Cardiff Oncology Inc (CRDF) 2015 Q2 法說會逐字稿

Good day, and welcome to the Trovagene second-quarter 2015 financial results conference call. All participants will be in a listen-only mode.

(Operator Instructions)

Please also note that today's event is being recorded.

At this time I would like to turn the conference call over to Mr. Stephen Zaniboni, Chief Financial Officer of Trovagene. Please go ahead.

Thank you for joining us on our second-quarter 2015 conference call. Trovagene is focused on developing and commercializing our Precision Cancer Monitoring platform, which quantitatively detects DNA mutations in urine and blood with very high sensitivity. Our urine-based liquid biopsy platform provides oncologists with important clinical information that can guide treatment decisions by determining a patient's mutational status, response to therapy, and resistance to treatment over time. The body of clinical evidence supporting our cancer monitoring platform continues to grow as additional results from our clinical study collaborations with major cancer centers becomes available. These efforts will support our commercialization program, which is expected to gain momentum throughout the year.

The benefits of our PCM platform are becoming apparent, with data presentations at several major clinical oncology meetings this year, and additional manuscripts to be published in peer-reviewed journals. Our intellectual property estate protecting our technology is strong and growing, and includes methods of extracting, purifying, amplifying, and detecting circulating tumor DNA in both urine and blood.

Before moving on, I must remind you of the risks inherent in our Business, and ask you to consider the following information regarding forward-looking statements. Statements in this call about the Company's expectations, applications of its technology, markets, launch of tests, and other statements that are not historical facts are forward-looking statements within the meaning of Section 27(a) of the Securities Act of 1933, and Section 21(e)of the Securities Exchange Act of 1934, and are based on Management's current beliefs, assumptions, estimates and projections.

Actual results may differ materially from those projected in the forward-looking statements for various reasons, including, risks associated with product and diagnostic test development, government regulation, market acceptance, limited commercial experience, dependency on key personnel, obtaining health insurance reimbursement, obtaining financing, and other factors discussed in the Company's periodic reports filed with the SEC.

With that said, the format of this call will be as follows. First, our Chief Executive Officer, Toni Schuh, will review the Company's recent achievements and discuss the potential of our technology to change the standard of care for cancer treatment. Next, Matt Posard, our Chief Commercial Officer, will talk about the progress we are making with our new commercial team and their initial efforts to gain market adoption with our PCM platform. Mark Erlander, our Chief Scientific Officer, will then provide updates on both our R&D and our commercial development programs. Finally, I'll summarize our financial results for the recent quarter. A question-and-answer session will follow the call.

I'll now turn the call over to Dr. Toni Schuh, Trovagene's Chief Executive Officer.

Thank you, Steve.

Trovagene continues to make great progress toward establishing circulating tumor DNA in urine, as specimen of choice for cancer monitoring. In oncology, liquid biopsies as enabling diagnostic specimens have moved within a few years from the esoteric leading edge to the center of attention, and represent the most significant, most exciting diagnostic leap in decades. Today there is consensus that we are looking at a $15-billion market opportunity, and some larger technology providers publicly state estimates twice as high.

The promise of circulating tumor DNA is simple and powerful. First, we can identify the genetic changes that cause the patient's cancer without the need to have tumor tissue in our hand. More importantly, we can use these genetic changes as clinically highly specific markers to track tumor dynamics. That means we can see whether the patient responds to treatment, whether there is cancer left after surgery, or whether the patient progresses after a phase of stable disease. Our platform can do this in near-real time with very high precision, clinically out-performing existing solutions, primarily imaging.

As more and more contenders explore the performance of their DNA in other platforms, with circulating tumor DNA as a specimen, the technological challenges are becoming clear. First, the amount of DNA. A small blood sample simply contains limited amounts of circulating tumor DNA. Trovagene's solution, as you know, is a urine specimen. We can easily obtain ten-fold the sample volume compared to blood, and therefore ten-fold the amount of circulating tumor DNA.

Second, circulating tumor DNA is highly fragmented. This is, by the way, true for blood and urine, and this represents a major challenge for standard assay technologies. If amplification parameters are too large or too far apart to land on a snippet of target DNA, this target molecule will simply be missed. Our solution, proprietary enrichment technology that is extremely optimized for small DNA fragments.

Third, the half-life of circulating tumor DNA in blood is very short. This means that circulating tumor DNA released from the tumor will quickly leave the bloodstream as it gets filtered into the urine. To capture sudden tumor dynamic changes in blood, the sampling frequency necessary becomes impractical, and the clinical data is noisy. It's simply impossible to time a blood draw such that one can capture the peak of a wave of circulating tumor DNA.

Our solution again is urine. Rather than taking a snapshot that may or may not capture sudden tumor dynamic changes at this point in time, urine as a sample captures circulating tumor DNA in the bladder, which accumulates over many hours. If a spike of circulating tumor DNA occured due to massive tumor cell death caused by working therapy, we catch it. It's a simple as that.

In the aggregate, our technology advantages translate into superb clinical performance when it comes to clinical sensitivity to detect an existing or emerging cancer-driving mutation, to detect response to treatment very fast, and to determine the presence or absence of residual disease after surgery. I do believe that a leadership position is emerging here for Trovagene in the cancer monitoring segment. As we write up clinical manuscripts for publication in peer-reviewed journals, and as we proceed with our highly committed clinical study program, this will become clearer and clearer to the broader clinical community, to payors, to regulators, and also to investors.

The liquid biopsy opportunity is large because of the ability to monitor a patient's disease with high precision again and again, not just because it represents an excellent solution to determine tumor genotype at initial diagnosis. The main question for the entire field is, who releases the most compelling clinical data when it comes to quantitatively monitoring tumor dynamics? I invite you to compare our clinical performance to data from the rest of the field. I invite you to watch this carefully over the coming 12 months. I trust you will agree with me where Trovagene stands.

Turning to our recent accomplishments, we had a strong first half in 2015, with multiple clinical data presentations at several medical meetings, demonstrating the clinical utility of our PCM platform. We have shown that our assays can be used as an alternative to biopsy, to determine minimal residual disease after surgery, to stratify patients using baseline mutational load, and to determine early response to treatment and disease progression months before imaging can detect it.

The initial treatment segments that we are focused on include lung cancer, colorectal cancer, pancreatic cancer, and melanoma. So far this year, we've reported several clinical data sets in these cancer types. At ASCO, we deployed our first market development team, which coincided with data presentations and the launch of a new marketing campaign. Since that time, a significant number of oncologists have signed up to use our technology under Trovagene's Clinical Experience Program. We are extremely pleased with the initial number of sign-ups and samples submitted under this program.

Last month, we announced the initiation of a clinical collaboration with Dr. Chapman at Memorial Sloan Kettering, to determine response to immuno-oncology treatments. This is a particularly important study, as imaging often yields misleading results when attempting to gauge response to immunotherapy treatments. Results from this study will add to the body of evidence, positioning our PCM platform as an important solution in the fast-growing immuno-oncology segment.

Also last month, we completed a capital raise with gross proceeds of approximately $40 million, increasing our cash reserves to about $77 million as of the end of July this year. With our strengthened balance sheet, we are well-capitalized to build clinical demand for our cancer-monitoring platform, and to support reimbursement coverage. We will continue to collaborate with tier-one cancer institutions to complete our ongoing clinical programs, and conduct further studies to validate the clinical utility of our assays in major cancer types. The continuation of this strategy will result in multiple clinical data presentations at key medical conferences later this year and next year, and several manuscript submissions in the coming quarters.

We will continue to build demand with oncologists commercially through our Clinical Experience Program, with a goal to drive clinical adoption across the US in 2016. We will work with physicians to demonstrate real-world utility of our assays. We plan to initiate the coverage decision process with leading health insurance providers later this year. In 2016, we expect that clinical demand for our assays' real-world utility and a solid trend toward routine health insurance reimbursement will be demonstrated.

As circulating tumor DNA increasingly becomes the specimen of choice for determining cancer mutational status and monitoring tumor dynamics, we believe the competitive advantages of our platform will position us as a market leader, and that our proprietary solution will help significantly improve the standard of care.

I'll now turn the call over to Matt Posard, our Chief Commercial Officer, to update you on our commercialization program.

Thanks, Toni. I'd like to start by reminding everyone we launched our PCM platform in early May. In the first 60 days of commercial launch, I couldn't be more pleased with the early progress our commercial team has made. Before providing an update on this progress, let me first clarify the strategy and goals for our commercial program, so that our early progress can be framed in proper context.

Overall, we're executing against five distinct milestones that collectively constitute a compelling and predictable market adoption model that once demonstrated, will trigger an accelerated commercial scale-up. These five key milestones are: First, generate enthusiastic clinical interest for our products among clinical oncologists; second, convert this physician interest into clinical samples being sent properly to our CLIA lab; third, demonstrate operational excellence in delivering results and support to our clinicians; fourth, demonstrate the clinical benefit of our products to our physicians, such that they convert from our CE program into routinely ordering our products; and fifth, collect a large set of physician advocates and case studies into an evidence-based data set for payers, resulting in routine reimbursement for our tests.

I'll now turn to some early results I'd like to share with you. As we communicated on our last earnings call in May, we deployed four market development professionals into the field as a pilot effort to execute on these five milestones, among a targeted set of oncologists that we determined to be early adopters of new technology. To assess clinical interest in our PCM platform, we established our Clinical Experience Program so that these oncologists could utilize our product, monitor actionable mutations in a limited number of patients, without the barriers of insurance reimbursement. To be clear, Trovagene subsidized the cost involved in testing these samples.

We also developed and deployed a marketing campaign for our PCM platform, which we branded as Yellow is the New Red. We define success metrics for each milestone, including the number of doctors signing up for a CE program, the number of completed CE programs, operational metrics, including turn-around times and quality scores, and ultimately the number of physicians that transitioned to become routine users, and overall samples sent per physician.

Thus far, the response has been highly encouraging, with over five times the number of doctor sign-ups for our CE program that we initially envisioned from May through June. In fact, we achieved our sixty-day goal on the 12th day of the program roll-out. With over 500% performance to goal through June, I can say that clinical interest in the use of our platform technology is very high; therefore we believe we clearly achieved on our first milestone outlined in our commercial plan.

As expected, we are seeing samples, all urine, by the way, coming from all types of clinical settings. Our mix of customers breaks down as follows. We're seeing roughly equal interest among tier 1 academic centers, tier 2 regional groups, and tier 3 community-focused practices. Roughly 60% of doctors are using our technology on a monthly basis to monitor cancer mutations, and the rest are using our technology to determine mutational status where tissue biopsy was not able to, or to determine daily response to a new therapeutic, plus follow-up measurements.

We expect to solidly deliver on the first four milestones of our strategy, and to begin reimbursement discussions with health insurance companies by the fourth quarter of this year. As we enter the third quarter, we are continuing to increase the number of physicians signing up for the CE program. However, as this was the pilot program with five distinct milestones, we now are shifting more emphasis of our field team toward milestones two through five to complete the pilot program.

Our commercial focus in the second quarter was to establish the core foundation of our sales, marketing, service and support, and market development teams. Once we're convinced that we've optimized our sales models and that we are executing efficiently and consistently, we will invest additional resources and scale to commercial organization.

Having exceeded our initial goal by over 500%, I have confidence in the market's interest in our products. Going forward, we will build on this early momentum and translate the enthusiastic interest into sustained adoption of our Precision Cancer Monitoring solution.

Thank you for your attention. I'll now turn the call over to Dr. Mark Erlander to review our R&D and clinical study programs.

Thanks, Matt.

The primary objective of our clinical development program is to demonstrate utility for non-invasive, near-real-time detection and monitoring of oncogene mutations for any tumor type with our urine-based platform. Our clinical programs with top-tier cancer centers will continue to drive multiple opportunities for data presentations, with several expected later this year and throughout 2016.

For example, in early September we have an oral presentation at the World Conference on Lung Cancer in Denver, Colorado; and late September we will present additional lung and pancreatic cancer data at the ASMO Congress in Vienna, Austria. We also expect to present new data at the triple NCI meeting in November in both lung cancer and colorectal cancer, and we remain on track to submit three manuscripts for publication by the end of this year.

We believe that the data from our clinical studies and those of peer-reviewed manuscripts, once published, will help support our ongoing commercial efforts to build physician demand, and help insurance reimbursement for our cancer-monitoring platform. As Toni mentioned earlier, we presented several meaningful data sets from clinical studies in the first half of this year, including those presented at ASCO GI, the European lung cancer conference, AACR and ASCO. Results from these studies demonstrate that our proprietary assays enable physicians to determine mutational status, and to monitor treatment response in patients diagnosed with advanced cancer.

Our data at ASCO demonstrated that clinicians can use our technology to determine response to therapy within days of treatment initiation, and also to detect cancer progression up to three months prior to radiographic scans. In essence, our highly sensitive and quantitative assays are changing the way oncologists assess responsiveness to therapy with the added benefit of using a non-invasive sample. We currently have a menu of urine-based Precision Cancer Monitoring tests available in our clinical lab, including those to detect EGFR, BRAF, and KRAS oncogene mutations.

On the assay development front we remain focused on expanding the mutation coverage of our platform to address the relevant clinical-actionable driver mutations in lung cancer, colorectal cancer, pancreatic cancer, and melanoma. We are also enhancing our technology platform and intellectual property of statements regard to sample processing. This includes refinements to our proprietary extraction and automation process, which will reduce processing costs and improve scalability.

Because of the success that we are having with our Clinical Experience Program, the number of samples we are processing is growing fast. We are interacting with new clinicians each week, which brings us important feedback about our service, and the potential clinical utilities of our platform assays. We expect to continue to build momentum in the medical oncology community with our clinical study programs, and through real-world experiences, driven by the physicians who are submitting samples to our CLIA Labs.

Thank you for all of your attention. I will now turn the call over to Steve Zaniboni, our Chief Financial Officer, to provide details on the recently reported quarter.

Thanks, Mark.

Financial results for the three months ended June 30, 2015, are as follows. Trovagene reported a net loss of $10.2 million, or $0.41 per share, as compared to a net loss of $1.1 million, or $0.06 per share for the same period in 2014. Operating expenses were approximately $6.7 million, as compared to $3.3 million for the same period last year. Operating costs include non-cash expenses related to stock-based compensation of approximately $1.8 million, as compared to $1 million for the prior-year period.

A non-cash loss from the change in the fair value of derivative instruments was $3.2 million in the second quarter, as compared to a gain of $2.2 million for the same period in 2014. As our stock price rises, the accounting liability for certain derivative instruments rises, as well, resulting in a non-cash drag on our net earnings under Generally Accepted Accounting Principle rules. Without the derivative liability impact, our net loss would have been $0.29 per share in the second quarter of 2015.

The net cash used from operations in the recent quarter was $5.4 million, well within current budget estimates. Basic weighted average shares of common stock outstanding used to calculate per-share results increased to 24.6 million shares, from 18.9 million shares in the period -- excuse me, from the prior-year period -- due primarily to common stock offering of 5 million shares that we completed in February of 2015.

As of June 30, 2015, Trovagene had cash and cash equivalents of approximately $41 million, compared to $27 million on December 31, 2014. In July, we raised $40.3 million in gross proceeds through a common-stock offering in which the Company issued 4.6 million shares of common stock. With approximately $97 million in cash on our balance sheet at the end of July, we believe that our current cash position is sufficient to fund operations well into 2017.

In conclusion, Trovagene is well-positioned to leverage its investment in its intellectual property, clinical study and commercial programs, and its collaborations, to build a better clinical pathway for cancer monitoring. This concludes our prepared remarks. Operator, we are now ready for the question-and-answer session.

Ladies and gentlemen, at this time we will begin the question-and-answer session.

(Operator Instructions)

Bill Quirk, Piper Jaffray.

Great, thanks, and good afternoon, everybody.

Hi.

First question, Matt, you mentioned that you expect to be in conversation with payors in the fourth quarter. Can you talk a little bit about -- and I realize reimbursement is always difficult to predict -- but can you help us think a little bit about how long you would expect those conversations to take before that transitions into coverage? I'm assuming, obviously, you guys are going to be going after value-based pricing, given the clinical data, and the fact -- the advantages your test conveys relative to conventional methods?

Yes, hi Bill. It's a great question. As you know, reimbursement is the multi-phase endeavor. From experience, I know that you tend to appeal initial decisions from payors on a case-by-case basis. My approach, that I envision here, is that as we start submitting for reimbursement based on the insurance of a given patient, we'll start having discussions with the individual payors on that path. As we start collecting more and more data sets, and more physician support across the country, and more case studies, and more publications come out, then you start having what I would call more systematic over-arching discussions with payor groups. In the short term, I think individual discussions with payors representing the patients that are submitting samples is phase one. Then over time, as the data sets enrich and the proof sources expand, we'll probably start having more over-arching discussions with the larger payors.

Matt, can you talk a little bit to either the number of oncologists in the program, or the volume of tests that you guys have processed? I certainly recognize its 500% above expectations, but without any number to ground us there it's a little difficult to assess what that means.

Sure. The reason we use the percentage rather than hard numbers is that we are in a pilot phase right now, Bill. With four market development professionals out there, my focus right now is to have a repeatable model that I know I can expand nationwide. In the future we're going to start providing those metrics. But at this point, I think you could start using some basic assumptions of how many calls that we saw -- that we envision our market development professionals making on a weekly basis, and then a conversion rate from those.

We're seeing conversion rates, frankly, far higher than I've ever seen before. We're starting now to see the pull-through of those physician commitments into samples that, as Mark said, is giving our laboratory sample volumes at levels they've never seen before, and on a daily basis. This early in the game, we're really optimistic about it. Over time we'll start giving you specific metrics on that.

Okay, got it. Then one for Mark. You mentioned in your prepared comments about expanding the coverage on the assays. Can you help elaborate a little bit. Should we be thinking about that as more mutations within your existing targeted gene sets, or, are we talking, as well, about an expanded gene set, as well? Thanks.

Yes, great question. We're actually doing both things. As you know, we've talked to you several times about this. The assays that they are right now, they are highly sensitive and also very quantitative. We want to maintain that for a critical set of actionable biomarkers, which is really a set of really about 25 to 30 oncogenes, or 25 to 30 actionable mutations.

What we are doing is we are really expanding our coverage. For example, very specifically, in other KRAS mutations, other NRAS mutations, other EGFR mutations that have uncovered by the [canonical], and also the ALC and the ROSS and the RAF. Those are the main ones we're focusing on as far as having the highly sensitive and quantitative. We also recognize that there is clinical utility at certain points to have a much larger panel, and we are also in parallel, also, developing that, as well.

All right, very good. Thank you.

Paul Knight, Janney.

Hi, guys. This is actually Bill March on for Paul. How are you doing?

Hi, Bill.

I've got a question for Matt. If you could provide a little more color on the 60-40 split between monitoring and detection? Within that breakdown, are you seeing any specific mutation as a larger percentage of monitoring or detection? Just trying to get a feel for what you guys are seeing out in the field?

Sure, Bill, great question. The CEP program gives physicians, by the way, three different options in how to get experience with our product. The first option is to simply get a diagnostic rule-in or rule-out of any of the mutations that they request -- KRAS, BRAF, or EGFR. The second option allows one to monitor the dynamic change of what's going on in the tumor on a monthly basis. The third one really is in support of data we had in April at the ELCC, where one could actually run it daily and see how the tumor dynamics are responding to a new drug given.

As you pointed out, Bill, 60% of the physicians are signing up for that second option. Within both the first option, which is the 40% that are using it diagnostically when a tissue biopsy didn't give them the information they were seeking, most of the time they are ordering EGFR, and very closely KRAS behind that. Most -- the targeted oncologists that we're focused on right now tend to be lung cancer oncologists, so it's not a surprise that they would be ordering EGFR, primarily. As we start expanding the breadth of oncologists, we would expect probably more people that are focused on KRAS related diseases to start ordering that test.

Got it, thank you. Just a follow-up along those lines, just what you are seeing since the close of the quarter at the end of June? Then in terms of our frequency or extent of repeat orders or traction among single oncologists, if you are seeing a small sampling that are really adopting the test in larger volumes than you were expecting?

Sure. I'll start by saying is the data that we're seeing, I keep trying to pinch myself that while it's incredibly encouraging relative to what I've seen in introducing new technologies in the past, and the reluctance of physicians to try something new, this is actually breaking all the rules that I've experienced in the past. That said, these are incredibly cautious, as you would expect, clinicians. They really want to make sure that the information we're providing them is actionable and beneficial for their patients.

At a high level, I will tell you we're seeing pockets of people that are exhausting all of the samples that we committed to in the CEP program, and they've converted over to routine users of our technology, and we're submitting billable samples based on those ongoing orders. There's others that are a little slower. Some of that's geographic, and some of that perhaps may be how much time we get in front of those physicians. We're really optimizing and testing every one of our assumptions, as I said. This is a pilot initiative, and I'm a big believer before you scale up an organization, you've got a formula that you know works. That's really our focus right now.

Got you. If you could, speak to what you've seen since the quarter end, if there's been any thing you want to call out?

As I said in the script comments, we're really focusing our efforts more on pull-through and follow-through on that 500% level of commitment that we got in the second quarter, than we are trying to sign up new docs. What I'm really focused on right now with my team is trying to dial down how many repeat visits is necessary to get volumes to continue, and how much clinical versus commercial follow-up is necessary. Mark can probably attest to the fact that he's taking calls on almost a daily basis with physicians answering their various questions.

I'll end my answer by saying that we still have a higher percentage -- here in the second week of August, we have a higher percentage of physicians that are still somewhere between their first and second sample submitted, than we have physicians that have completed all of the samples that we provided in the program. The team right now is focused on whether that's an access issue, it's an education issue, or a willingness to change physician behavior issue. We're really in the sleuthing mode right now to figure out how to troubleshoot all of these barriers.

Great. Thank you very much.

Bryan Brokmeier, Cantor Fitzgerald.

Hi, good afternoon. Matt, you mentioned the strategy for approaching managed-care companies. You're going to do it on a case-by-case basis. If appeals are unsuccessful, will the patient be on the hook for reimbursement?

No. For the initial billable programs, we've decided, at least initially, that we're going to bear the risk of that. We're obviously not going to let that get out of hand, as we've seen with other companies. But at this point, my primary initiative is to get clinician adoption and demonstrate that the products clinical benefit is measurable and impactful. Again, from experience I can tell you that having essentially an army of happy clinicians that are endorsing and evangelizing how the technology has helped their patients is really the first thing you have to do if you are going to be successful swaying these payors to start paying for something that is not standard of care, or is not in the guidelines.

At this point, we've decided to bear that risk. We've budgeted for this, and so we're not going to let that get out of hand. But we do want to make sure that we have a happy and positively impacted customer base by our products, before we start sticking hefty bills to patients that, perhaps, were not involved in the decision process to get tested with our technology.

Okay. As you mentioned, you recently -- you guys recently strengthened your balance sheet. Have you accelerated any of your R&D plans? Also, given the positive response that you're seeing from physicians, at what point will you make the decision to add to your commercial pane, as well?

Well, we've certainly -- hi, Brian, this is Mark. We certainly have expanded our R&D. We continue to, as we've indicated in the past, really have a model of laboratory-developed tests going then to [KIPF]. This certainly is an area we are very focused on developing our tests to become more accessible by other laboratories, as well. Of course, we've also expanded our ability to do -- build other tests and our menu, so these are things that we are certainly using the extra funds for.

On the commercial side, Brian, we're still refining this formula. We're in the process of validating with these four professionals in the field, but there's obviously a lot of geography, we're just not represented in. I envision between now and the end of the year, you're going to see us scale our commercial group up impressively in the field.

Okay. Are you -- do you have plans on how many sales people you might add later this year, or is that still undetermined?

I don't think we've finalized the number, but just to give you a range, it's probably somewhere between doubling that initial group and slightly, a little bit more.

Okay, thanks a lot.

You're welcome.

Jason Kolbert, Maxim.

Hi guys. I'd like to pick up on the thread where Bryan left off. I don't really understand your hesitation to talk about scaling up, in terms of the number of sales reps. Saying you're going to double when we're talking about four in the field, doesn't make a lot of sense to me. I also don't really understand all of the up-front effort you're doing, versus kind of the back-effort talking about negotiating with insurers for reimbursement. Usually that's done first. Help me understand how you're going to conquer those two bricks, then once conquered, how you're going to access that $15-billion market, so we can understand what the revenue build might look like in 2016 and 2017? Thanks.

Jason, this is Toni. Maybe I take the first part of that response, and then Matt and maybe Mark can fill in some of that. If you look at the steps that you have to undertake to successfully launch a diagnostic modality with a novel clinical utility, then when you do this as a laboratory-developed test, you have on the one side a very clear advantage -- you do not have to move this test through an FDA review. But that does not mean that on the other side a lot of key parameters have to be met before you can successfully commercialize this.

Very clearly, you have to have peer-reviewed publications out that drive on the one side clinical adoption. You have to have the data set of clinical experiences, like we obtained from our initial experience program, that demonstrates that the information that we provide is indeed experienced as behavior-changing or actionable by the clinicians. These are two absolute key requirements. Whenever you hear or see or read of a diagnostic company that introduces a novel modality, but struggles intensely with reimbursement, then the reason is that they score poorly on one or both of these criteria. Reimbursement is not as much the secret as one would think. But you need to score strongly on these two aspects.

We have a very clearly developed strategy and plan. That's why we have on the one side a very significant commitment on clinical utility studies. That's why we have on the other side a very deep commitment on this Clinical Experience Program. As we established these data sets as pillars of our reimbursement program, we move this out. If you go back and you study various molecular diagnostic companies and how they fared and how they handled this, then you will determine that this is best practice.

If you do it in any other way, you might find yourself driving volume across the fleet and not getting paid, or rolling an aggressive marketing campaign out and simply not having the scientific backing that would drive adoption. This needs to be carefully orchestrated. Again, I do believe that we are doing this in line with best practices. It's a carefully orchestrated process. Maybe, Matt, do you want to say something more about your scale-up plans?

Yes, that's well said. Jason, the only added color I'd give to that is what traps I'm avoiding. If you look at the companies that have not been successful introducing a novel diagnostic, they tend to over-hire and not have the clinical evidence in their bags. They tend to focus on spending a lot of time and wasted effort on clinicians that tend to be data-driven prior to those data sets being available to them.

What we've chosen to do is a formula that I've seen work both personally and with other companies. That is, you're highly selective in targeting who your earliest adopters are. They're strategic influences among their peers, and they tend to be more willing to take risks on early technologies that are not commonly known, and haven't been in their literature for years. We are in the process now of tackling that group.

As I said before, there is probably another 5 to 10 sales territories where we can be expanding this, and we expect to be hiring in those roles this year. In Tony's notes and Mark's notes, you know that the manuscripts we're planning is going to give the broader sales team next year a lot more ammunition for that next category of adopters on the adoption curve. It is highly orchestrated. It's very purposeful. It's respectful to the budget, making sure we don't over-spend in this early period, and making sure that we get the right people using the product early that we can leverage in the next phase of the commercial program.

Maybe this is the second response to -- I think your last part of the question you framed that ideally -- you said the question is really who is going to be the company that is going to win in this $15-billion market opportunity? The measure for that, the way how you measure this, is the quality of clinical data. That's the only way how you measure this, because in health care we know this, the winner takes it all. I would say today that we have early, clear data that our analytical superior performance translates into superior clinical performance. As I stated before, I challenge everybody to show clinical data that out-perform what we release. That's the basis of your analysis, in my view, who is going to be a winner in this competition.

Okay, thanks very much. It's a thorough answer. I look forward to seeing you and discussing it more in person. Thanks.

Thank you.

Jeffrey Benison, Little Gem Life Sciences.

Hi, fellows. Congratulations on the technological announcements you've been making. Up until now, looking at the PD-1s, I've been reading about the fact that the tumors and the PB-1s actually grow when they're first being treated. Up until now, you been talking about how you can actually find the tumor progression before the scans. But I think with the PD-1s, if it shows up that the tumor's getting larger from the swelling, even though the drug is working, you'll actually be better than these scans. I was wondering if you could address that. Am I correct?

Hi, this is Mark. You are absolutely correct in the fact that there is, in essence, a pseudo-progression. I believe that's what you're describing for the immunotherapies. That's exactly right. We are currently, as Toni mentioned -- just a couple minutes ago he mentioned that we're working with Paul Chapman in the immunotherapies and melanoma. This is certainly one of the areas that we're looking at to -- because we think you're absolutely right, that circulating tumor DNA in the urine as a monitoring of patients receiving PD-1 type therapy, that actually this will be much more accurate as far as whether or not the patient is responding to therapy or not.

Okay, excellent. The other thing I wanted to ask about is on July 28, Foundation Medicine put out a press release, and I'm trying to get my head around it. I'm going to quote part of it, because it doesn't make that much sense to me. The presence of the CT -- the circulating tumor DNA in plasma is a well-established phenomenon that has led to recent innovation in the development of non-invasive tumor sequencing assays. However, the concentration of circulating tumor DNA compared to other cell-free DNA fragments can vary significantly depending on tumor type and disease stage. For many cancer patients, this means that the proportion of detectable tumor DNA in the blood is extremely low.

That is where you come in, because you can detect these extremely low levels. But then they continue and say, making the detection of therapeutically relevant genomic alterations more difficult compared with tissue-based approaches. That's why you would be used. But then they say, importantly up to 40% of patients shed no tumor DNA into the bloodstream, and will thus test negative using circulating tumor DNA assays. That's the part I don't understand. If they are saying that they don't shed tumor DNA, where does it go?

Jeff, this is Toni. Maybe at a high level, whenever you hear data released like that, that actually validates our case. We have always stated, look, circulating tumor DNA and sell-through DNA is a very valuable clinical diagnostic specimen. However, it comes with certain analytical challenges. Depending on what treatment the patient receives, depending on what the stage of cancer is, the signal can be very faint. It can be a very rare analyte. Cell-free DNA is highly fragmented if your assay technology is not optimized to deal with that type of analyte, you will not see anything. Numbers like that in 30%, 40% of patients the cell-free DNA signal would not be informative. We have seen that, historically, quite a bit.

I would invite you to compare that with our data releases, and with the achievements that we have when we look at concordance between biopsy cell-free DNA and blood cell-free DNA and tissue -- excuse me, and urine. We have so far processed in our lab over 8,000 clinical samples from a variety of cancer patients, and I can assure you that our ability to detect circulating tumor DNA is much, much better. That requires that you have technologies available like we have to see it. Maybe -- I mean -- if you don't -- if you're not able to detect something, then you can't say it's not there, right?

They couldn't detect it, but that doesn't mean you couldn't detect it?

We have released repeated data sets that show that our concordance between tissue and cell-free DNA, both in blood and in urine is dramatically higher than the numbers that are quoted there.

Okay.

Again, that makes in an indirect way, makes the case for our argument, that circulating tumor DNA is a very informative diagnostic specimen. But if you don't have the right sample, if you don't have the right amount, if you don't have the right assay technology, you're not going to achieve the type of clinical sensitivity that you need. We do achieve that.

Okay, thanks a lot. Thanks very much.

Dale Beed, Morgan Stanley.

Hi, guys. Thanks for the call today. I just had a couple of questions for Steve. Steve, do you know how much impact did this pilot clinical testing program have on the earnings? Can you give us any color on that?

In that quarter, you've got to view that as a market development exercise. During that quarter, most of that would have been spent on preparation and preparing it to staff, the traveling of the staff, the materials that the staff had out in the field. As I said, the cash burn for the quarter was $5.4 million. That's actually up from $5 million from Q1. Will the things that you just asked about drive the burn rate up? Yes. But, as I also said, I think we've got funding well into 2017. It's not going to be dramatic. The incremental step-ups quarter to quarter are not going to be that significant.

I see. How many tests can you disclose that we would have to do before we would become profitable at this on a daily basis? Do you have any idea on that?

Yes. We're still working on finalizing the answers to those kind of questions, frankly. Have we modeled that? Of course. But, it's still a little early to be discussing that in an open forum.

Okay, thank you.

Ladies and gentlemen, we've reached the end of today's allotted time for the question-and-answer session. At this time I'd like to turn the conference call back over for any closing remarks.

Well, thanks a lot for your interest in Trovagene. I think I want to repeat myself with one statement. This is the liquid biopsies, cell-free DNA, circulating tumor DNA in oncology, is an enormous clinical and economic opportunity. If you are struggling to get your arms around who will be a leading player in this field, look at the clinical data. That's where the answer to that question is. With that, I want to close it for today.

Ladies and gentlemen, that does close today's conference call. We do thank you for attending. You may now disconnect your telephone lines.