long endpoints.
As a five year end points here.
But we also have very important utility measures that we have together significant data. So there will be interim readouts.
But this is a really exciting long term study.
And sorry, any any comments.
Paul with respect to Medicare involved in this and I know they are participating in the <unk> and the other registry study I guess that wasn't that wasn't clear. Thank you.
Sure Bill this is Selman I'll take that one so.
When any tests or word in this study that are in line with the intended use and the coverage criteria under Medicare, which we expect to be the vast majority of the tests in the study.
Well Bill we will go Medicare.
Okay got it thanks for the clarification phone.
Thank you. Our next question comes from Tyco Peterson from JP Morgan Your line is open.
Hey, good afternoon guys.
Maybe I'll start with guidance. So you pulled a cod can you just remind us.
What you have baked in for the back half of the year and then just thinking a little bit about a piece can you talk to what drove the improvement in what the trajectory of ASP.
Should be going forward for the back half.
Yes, Thanks, Heiko, yes to what we had baked in.
We haven't broken out a specific kind of revenue guide for what average risk was work. We just we just presumed there'd be kind of steady but not spectacular.
Improvement in the United PTSD as a result.
Of of average risk reimbursement improving the second half of the year. So thats been taken out of the guide.
The.
The trends that we've seen in Q2 I think.
Well for the back half of the year and so.
We do expect to see kind of stable.
Stable steady increases in the overall ASP in the second half of the year and Thats whats implied in that in the guidance high res.
Then as you maintain the gross margin guidance of 35 to 41 year at 41. This quarter any reason margins would take a step down in the back half.
Yes, I think the gross margin guide still is like an appropriate range for to cover the range of Papa outcomes of the business, but I would say the work.
Positively biased towards the top half of the range.
The gross margin right.
And then thinking about prospera.
And then the commercialization plan first on pricing I guess, the initial LCD was positive and cross walking to cdna is 2500 2800, but can you comment on exactly how you're thinking about pricing and then just any comment you can make on the government push around kidney transplant the cost reduction initiatives.
Yes. Thanks Heiko. This is Steve so I think on on on pricing I mean, there's there's.
With our code, we have a Z code.
Modifier, that's unique to our test and then we will be using a miscellaneous code similar to what others. In this space are doing and we are having individual discussions.
With all the facts about how the the task would be priced.
We believe it will be price similar to the Alisher test.
But that discussion is ongoing and that will be made available.
Later in the year after the local coverage decision.
Comes out and it's.
In its final form I think on me.
Government initiative of course, that's something that we're very excited about and I think others have commented that it could increase the number of organs.
They're available for transplant by roughly 15% and then of course, it highly incentivizes the centers to improve their outcomes, which we think bodes very well.
For a product like Prospero. So we're very excited about this.
All right and then just lastly on BG I did you recognize some revenue from the partnership in the quarter, you mentioned hitting technical commercialization milestones and then how do we think about pacing of additional BTI revenues and thoughts on the segment Terreblanche in China with them.
Yes. Thanks Tiger. So we did we booked 5 million in the quarter and DIY revenue recognition of the the hurdles that we that we cleared in the quarter.
We do expect.
Some marginal revenue from BG through the rest of the year, it's a little bit harder to predict because this is driven by the technical efforts of both teams.
As to kind of pacing of.
Royalties and commercialization for VTI.
That's going to be something that's going to be at 2020 event.
And beyond we do think thats at a.
Strong long term driver to our business.
But not in the guys are 19.
And then just and this is Steve I'll mention just.
Just with respect to launch in China as we've outlined before.
The Chinese oncology market. The number of patients is four times as large as the United States and we really think BG I as the premier partner because they really are the dominant experts in China on cell free DNA testing and so they do out of their lab today over a million cell free DNA test in the prenatal space and they really have a massive reach all throughout China, and we think that they are really the premier partner for us to have in that region to deliver the signet Terence So we're making a lot of progress as we announced we met some key.
Technical and commercial milestones that allowed us to recognize some revenue, but theres a lot of.
A lot of progress being made both on the prenatal side and on the oncology side, we really look forward to launching signature on China.
Okay. Thank you.
Thank you. Our next question comes from Doug Schenkel from Cowen and company. Your line is open.
Hey, guys.
So so I guess just a couple of follow ups on BG ought to start.
Where tyco left off.
So as you guys know.
In the 10-Q in describing the relationship with BG It says that.
If you will and I quote receive a total of $50 million compromised of 35 million upfront technology licensing fees prepaid royalties and 15 million in future.
Milestone payments so what's the 5 million in revenue recorded in the second quarter, I guess, what category to that to that voluntary royalty and license payments or milestones.
Yes, thanks, Doug so that that is basically a portion of the.
That's revenue recognized out of the cash that we received in the quarter. So as I mentioned, we've received net cash from BG I now have about 28 million and for the full year, we expect to get about $30 million in cash from them.
And then the question is how does that then flow through the piano.
And we will recognize revenue on that cash from the from the licenses.
And the other components as we do work with them on the development plans to launch the products on their platform.
And so that that work came from the from the upfront payments we received.
Okay and.
I know theres been a few questions on PGTI revenue cadence their spend also sort of related a couple of questions on guidance.
In terms of just bridging the change in guidance given they are now the acknowledgment that the ECOG guidelines, probably aren't going to happen at a time frame that's really going to help you this year.
At least from a revenue standpoint.
Could you get a little more specific on.
The puts and takes there.
It sounds like it's just.
Hey, Cogs down BG IOP, but could you tell us if there's any other variables and provide more specific quantification.
Yes, so it's it's a cogs down BTI is a contributor but then also just the the trends we're seeing in the business volume growth and the ASP trends that we've seen in the business recently are also a contributor as well.
Okay, and any any dollars it assigned to those three categories.
No I'm not I can't really assigned the dollars to what Doug just because.
The the contributions from those three variables will inevitably that evolve over the course of the year.
Okay.
And then Steve.
Early in your prepared remarks.
You indicated we shouldn't view the BG I payment as a onetime event I mean, clearly we're expecting more from BG I, but I think what you were getting at is that there is a funnel of additional partnerships.
Can you provide a little bit more color on what the what that funnel looks like and what's a reasonable target for a number of partnerships per year over the next few years, how many could you handle.
Yes, thanks, Doug So you're absolutely right I mean, we're seeing this now as sort of an ongoing stream of revenue from upfront payments milestones that were achieving and then royalties from these deals that we're doing so we launched a or we've announced previously and a really major global partnership with Cajun and now a very significant partnership with Beijing Genomics Institute, we're going to be announcing another major partnership in the second half of year and we have a very unique and proprietary technology that is highly protected with a very significant suite of intellectual property that we've invested a lot in developing and we think were an ideal partner for many companies that are out there that want to have access to this complex genetic testing. So we should expect an ongoing stream and to your question on capacity I think we've got plenty of capacity to do these kinds of deals.
What is required from the different partners is not not always the same some some require access to technology. Some require development efforts and some were actually going to be commercializing in tandem with them and we've got the right mix of people and skill sets to accommodate all of the above.
Okay.
Last last one I apologize if I missed this in the prepared remarks.
In terms of R&D efforts, what what's the next milestone or two we should be looking for there and when might we get a little more data.
On on on on the FX.
Across different cancer types.
Yes. Thanks, Doug This is Steve I'll make some comments and then hand it to Solomon. So we had some very significant publications and this spring, which really was.
Publishing in multiple top journalists and these are very large trials that would have taken several years to have done.
Prospectively, if we were starting from scratch and we feel like we generated a lot of.
Really amazing data, we're now in a position where.
We are.
Preparing to commercialize aggressively our colorectal cancer MRV test that we submitted.
A very significant dossier to.
Mol Dx for a local coverage decision, we expect to have a draft. Some point later this year or early next year at which point, we will really ramp up that that field team in anticipation of having Medicare coverage.
But we're not stopping there I think thats the really the first indication clinically that we're going after there's multiple other ones that we think are going to be super exciting Solomon do you want to just reiterate again.
Therapy effectiveness data that we talked about on the call and some of the other indications.
Sure.
The.
I described some of the opportunities in therapy impacting as monitoring in this case during the call on immuno therapy treated patients.
We think there is an opportunity there that I outlined and the other key step is hitting on our objectives with farm and we described we're on track to achieving what we set out to do this year.
And I think that is the other major next milestones.
Okay, all right. Thanks, a lot guys.
Thank you. Our next question comes from Catherine Sheltie from Baird. Your line is open.
Hey, guys. Thanks for the questions.
First on transplant I know you've talked about adding 10 or so director at the complement one lambda having throughout been hired yet and if not what's the expected timing on those hires.
Yes, thanks, Catherine so as well as we said I mean, we plan on commercializing the test in the second half the year and we're not announcing the exact number of salespeople that we're planning on hiring and the exact launch date by of course, we'll make that available.
When we launch but for competitive reasons, we're just not announcing that right now what we have said.
Is that we think a very focused team is appropriate I mean, there is roughly a 100.
Meaningful centers and maybe 200 total we think we can we can target now with a very focused team combined with the partnership that we've outlined with.
With one Lambda. We're also very excited as we mentioned to have.
This new clinical trial announced where we're collaborating with one lambda and their exclusive relationship with molecular microscope product. So there's multiple things that we are going to be doing in the transplant space. They are going to set us apart completely from what others are doing and so this trial is one of the first things that we're announcing but we have other very big initiatives that we're going to be announcing.
Later this year and early next year related to unique offerings into transplant space.
Okay, Great and then second is Stephen you mentioned ramping up your field organization and once you have Medicare coverage in place how many reps do you think you would need to launch the colorectal indication and any other color on on your go to market strategy I know youve talked in the past about potentially finding a partner to penetrate that clinical market. So is that still your thinking.
Yes so.
Just to be clear I think we would.
Right now, we've we've announced a CLIA launch of the Signet Karen test and that was largely to support pharmaceutical partners that need a clear product.
To enroll patients into prospective trials and we have a very.
Low key effort right now from the from the clinical standpoint.
Interacting with.
Key opinion leaders and really sort of in a pilot phase for rolling out the clinical asset.
What we've said is when we get the draft local coverage decision, which we think will happen towards the end of this year or early next year at that point, we're going to really build up a broad sales team that covers the United States that will allow us to.
Presale, so to speak the colorectal assays before the final Medicare coverage comes in.
You can get a sense of sort of what those teams looked like from from looking at some of the other companies out there I mean, we'll probably take a phased approach.
Where we know we go sort of mid size and as things are working well and we're gaining volume and then we start to see the final LCD come in we'll expand that team even further.
Okay, great. Thank you.
Thank you.
Our next question comes from Mark Massaro from Canaccord Genuity. Your line is open.
Hey, guys. Thanks for the questions and nice quarter.
My first one is on the Cygnet Terra reimbursement strategy. So you submitted the dossier to CMS for the colorectal cancer indication now my understanding is that segment Terra it's really one assay that can test for up to 18 cancers. So are you going to have to go.
Cancer by cancer submission.
Or do you think that perhaps your colorectal indication could lead to.
Some type of Pan cancer reimbursement later.
Great question.
I think we are going to have to start with a couple of specific indications really prove out the story prove out the utility.
And then we do expect there to be an inflection point, where it becomes something that people want to use and understand how to use and understand how to cover and reimburse much more broadly and and.
We're not exactly sure that'll happen, but I think if you look at other oncology assets under taken a similar approach and and have success in a similar way.
Okay, Great and then Steve you mentioned that you expect to announce another major partnership later this year.
I just want to clarify are you thinking it's more.
With another platform instrument company or or were you referring to maybe a pharmaceutical partner.
Yes. So first let me just comment again bet back on this sort of indication by indication pressure I just want to reiterate how very very large this colorectal indication is that were going after and there is a lot of excitement about this kidney monitoring opportunity that we're super excited about it and it's really a multibillion dollar market. This colorectal cancer opportunity is five four to five times larger than net kidney opportunity as we outlined on the slide so although we will be going indication by indication initially, it's really super exciting and it's a very big opportunity and we've actually made a lot of progress.
This year. So we're excited about that as far as the other opportunities like I mean that we can't go into details right now, but I think the point is we're we're very unique in this space and that we've developed a.
On a technology that now works across.
Multiple different areas in healthcare.
And is highly protected by IP and is very very effective testing very small quantities of DNA. So we're excited about having launched two very significant partnerships.
Weve sequencing.
Companies and we have other partnerships that we're going to be announcing that are going to be very significant but we just can't go into details on those right now.
Okay understood and then.
Obviously, you've sort of de risk the the ECOG as it relates to 2019 revenue guidance.
Just curious if you've had dialogue with a cogs or if it's more of the blackbox situation, where we're just kind of waiting and hoping but not.
Don't have a line of sight.
Yes, so we've had discussions with Acorn.
It goes up and down with the sort of amount of communication that we're having but we're certainly connected with.
The top folks.
On the various committees and leadership.
I think generally theres, a very positive relationship.
Of course, they are not permitted to give any specific information to us on the timing of such things. Although we have heard is that.
An updated guideline is coming and then it's supposed to be positive for broad NPT usage, but we really have no.
No understanding at this stage of what the exact timeframe is going to be.
But we do still hear very positive things.
Okay. That's helpful and then.
Question for you Mike.
When we think about.
If I have this correctly.
The volumes were really outstanding, especially in the carrier screening side.
The revenue growth rate was below the pacing of volume growth. So as we look at Panorama.
Think revenues were up 2% and volumes were up 18%.
Can you just help me bridge why.
It wasn't like a one for one.
Yes, I mean, I made a quick reference to in the script.
In Q2 is basically because it's a tough comp versus Q2 of 18, because Q2 of 18 at a bunch of one time things in it.
The two major one time events for Q2 of 18 were one we had a spike up in the number of tests that were reported out in our lab because of a delay in the in our lab at the end of Q1 of 18. So those of you have been around for a while maybe you remember that even in the past so that that choose the revenue in Q2 of ATM that makes that tempur comp. The second thing is that we had.
An unusual amount of kind of I would call one time.
Appeals revenue coming in from older tests that we recognize as revenue in Q2 of 18 that we didnt have this year. So usually when we get that kind of stuff in a quarter off strip. It out of that ASP slide for you guys that you have a sense of what's kind of the go forward organic pricing, but when you're just looking at product revenue year on year. It wont be stripped down obviously, because we do count that as revenue and would you like to get that cash. So those two things really just make an unusual compare.
And just one last one for me if I can.
You I believe you did launch Signet terror at ASCO I get the sense that it.
Probably a soft launch until you get Medicare, but can you guys just talk about your funnel and what type of demand you're seeing for utilization of the test clinically.
Sure.
Selman I'll take that one so.
You are correct, we launched it.
An ASCO and we as Steve described about are really focused effort on driving initial adoption in colorectal cancer, where we're seeing very very good feedback.
From academic centers and.
Excuse me physicians, who have spoken to.
So that's very promising.
And therefore, we're feeling very positive about expanding that effort once DLC comes in.
In just a reminder, mark as I mentioned earlier the launch at ASCO was the launch of the CLIA products.
Specifically to move forward pharmaceutical partnerships, where they require a CLIA product for prospective trials in that launch has been received very well.
And Thats on lost some opportunities for us that Werent previously available as far as the clinical launched a solemn is referring to that isn't sort of a pilot mode now.
Where we're primarily focused on key opinion leaders and we have a very small presence.
Doing that initial development because were sort of waiting for the initial draft LCD.
Understood. Thanks, guys.
Is it for me.
Thanks Mark.
Thank you. Our next question comes from Alex Nowak from Craig Hallum. Your line is open.
Great. Good afternoon, everyone. Just three quick ones from me, Steve its been about 18 months since announcing the kaizen Panorama partnership we Havent seen Cajun launch that test so what's the current timing for the launch.
Yes, so we haven't announced the timing specifically I think theres a lot of very positive development work that has been done.
And the teams are working very nicely together at this point.
The launch and when this.
The system is made available maybe broadly is really up to qiagen and we'll look for them to really take the lead on announcing that.
Okay got it and then in your pre submission meeting with multi act did you get any indication of where pricing could be for the colorectal cancer screening I mean should we assume something similar to prospective pricing or.
What makes sense there.
The Soma there are few comps you can look at it.
Theres other companies, who have recently had success launching in getting reimbursement for Mardi ounces. So uses sequencing component.
I think you just named another potential comp.
So we're feeling like if we.
In our continued discussions with most VX.
That that will get sorted out.
Okay got it and then with the cost improvements you're making here early 2020 with a few big programs. You mentioned are you, saying Cogs per test, we will get to $200 by middle of 2020.
Hey, its Mike, Yes, we haven't given a specific timeline for that but we do think that 2020.
It is the right timeline, when we can get under that that target.
Okay got it thank you.
Thank you and I am showing no further questions from our phone lines.
Ladies and gentlemen.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect everyone have a wonderful day good bye.