Guardant Health Inc (GH) 2018 Q4 法說會逐字稿

Good afternoon, and welcome to the Guardant Health's Fourth Quarter and Full Year 2018 Earnings Conference Call (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Carrie Mendivil, from the Gilmartin Group, for a few introductory comments.

Thank you. Earlier today, Guardant Health released financial results for the quarter ended December 31, 2018. If you have not received this news release or if you'd like to be added to the company's distribution list, please send an e-mail to investors@guardanthealth.com.

Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appear in the section entitled Forward-Looking Statements from the press release Guardant issued today.

For a more complete list and description, please see the Risk Factors section of the company's fourth quarter report on Form 10-K, which the company will file with the Securities and Exchange Commission.

Guardant disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise.

This conference call contains time-sensitive information and is accurate only as of the live broadcast, March 12, 2019. With that, I would like to turn the call over to Helmy Eltoukhy, Guardant's Chief Executive Officer. Helmy?

Thanks, Carrie, and thank you, everyone, for joining us this afternoon. I am pleased to welcome you to Guardant Health's fourth quarter and full year 2018 earnings call. Joining me today is AmirAli Talasaz, my co-founder and Guardant's President; and Derek Bertocci, our Chief Financial Officer.

The mission of Guardant Health is to conquer cancer with data, and this mission is fueled by our commitment to the patients we serve. Accordingly, I would like to begin our call today with a brief patient story.

We recently tested a 61-year-old, non-smoking female patient diagnosed with metastatic lung cancer. Tissue testing for only the most common gene mutations known as hot spot testing, at her community hospital failed to identify any targetable alterations. She was referred to an academic cancer center in the Midwest for further testing, where she was immediately hospitalized.

Because her health was declining, there was little to no hope of her ever leaving the hospital. At the academic cancer center, her oncologist immediately ordered Guardant360 because the test is the most rapid means of compressive testing for all targetable mutations, including rare ones not commonly tested for. Just 4 days following the blood draw, the Guardant360 results came back. A pair of rare EGFR mutations that are treatable were found. The patient was immediately placed on osimertinib, a targeted therapy with a response rate 2x to 3x higher than chemotherapy or immunotherapy. As a result of this information and this corresponding therapy, she was discharged from the hospital just a few days later.

This patient story illustrates how rapid and comprehensive genomic results can be critical to a good outcome when treating advanced cancer patients. Tissue-based genomic testing currently has a turnaround time of 2 weeks to 4 weeks, as samples typically have to be sent from the hospital where the biopsy was performed or stored, to an outside laboratory capable of doing next-generation sequencing.

In contrast, Guardant360 is a simple blood test with a 7-day turnaround time from any location in the U.S. Often, oncologists have to initiate treatment within a week to 10 days, and unfortunately, about 1/3 of patients do not get a second chance for another treatment after the first one fails. This case demonstrates the necessity of a blood-first genomic testing paradigm, predicated in a highly-sensitive and well-validated compressive testing platform with rapid turnaround time.

This story tangibly illustrates our belief that, with better tools providing better information upfront, clinicians can apply and more effectively utilize precision oncology to better conquer cancer, not only for advanced cancer patients today, but even at the earliest stages of cancer in the future where intervention may be considerably more effective.

With this goal in mind, we have developed a proprietary platform that enables far greater access to a tumor's underlying information and are developing tools based on this platform to address the 3 main buckets of cancer care: therapy selection, recurrence monitoring, and early detection. To date, we have launched 3 products: Guardant360 and GuardantOMNI for the therapy selection market; and most recently, in December of 2018, the LUNAR assay for research applications related to recurrence monitoring and residual disease detection. Guardant360 is, today, the market-leading liquid biopsy, used over 80,000 times by over 6,000 oncologists and over 50 pharma companies.

Leveraging data and deep biological insights we are gathering from these commercial programs, we are continuing to make important progress with our LUNAR research, targeting residual disease, recurrence monitoring, and early detection. We are making exciting advancements in these programs and estimate the market opportunity for our commercial and pipeline products is over $35 billion in the United States alone.

During 2018, we have made significant progress in multiple fronts with driving continued adoption of our liquid biopsy platform by providers, biopharmaceutical customers and payers, and exited the year with 82% year-over-year revenue growth or $90.6 million. Revenue for the fourth quarter totaled $32.9 million, representing growth of 64% over the prior year quarter. Clinical volumes grew 24% year-over-year in the fourth quarter to 8,596 clinical tests, and pharmaceutical volumes grew 14% year-over-year to 3,009 tests.

Despite our position as the market leader and encouraging progress in the comprehensive liquid biopsy setting, we are still in the very early innings of this exciting opportunity. Looking ahead, in 2019, we are committed to advancing our entire product platform. On the therapy selection front, we will accomplish this by building out proof points in order to move towards a blood-first paradigm for genotyping of advanced cancer patients, which we believe will further accelerate adoption of testing.

As was evident in our patient story, delaying care that may result from tissue testing could be detrimental to a patient's treatment options, not to mention the average lung biopsy costs over $14,000 and has a 19% complication rate. This is part of the reason why only a staggeringly low 8% of lung cancer patients are tested to the standards recommended by guidelines.

In our last earnings call, we outlined 3 elements which will be key drivers for this shift. The first is the readout from our NILE study, a prospective multi-center clinical trial, measuring Guardant360 head-to-head versus tissue in approximately 300 non-small-cell lung cancer patients. Second is FDA approval of Guardant360 with a Pan-Cancer tumor profiling label. And finally, the third is Pan-Cancer Medicare coverage, based on FDA approval, that will be granted under the recently finalized National Coverage Determination, or NCD, for next-generation sequencing tests.

In late February, we were very proud to announce that the abstract detailing the readout from our NILE study was published, ahead of its presentation at the American Association for Cancer Research, or AACR, annual meeting in late March. In this study, landmark data demonstrated that Guardant360 detected targetable genomic biomarkers at a similar rate to tissue, meeting the study's primary endpoints in supporting the use of blood-based biomarker testing ahead of tissue-based testing for all newly diagnosed, advanced non-small-cell lung cancer patients.

Investigators found that Guardant360 identified guideline-recommend biomarkers in 77 patients. Tissue testing identified them in 60. Importantly, for each patient and whom Guardant360 identified a target of an FDA-approved drug, EGFR, ALK, BRAF or ROS1, tissue also detected the same alteration. Importantly, the median time to results for Guardant360 was much shorter than for tissue testing, a key component as time to treatment is a critical factor in the care of a lung cancer patient that typically has a median survival of less than one year. Guardant360 results were towards an average of 9 days versus 15 days for tissue.

The NILE data indicates that it is a compelling option to use liquid first ahead of tissue from likelier testing in newly diagnosed advanced non-small cell lung cancer patients, given that Guardant360 finds mutations at a similar rate to tissue-based testing, while ensuring patients receive guideline-complete testing with a faster turnaround time. This data marks a big step forward in establishing a blood-first paradigm.

This is an important new data set for oncologists, and taken together with other recent independent investigations into Guardant360 in this clinical setting, supports the first-line use of Guardant360 for treatment selection ahead of tissue testing.

Even ahead of the other 2 elements, FDA approval and Pan-Cancer Medicare coverage, the sheer volume of analytical and clinical data that we have generated to-date, combined with our support from clinicians, has led to what we believe is an unparalleled number of positive coverage decisions in this space from commercial payers. Guardant360 is currently covered by Medicare and many private payers, including Cigna and many Blues plans, which have all adopted reimbursement policies that specifically cover Guardant360 for non-small-cell lung cancer.

In the fourth quarter of 2018 we were endorsed by the Blue Cross Blue Shield Association, which has led to a sharp step function increase in the number of Blues plans adopting positive policies for Guardant360, such as Blue Cross Blue Shield of Florida, Horizon Blue of New Jersey and Blue Shield of California to name a few. As a result, we are pleased to update the number of covered lives to over 115 million up from 77 million lives at the end of Q3.

Looking ahead to 2019, aim to take advantage of these tailwinds and upcoming potential catalysts by continuing to invest in areas of substantial growth. Specifically, as we mentioned in our last earnings call, we are in the process of expanding our commercial team to approximately 60 sales representatives and are already seeing early return of investments there. We are making tremendous progress with our LUNAR program and intend to further accelerate our research and development efforts towards earlier cancer detection.

Finally, we are making excellent progress with our SoftBank joint venture and will accordingly accelerate some of our regulatory and commercial activities there to capitalize in the large market opportunity for liquid biopsy in Japan.

In sum, we are very encouraged by this strong growth across our business, and as a result, are projecting 2019 revenue of $130 million to $135 million.

With that, I will now turn the call over to AmirAli Talasaz for more details on our recent progress of our business and product portfolio. AmirAli?

Thanks, Helmy. In parallel to our efforts of accelerating adoption of clinical testing, we are also deepening our relationships across more than 50 pharma partnerships, which use our services in drug discovery and development programs.

In the fourth quarter, we continued to make progress on our companion diagnostic pipeline and announced a multi-year agreement with AstraZeneca to develop blood-based companion diagnostic tests, supporting the commercialization of AstraZeneca's oncology portfolio based on our industry-leading comprehensive liquid biopsy platform.

The first component of this partnership is a collaboration around Guardant360, to utilize it as a companion diagnostic for identification of EGFR-mutant patients eligible for Tagrisso in the first-line setting and at the time of progression. Today, Tagrisso is the leading target therapy by revenue in the non-small cell lung cancer space. We are excited to leverage our Guardant360 technology to help find more eligible patients who could benefit from this breakthrough therapy.

The second component is a collaboration around AstraZeneca's lead immuno-oncology asset, Imfinzi. Under this collaboration, GuardantOMNI will be used as a companion diagnostic to identify patients that may more likely respond to immuno-oncology agents based on tumor mutational burden or TMB.

At the European Society for Medical Oncology, or ESMO, Immuno Oncology 2018 Congress, AstraZeneca presented TMB data using GuardantOMNI from the Phase III MYSTIC trial. In an exploratory analysis, GuardantOMNI was able to successfully call TMB from blood on almost twice as many patients versus tissue-based TMB approaches. Our proprietary method of calling TMB resulted in a dramatic improvement in overall survival of AstraZeneca's combi regimen over standard chemotherapy for those patients that were TMB high, 39% overall survival at 2 years compared to only 18% overall survival for chemotherapy.

The data presented at ESMO's IO Congress builds on other recent data that show Guardant's liquid biopsy technology can increase the number of patients who are tested for important biomarkers relative to tissue. AstraZeneca's working target therapy and immuno oncology has already benefited thousands of advanced cancer patients, and we are proud to support the expansion of the impact of AstraZeneca's assets.

GuardantOMNI will be the second test that we are taking through the FDA. And as a result, we'll be eligible for Medicare coverage under the NCD. In support of these efforts, we recently received breakthrough device designation for GuardantOMNI, which will enable an accelerated review process. Between Guardant360 and GuardantOMNI, we are building a highly-differentiated and broad companion diagnostic liquid portfolio. We believe this portfolio will streamline the clinical development and commercialization process for new drugs and increase the adoption rate of new biomarker treatment therapies post-approval.

Accordingly, we are continuing to see growing interest from many of our biopharmaceutical partners in leveraging our companion diagnostic development capabilities for their programs. We also believe that the significant increase in companion diagnostic opportunities we are pursuing, including those around GuardantOMNI, should only minimally impact the previously mentioned first half of 2019 timeline for our FDA submission of Guardant360.

And finally, turning to our LUNAR program. We are excited about the progress towards recurrence monitoring for cancer survivor and early detection. In early 2019, we announced the launch of the LUNAR assay for research use by biopharmaceutical and academic researchers. Through our first 2 commercial products, Guardant360 and GuardantOMNI, we have captured data over a number of years that provides us with deep insight into circulating tumor DNA biology of cancer patients.

The LUNAR assay leverages these insights in order to overcome a variety of challenges that have confounded prior approaches for the detection of early stage cancers, including inadequate tissue, biological noise and the limited sensitivity of genomic-only tests. With a single blood drop, the assay is simultaneously able to detect both genomic alteration and epigenomics signatures, which are combined and reported as a single quantitative measure of tumor burden. Using somatic genomic alteration alone has issues with clinical sensitivity of detecting cancer in early-stage patients. We believe that the incorporation of biologically relevant epigenomic signatures is critical in increasing the sensitivity of the assay.

Multiple top-tier academic research networks and biopharma companies will utilize the LUNAR assay studies involving adjuvant therapy decision-making, recurrence monitoring, and minimal residual disease detection. The clinical version of the test for investigational use in prospective studies is expected to launch in the second half of 2019.

Earlier intervention using precision medicine oncology could potentially improve outcomes for substantial number of cancer patients. Based on the LUNAR technical performance we are seeing through the additional epigenomics, we've been exploring the use of the assay for screening in early stage cancers. We are encouraged by the early, promising LUNAR clinical data and look forward to presenting further details on its performance in detection of early-stage colon cancer at the AACR Annual Meeting in late March.

With that, I will now turn the call over to Derek Bertocci, for more detail on our financials. Derek?

Thank you, AmirAli. Revenue for the fourth quarter of 2018 totaled $32.9 million, up 64% from $20 million in the same period of the prior year. This growth was driven by precision oncology testing revenue, which increased 98% due to a combination of higher testing volume and increased revenue per test.

Fourth quarter clinical precision oncology volume totaled 8,596 tests, up 24% from 6,940 tests in the prior-year quarter, due mainly to an increase in the number of physicians ordering Guardant360 tests.

Average revenue recognized per test in the fourth quarter was more than double the fourth quarter of the prior year, due to higher payments from commercial payers that were beneficially affected by the Protecting Access to Medicare Act of 2014, plus payments that we began to receive in the fourth quarter from Medicare under our LCD.

Of the $4.3 million we received from Medicare in the fourth quarter, $2.1 million was paid for samples tested in the third quarter of 2018. Excluding this $2.1 million, ongoing precision oncology revenue from clinical tests in the fourth quarter totaled $15.1 million, up 124% from $6.8 million for the prior-year quarter.

Fourth quarter biopharmaceutical precision oncology volume totaled 3,009 tests, up 14% from 2,630 tests in the prior-year quarter, due to an increase in demand for GuardantOMNI tests.

Precision oncology revenue from biopharmaceutical tests in the fourth quarter totaled $10.8 million, up 46% from $7.4 million for the prior-year quarter due to an increase in volume and a higher price for GuardantOMNI tests.

Development services revenue in the fourth quarter totaled $4.8 million, down 18% from the prior-year quarter, which included $5.1 million of revenue recognized from completion of laboratory development project in 2017. Development services revenue from biopharmaceutical customers is subject to quarter-to-quarter variability as drug discovery and development programs start and complete.

Development services revenue of $12.2 million for the full year 2018 was up 58% from $7.8 million in the prior year. Along with the high-growth in biopharmaceutical precision oncology revenue, this demonstrates the increasing demand from biopharmaceutical customers for Guardant Health tests and services.

Gross profit is total revenue less cost of precision oncology testing and cost of development services. Gross profit for the fourth quarter of 2018 was $18.9 million compared to a gross profit of $10.9 million in the same period of the prior year. The gross margin or gross profit divided by total revenue in the fourth quarter was 57.6% as compared to 54.3% during the fourth quarter of 2017. Gross margin improvement was primarily due to extra revenue booked from Medicare payments as well as an increase in precision oncology ASP and a nominal increase in precision -- a nominal decrease in precision oncology cost per sample.

Total operating expenses for the first -- for the fourth quarter of 2018 were $46.3 million or 75% -- or a 75% increase from $26.5 million in the fourth quarter of 2017. With significant progress in several areas, including improving reimbursement for clinical, precision oncology testing, growing demand from biopharmaceutical customers and encouraging early results from our LUNAR assay, we have increased our investment in key functions to optimize Guardant Health's ability to capture the leadership position in our target markets and provide the best benefits to patients, customers and our shareholders.

We have approximately doubled R&D spending to drive our LUNAR programs, prepare for a Guardant360 submission to the FDA, and continue to improve our Guardant360 and GuardantOMNI products.

In sales and marketing, staffing programs have been increased to pursue opportunities in several areas. First, in our joint venture with SoftBank, we have established the initial teams to pursue opportunities in Asia, Middle East and Africa with particular emphasis on Japan where we are already involved in large clinical studies. Second, given our significant improvements in reimbursement, we increased our staff and programs to drive clinical adoption in the U.S. Third, we are expanding our biopharmaceutical commercial teams to handle the significant increase in demand for testing and more recently, companion diagnostic services from biopharmaceutical customers.

General and administrative expenses were increased as a result of additional requirements of a public company, our international joint venture with SoftBank, and to support our overall growth.

Net loss for the period was $25.3 million compared to a net loss of $15.1 million in the fourth quarter of 2017. Net loss per share attributable to Guardant Health common stockholders was $0.30 in the fourth quarter of 2018 as compared to $1.27 in the corresponding period the prior year.

Turning to the full-year 2018, revenues were $90.6 million, an 82% increase from $49.8 million in 2017. Precision oncology revenue increased $36.3 million or 86%, with clinical and biopharmaceutical each contributing similar amounts to the growth.

Clinical volume for the year grew to 29,592 tests, up 15% year-over-year from 25,626 tests, due mainly to an increase in the number of physicians ordering Guardant360 tests. The average revenue recognized per test in 2018 rose 54% from the prior year as a result of factors noted previously for the fourth quarter. Combined, volume and price increases drove a 78% increase in clinical testing revenue in 2018 to $43.7 million from $24.5 million in 2017. Biopharmaceutical volume grew 65% year-over-year to 10,370 tests due to the introduction of GuardantOMNI at the end of 2017, plus an increase in the number of biopharmaceutical customers and their contracted projects.

Precision oncology testing revenue for biopharmaceutical customers increased 98% in 2018 to $34.7 million from $17.6 million in 2017, due to the increase in test volume plus the higher price charge for GuardantOMNI. Development services revenue grew 58% to $12.2 million due to new projects in 2018, mainly earned from biopharmaceutical customers for companion diagnostic development and regulatory approval services, plus completion of a lab installation project, which was primarily performed in 2017.

Gross profit for 2018 was $47.4 million compared to a gross profit of $18.2 million in 2017. The gross margin or gross profit divided by total revenue in 2018 was 52.3% as compared to 36.6% in 2017. Gross margin improvement was due to several factors. One, we began to get paid in the fourth quarter for testing Medicare patients as a result of the issuance of our LCD in late August 2018.

Two, commercial payers made higher payments that we believe were beneficially affected by the Protecting Access to Medicare Act of 2014.

Three, the average selling price of biopharmaceutical tests increased due to introduction at the end of 2017 of the GuardantOMNI test, which has a higher selling price than the (inaudible) test. And four, the overall increase in volume of tests, which supports more efficient use of our production facilities.

Total operating expenses in 2018 were $140.4 million, a 48% increase as compared to $94.8 million in 2017. R&D expenses for 2018 were $50.7 million compared to $25.6 million in 2017. Net loss for the period was $84.3 million compared to a net loss of $83.2 million in 2017. Net loss per share attributable to Guardant Health's common stockholders was $2.80 in 2018 as compared to $7.07 in 2017. We ended the fourth quarter of 2018 with $496.5 million in cash, cash equivalents and marketable securities.

For the full year 2019, we forecast revenue to be in the range of $130 million to $135 million, representing growth of 43% to 49% over 2018. We expect this growth to be more heavily weighted to the first half of 2019 as a result of revenue contributions from companion diagnostic programs. We expect net loss in the range of $126 million to $129 million. We also expect clinical sample volume for 2019 to be in the range of 35,000 to 37,000 tests.

At this point, I would like to turn the call back to Helmy for closing comments.

Thank you, Derek. In closing, we believe we have a unique opportunity at Guardant to expand unprecedented access to cancer's molecular information throughout all stages of the decease. We are making significant progress in our goals and look forward to presenting data from our NILE study and LUNAR program at the AACR.

With that, we will now open it up to questions. Operator?

(Operator Instructions) First question is going to come from Tycho Peterson from JPMorgan.

This is Tejas on for Tycho. I just wanted to get a better understanding, Helmy, of your 2019 guidance. I believe I just heard Derek say it's going to be weighted towards the first half due to companion diagnostic milestones. Is the upside relative to where most Street numbers were, driven more by the companion diagnostic piece? Or is it sort of fundamental clinical strength? And if you could talk a little bit about your underlying volume assumptions for clinical versus biopharma, that will be super helpful as well.

Maybe, I'll start, and then, maybe, Derek can jump in. I think we're seeing very good progress in all aspects of our business. I think if you think about the numbers we're guiding towards in terms of 35,000 to 37,000 clinical tests, I think we're seeing good progress with some of the clinical data releases, some of the investments we've made on the commercial team. And so we're, I think, fairly encouraged by, I think, the early signs that we're seeing in our business. I think we see similar growth to that on the biopharmaceutical side as well, so I would say that both sides are seeing that backbone of growth. And then, overlaid onto that, are some of these companion diagnostic deals that we believe will be front-half weighted in terms of the revenue contribution.

Yes. As Helmy said, we are seeing good growth in both. And as he mentioned, the development services deal that we announced are accelerating our growth in that area. So that would be what we're expecting to particularly impact the first half of the year.

Got it. And then, a quick follow up here on the NILE study. Helmy, do you -- over what time frame should we start thinking of perhaps an upside or a lift in volumes based upon some of this concordance data? And any color you can share on outcomes here, I mean comparing sort of liquid versus tissue? I remember, in the past, you've spoken about sort of clinical outcomes being the true gold standard. So beyond just sort of concordance for test sensitivity and specificity any efforts along those lines that you have in the pipeline here?

Yes. So both good questions. Maybe I'll start with the second one. Secondary endpoint of the study is clinical outcomes. That will read out, and that's still ongoing, so we will get that as part of the NILE study. But we believe that a lot of -- the importance of NILE is really this idea that can you trust liquid at the first line setting? Can you sequence it before tissue testing? And I think the positive readout and the meeting of the primary endpoint of NILE, I think, proves that out. And so we believe that there are a couple of steps that are needed. The NILE is, obviously, the first critical catalyst we believe to initiating and establishing a blood-first paradigm in liquid. But we think that needs to be, obviously, paired up with FDA approval to have that stamp of quality and the third-party stamp of approval by an agency that clinicians trust in. And the third piece and equally important is the expansion of Medicare coverage from lung cancer that we currently have, to Pan-Cancer. And so this is why we are building up the commercial team. At this point, we've made good progress there. But we believe, to fully realize, I think, true acceleration and adoption, all those 3 catalysts are coming in. That being said, I think we saw some positive uplift from the general oncology study in Q4 of last year, and you can see that we had a fairly strong Q4 in terms of clinical volume. So some of these things will help. How much each one helps individually, I think, is hard to predetermine. But we do believe the combination of all 3 -- we have very high confidence that, that would lead to a turning point, an inflection point, in terms of adoption of liquid testing.

Got it. And then one final one from me for perhaps for AmirAli. I think, AmirAli, towards the end of your comment you mentioned some exciting data on colon. One of the AACR abstracts that really jumped out showed that in this retrospective analysis, you had a 95% detection rate in Stage 1 and 2 colon. I think it was a little bit higher in Stage 3 -- if you include Stage 3. So could we see you perhaps launch a standalone assay for early detection in colon, given some of the success others have had with alternatives to colonoscopy? And do you have any plans for a prospective cohort that looks at the performance of assay and the setting as well?

Yes. Sure. So (inaudible) excited with some of the early and promising data that we are seeing in our LUNAR R&D activities. But you highlighted this LUNAR abstract, which is going to get presented in an oral setting in AACR. It's a promising early data for us that really shows the potential of liquid biopsies in impacting early cancer management, specifically, like early cancer detection. Based on that, we are, basically, increasing our investments in the R&D activity around LUNAR. Still it's a small number of patients that are based physically tested in that abstract. Definitely, we are, over time, are increasing the number of patients and also match-controlled patients to better understand the performance of the assay that we have developed. But we believe it's a very unique, differentiated assay. And early promising data shows that really liquid biopsy could have that potential. So we are going to give it it's course, and in the future, we would keep you guys posted, the whole field, about how LUNAR can play a role in early cancer detection, and prospective studies is definitely a part of it.

And our next question comes from Derik De Bruin from Bank of America.

A couple of questions. So the Pan-Cancer label, obviously, an important milestone coming up. Can you sort -- can you walk us through -- it's like the -- what the FDA needs to see to make sure that you get the Pan-Cancer label. And I -- just the question being is there some sort of -- what's the risk around not getting that designation?

Yes. I'll let AmirAli jump in and answer that.

Yes. So Derik, as you may know, in the FDA packages, there are different kind of documents that you have to provide to FDA in terms of your quality system, in terms of the analytical validation of the assay and clinical validation of the assay. So we are well into those programs, both in terms of quality system, analytical data, and clinical validation. The partnership that we announced with AstraZeneca around Guardant 360 and Tagrisso is related to that FDA package, which is basically on the clinical validation, is running the retrospective patient samples that have been part of that clinical trial before. So everything is retrospective testing or model samples that we have to test, and submit the data to FDA. Since we have breakthrough device designation, we are projecting that, that review cycle would take 6 months post our PMA submission later in the first half of 2019 or with some, maybe, minimal impact right after that.

Great. But is there anything specific though, anything included in the assay that you have get so specifically to get to Pan-Cancer. I mean I think it's pretty obvious you'll get a late-stage non-small cell lung cancer approval, given the data is very strong. I'm just curious if there's something incremental you need to show for Pan-Cancer.

Yes. So in terms of studies, they are kind of all pre-agreed with the agency, and there are a lot of similarities with type of analytical studies that they wanted to see them for tissue-based testing. So effectively, many different cancer types are going to get tested as part of the analytical validation in order to get the tumor profiling claim across Pan-Cancer types. And all of those cancer studies are already planned and ongoing.

Great. In the Japan, the SoftBank, and sort of that expansion of that market, how long should we -- when should we start to see a sort of a contribution to that? I mean, I think we have some pickup in that program and contributing in the second half of 2019. Is that still a good way to look at significant -- as this pickup in sales to Japan?

I think, we obviously are seeing some growth there in terms of volume. A lot of that is us working with a lot of the hospitals there. But I would say, for real pickup, it's going to come after regulatory approval and the MHLW reimbursement, and that's going to take some time. The review cycle is long, but we're making very good progress on it. There's a lot of excitement in Japan around this type of testing and providing this type of testing for cancer patients there.

Great. And just a question on the -- when you started thinking about using liquid biopsy as a first line in the lung cancer, sort of how do you think about the market on that? I mean, if it did go first line, how should we think about the number of biopsies? And obviously, there's also the recurrence of the use of the assay, and I'm just sort of curious in sort of like how you're thinking about the TAM and how you think about the modeling of the first line non-small cell lung cancer for Guardant360?

As you know, from the drug space, getting the first line is the biggest market opportunity. And so that's why we see this jumping over from progression use case that we first launched in, to really solidly showing that this can be used in the first line setting without compromising patient care. That being said, there are 700,000 metastatic or advanced cancer patients in the market, and those are at the first line setting. So I think it's consistent with our TAM, the $6 billion opportunity and the therapy selection market. And we believe this is part of the road map of realizing that TAM is moving towards first-line use of Guardant360 testing. And AmirAli will jump in and add something.

And just to make one comment, NILE has been focused on lung cancer and really trying to make a statement of blood-first paradigm in non-small cell lung cancer. But we don't believe this is -- this blood-first paradigm is just applicable to lung cancer. That's definitely what NILE proves today. If you just look at our publication, about half of our publications are outside lung cancer. And there are many different cancer types that standard of care based on tissue testing are not the best diagnostic paradigm of choice as the first testing modality. So we are expecting that the same kind of finding and blood-first paradigm could get expanded into other cancer types as well.

Yes. We're seeing that same gap between clinical guidelines, and clinical factors, and other cancer types. So stay tuned for that.

Great. And just a quick one for Derek, the revenue split just sort of thinking about buckets between the clinical and biopharma split, and the $130 million to $135 million guide.

Yes. So in terms of that split -- just a second -- it is going to be, probably, getting close to similar revenue numbers, because we -- while we have more samples in the clinical side, we still have full reimbursement there, and on the pharma side we have OMNI. So I'd say that they're close to similar. That's in the precision oncology, of course. Development services is an entirely different revenue stream.

Our next question comes from Puneet Souda from SVB Leerink.

So maybe, just a first question. I just wanted to clarify, for the approval and NCD -- OMNI and NCD -- OMNI and G360 are going to be filed together. And should we expect both at the same time now with BTD also for OMNI?

So the answer is no, Puneet. The Guardant360 is the IBD program that we've been working on for a while, so and we disclosed the timeline for that PMA submission. GuardantOMNI is a new IBD development activity for us. So for sure it's going to be at a later time. Still, it's too early for us to project the PMA submission timeline for that program, but there is a lot of learning, and experience and infrastructure, which is scalable here when we did the first IBD program development at Guardant in order to go to the second development project.

Okay. Got it. Maybe if I could touch on NILE data, again. I know it's been talked about, but we saw the data -- look, 17 samples had liquid, where liquid picked up versus the tissue, ahead of the tissue, but there were 12 samples where there was tissue-only detection. So I just wanted to get a sense of how do you sort of position the test after that data. And in terms of what data sets that you need beyond this in order to convince the oncologists, longer term, that liquid-first paradigm is the way to go? Should we just expect that as when the final NILE data is completed for 300-plus patients? Or should there be more and more studies that here -- sort of convinces the oncologists longer-term?

Let me start with that, and I'll let others chime in. It's a good question. In terms of -- let me unpack that in terms of kind of multiple aspects of that question. So the first is neither testing modality is perfect. Liquid misses some. Tissue misses some as well. But the what the NILE data shows is there's an ideal sequence to how you position these tests. If we think about what we're trying to establish, it's a blood-first paradigm, not a blood-only paradigm. And so what we find is, because of the shorter turnaround time, the ease of use and the completeness of our liquid solution, by sequencing liquid ahead of tissue and reflexing the negative tested patient to tissue. You actually get more complete biomarker testing faster in first-line non-small cell lung cancer. And so that's really the punchline of NILE. Secondly, NILE shouldn't be taken into a vacuum. It'll be -- over a hundred publications we have around Guardant360 once the full publication comes out. And so you if you think about that, what has preceded NILE, obviously, studies from the University of Pennsylvania that recently read out in general oncology, our complete study over 7,000 lung cancer samples and many others looking at concordance looking at outcomes. And no one data set can really move a needle, but NILE is not just 1 data set, it's the culmination of a steady stream of data supporting use of this type of testing in the first-line lung cancer. And so obviously, it's something that we are in the process of and intending to repeat for other cancer types to transition this further. And is this is going to be enough to completely move the needle? I think that -- I think we feel very confident that this is going to go a long way. And that being said, we committed to continued investment in showing where our tests can move the needle and how they can add value.

Okay. Great. And then, if I could just touch on the OMNI as a product. Now it seems to be getting more traction in the market and among the biopharma. And you, obviously, have plans for FDA and NCD approval for the product. Given the features that you're getting out of it, could you, first of all, give a sense of, overall, what features are getting demand? And obviously, this is a 500 gene panel, we have fusions. You have other product features there. What is -- what are you seeing customers asking for, especially biopharma customers? And what's your view here, longer-term, for product features like TMB, MSI and other things that you're getting out of the product?

Let maybe AmirAli tackle this one.

Yes. Sure. So there's plenty of excitement around GuardantOMNI has been amazing. And unlike some opportunities for us, especially with biopharmaceutical companies with strong IO programs. But its impact is not limited to the IO programs. We are even seeing some uptake in the targeted therapy areas and some other kind of drug assets. It's a compressive way of looking at all kinds of biomarkers, which there are many have pipeline activities around it. The interest has been ranging from translational medicine sites, look at some biomarker research and discovery, all the way to the clinical development companion diagnostic as shown by the partnership that we announced with AstraZeneca that GuardantOMNI is going to be used as a blood-based TMB caller. There are some interests around TMB feature, around GuardantOMNI, which in order to accurately call TMB, you need to have large panels. And also the fact that the TMB calling that we are using in GuardantOMNI is just -- it's not just a simple mutation counting. It's a proprietary way of calling TMB that we filter out biological noises. We filter out somatic germ line variance, and we discriminate against each other and also we correct for the level of the tumor shedding in circulation, which is critical in order to have an accurate way of TMB assessment using GuardantOMNI. So there are -- for different kind of reasons and different kind of unmet needs by our biopharma customers. We are seeing huge uptake for GuardantOMNI.

Our next question comes from Brian Weinstein from William Blair.

This is Andrew on for Brian. Maybe we could start and just sort of take a step back, given this is your first call guiding to a full-year. And maybe you guys could talk a little bit about the process that you guys went through in order to set your full-year guidance.

I mean, our full-year guidance is, obviously, based on our annual planning process, which is a comprehensive look at our customers and markets. We come up with our best understanding of what we think the potential is, and then, we put that together into a plan. And our goal in providing guidance is to provide what we believe to be a realistic assessment of our opportunities. As you can see it's close to a 50% increase, so it's still a very high bar that we're targeting to go after.

Great. Maybe just a little bit more specific on that, on the clinical volume side, sort of what's implied in terms of new clinician adds versus sort of increasing utilization within that group.

That's a good question. So if we think about the current adoption that we've seen, before the last couple of quarters we've had, traditionally, a relatively undersized sales force at 20 to 30 sales reps. It takes about 60 reps to really get to full coverage of the 10,000 to 12,000 oncologists in the United States. And that's, obviously, something we're making good progress in terms of ramping up towards. And so new addition adds is going to continue to be an important component in the volume growth, given that it will only be in the coming kind of quarters that we'll have adequate coverage of those oncologists. That being said, data, such as NILE, such as the JAMA oncology study, and others, we're also seeing that data is very valuable in terms of deepening our penetration into more intermittent users of comprehensive testing. And so we see both factors actually contributing to upcoming growth in the quarters and years to come.

Great. And then, maybe, just the last one on guidance, maybe on the development services side. Could you talk about, what's sort of baked-in there? Do you guys factor in any sort of new contracts signed throughout the year? How do you think about that?

So for development services, because they are large individual agreements, we do look at what we see as prospects, but given that we're still fairly new in this area and it takes a long time for pharmaceutical companies to get to the point of moving forward, we are cautious about our forecasting and provide and apply a fairly rigorous discounting, if you will, in terms of probability. That being said, we, obviously, find some very large agreements with AstraZeneca, which provides a very solid base. We are seeing very strong interest from pharmaceutical companies, so we expect it to grow in the long run, but we are trying to be measured about how much we expect in the near term.

And I'm showing no further questions. Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.

Thank you.

Thank you.