NantHealth Inc (NH) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the NantHealth Second Quarter 2016 Financial Results Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session with instructions following at that time. Operator Instructions

And now I'd like to turn the conference over to Robert Jaffe, Investor Relations for NantHealth. Please begin.

Thanks, Tyrone. Welcome, everyone, and thank you for joining us today to discuss NantHealth's 2016 Second Quarter Financial Results. On the call today are Dr. Patrick Soon-Shiong, Chief Executive Officer, Bob Watson, President and Chief Growth Officer and Paul Holt, Chief Financial Officer.

This call is being broadcast live at www.nanthealth.com. A playback will be available for three months on NantHealth's website. I'd like to make the cautionary statement and remind everyone that all of the information discussed on today's call is covered under the Safe Harbor Provisions of the Litigation Reform Act. The Company's discussion will include forward-looking information reflecting management's current forecast, certain aspects of the company's future and actual results could differ materially from those stated or implied.

In addition, during the course of this call we may refer to non-GAAP financial measures that are not prepared in accordance with the US generally accepted accounting principles and may be different from other non-GAAP financial measures used by other companies. Investors are encouraged to review NantHealth's press release announcing its full 2016 second quarter financial results for the company's reasons for including those non-GAAP financial measures in its financial results announcement.

The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is also contained in the company's earnings release issued earlier today.

This afternoon, Patrick will provide a brief overview of the quarter and Bob will discuss the business line followed by Paul who will discuss the financial results in more detail. We will then open the call for questions. With that said, I will now turn the call over to Dr. Patrick Soon-Shiong. Patrick?

Thanks, Robert. So good afternoon, everyone and welcome to NantHealth's 2016 second quarter financial results conference call and as you know, this is NantHealth's first ever earnings conference call. It's good to be back. It's been a long time since I've been on an analyst public call and it's really now going to be an opportunity for us to describe the company since we've completed our highly successful initial public offering nearly two months ago, in early June in which we raised a net proceeds of approximately $83 million.

So before we discuss our excellent second quarter financial performance, I'd like to provide a brief overview of NantHealth as there may be some people on this call who are new to the company and our mission to transform healthcare.

In essence, this is the only company I know that's really truly trying to address real-word big data in the complex world of healthcare. And NantHealth is a leading next-generation evidence-based, personalized healthcare company.

To describe our business, it's a business that enables improved patient outcomes and more effective treatment decisions for critical illnesses. And specifically our unique systems-based approach and I really speak to a systems based approach where we applied novel diagnostics such as GPS tailored to the specific molecular profile of patient tissue and integrating this data with large scale real time biometric signal as well as phenotypic data to track patient outcomes and deliver precision medicine.

So for nearly a decade, we have spent arduous difficult times to develop a real adaptive learning system which we call clinics. And this clinics includes our unique software, our middleware, our hardware systems infrastructure which I would like everybody to know, to understand as NantOS.

So what is NantOS? NantOS is our system who collects our indexes, analyzes, interprets billions of molecular, clinical operational, and financial data points derived from both novel and traditional sources, but more importantly from real-time world, real clinical data.

This system is designed to continuously improve decision making and further optimizes clinical pathways and decision algorithms over time. We have now pioneered this area of big data and what I call augmented intelligence. We believe we are uniquely positioned to benefit from multiple significant market opportunities as the healthcare providers and payers transition from a fee-for-service to value-based reimbursement models and accelerate the pursuit of evidence-based clinical practice.

And I will speak over the course of the next three or four months of the new oncology care models which actually is going to really pioneer this kind of new value-based reimbursement model. I can assure you that the work we've undertaken over the last 10 years and that continues today will be transformative for our healthcare system and specifically in the early stages of the company, for millions of lives impacted by cancer.

So let me turn now to the second quarter performance. As you've seen from our release today, we reported very strong topline growth with total net revenue increasing 167% over the same quarter last year. Similarly, gross profit nearly doubled compared with the same quarter last year. And shortly I will ask Paul Holt to describe our financial in more detail.

So as we look to the future earnings calls, I think it's best to understand the company through two systems. One through its software system, as I said called NantOS and two, to this unique comprehensive clear cap test for cancer we call GPS Cancer.

For those who may not be familiar with the two platforms, NantOS, again, serves as an interoperability platform from which multiple applications and products will emanate. For the purposes of NantOS, I will ask Bob Watson to discuss the significant progress we have made after I provide an update on GPS Cancer. And as you will hear NantOS has signed two new five-year contracts with large healthcare systems and expanded contractual relationships with over 25 current clients.

Let me turn to GPS Cancer, with regard to GPS Cancer, this is the most comprehensive CLIA and CAP certified molecular diagnostic test in the market today and we have taken the unusual step of obtaining payer coverage before we went to market in June the 1st. I think this differentiates us in the sense that we felt important that the payers understand the value of this test before we took it to market. There's now been a significant progress made in our GPS launch.

First I'd like to turn your attention to two recent developments. We are pleased to announce that we are in advanced discussions with ASCO involving our novel diagnostic GPC Cancer test as a sequencing option for use by physicians participating in this large match trial called TAPUR, T-A-P-U-R clinical trial which is now being sponsored by the American Society of Clinical Oncologists or ASCO.

TAPUR is the Targeted Agent and Profiling Utilization Registry, it's a clinical trial that's focused on individuals with late-stage cancer. Patients entering this TAPUR trial will have an opportunity to have GPS as an option for this genetic sequencing and then it will also have the option to enter into what we call the QUILT trial which is the Cancer MoonShot 2020 Program.

The second development which I think is amazingly positive news on the reimbursement front for next generation sequencing in general is the news that CMS will now provide coverage for somatic genomic profiling for non-small cell lung cancer patients that were non-smokers or light smokers. We find this particularly encouraging in light of the fact that this is the first time CMS has formally agreed to pay for any kind of next-generation sequencing.

It's estimated that more than 220,000 new cases of lung cancer will be diagnosed in the United States this year and represents roughly 13% of all new cancer diagnosis, 27% of all cancer death. Sadly, the five-year survival rate for these patients is 17% and only 4% for patients with metastatic disease. So clearly, our GPS test will really provide increased opportunities for patients to not only enter clinical trials but will also be able to participate in this now newly approved CMS approval process for this limited set of non-small cell lung cancer patients. It's highly, but not that limited in the sense that it's patients who are ETR negative and this represents in essence over 80% of that patient population.

Let me talk about GPS in terms of how you should think about covering GPS and the highlights that you have seen we presented in our press release, is to think of GPS in the form of number of covered cancer lives. Let me define that term. By covered cancer lives, that means patients who have insurance coverages and who are -- who have, unfortunately have cancer.

So as it relates to GPS cancer, the number of covered cancer lives at the end of the second quarter was approximately 180,000. Subsequent to the quarter end, we have added three new payers and 20,000 cancer lives bringing the total to approximately 200,000 as of today's date. So said in another way, we have now an opportunity to identify or access 200,000 patients with cancer for whom they have GPS cancer as a covered test.

In addition we have initiated conversations with 13 other payers including eight Blue Cross Blue Shield association affiliates and two self-ensured employer groups. The total covered cancer lives represented by these prospects exceed 400,000. So clearly we are very encouraged by the willingness of major commercial insurers and self-ensured employers to enter into negotiations with us to provide coverage with GPS Cancer and really pleased by the effect that they begin to recognize the inherent value of the steps.

Also as you may know, we have an agreement with a very large Fortune 500 self-insured employer to provide GPS Cancer to their over 400,000 insured lives. GPS Cancer, I'd like to announce, will be made available to these insureds in the fourth quarter of this year. So with that overview, I will turn the call over to Bob Watson to discuss our business lines in more detail. Bob?

Thank you, Patrick and welcome, everyone. Revenue was favorably impacted by several items. First, the 2016 second quarter included the operations of two acquisitions completed in the third quarter of last year and the first quarter of 2016. And second, the quarter benefitted from the early recognition of certain revenues as our delivery teams were able to pull forward revenue from several accounts that we did not plan to capture until later in the year. This is a positive development that signals the tightening of the implementation timelines by our teams which bodes well for future deployments.

In our device connectivity business, we had several accounts go live in the quarter including Montefiore Health System in the Bronx, New York City. This was a particularly complex project as Montefiore transitioned to its new EMR vendor, Epic. Additionally phase one of our Denmark Capital Region Health System Project which was signed as a client in late 2015 has also moved into production mode. This is our first live client in Europe and will serve as a beachhead for us as we expand our footprint globally. We expect to begin recognizing revenues from this project in the fourth quarter.

Our NantOS interoperability business line, formerly known as NaviNet, which primary clients are the nation's largest commercial payer organizations, we had four projects moved to production mode as well. Among them, AmeriHealth Caritas, an affiliate of independent Blue Cross in Philadelphia, went live on our NantOS open platform as did Horizon Blue Cross Blue Shield of New Jersey.

In early June, we announced the commercial availability of GPS Cancer, a comprehensive molecular test that measures the proteins present in the patient's tumor tissue combined with whole genomic and transcriptomic sequencing of tumor in normal samples.

GPS Cancer takes 21 days from the time the tissue sample is received at our labs to the delivery of a completed report to the ordering physician. With only a short window for ordering, our second quarter included a small number of completed GPS Cancer tests. That said, GPS Cancer orders continue to ramp up into the third quarter.

During this rollout of GPS Cancer, we have learned that physicians will order the test without regard to the patient's underlying insurance coverage. We anticipated this and have put in place a patient assistance program to address those situations where a patient did not have coverage. We view this quite positively as it demonstrates the value of the physician of GPS Cancer. Moreover it provides critically important information for our discussions with payers as we seek to grow the number of covered cancer lives for which GPS will be a covered benefit.

Also during this period, we learned the important value of our medical affairs and physician education associates who educate the physicians in the markets where we have payment coverage. To that end, we have elected to expand the team and accelerate hiring in this area. We expect to double the team within the next quarter and believe this is an important investment especially in light of our number of covered cancer lives expanding in new markets beyond Philadelphia.

That brings us to the issue of expanding the number of payers for GPS Cancer. As Patrick noted earlier, the number of covered cancer lives at the end of the second quarter is approximately 180,000. Subsequent to the end of the quarter we added three new payer agreements in 20,000 covered cancer lives, bringing the total to approximately 200,000. These payers were self-insured employers as well as providers.

For example, Phoenix Children's Hospital has agreed to pay for GPS Cancer for the members of its self-insured plan and for all pediatric cancer patients regardless of whether or not the patient's underlying insurance coverage includes GPS. Additionally, we have initiated conversation with 13 other payers including eight Blue Cross Blue Shield association affiliates and 2 insured self-employer groups. As Patrick noted, the total covered cancer lives represented by these prospects exceed 400,000.

While these negotiations are complex and lengthy, we fully expect to deliver additional payers and self-insured employers to our list of commercial payers during this fiscal year. We have a team of eight-seasoned professionals leading our efforts in this area. In fact, we added three professionals at the start of our third quarter.

Again, as Patrick noted, the receptivity of the payer community to having a discussion around the coverage for GPS Cancer is very encouraging. Every GPS Cancer test we perform even if covered by the patient assistance program generates data on outcomes and efficacy that is critical and crucial to these conversations.

All signs continue to positive on adoption rates as well at prescribing physician level and at the commercial payer level as we've noted. As noted in today's press release, during the second quarter, we entered into our first international distribution agreement for GPS Cancer. Ordering of this test commenced June 1 with this partner. Under the agreement, our partner will sell GPS Cancer at a price that is consistent with our own pricing. However as you would expect, the sale of these tests will be at a lower margin than if we have sold the test currently. We currently expect between 500 and 1,000 orders from this source during a given 12-month period. Additionally, we are actively engaged in conversations with three other international partners.

Turning to bookings, during the quarter, our total bookings including net new renewals and product expansion were $12 million in total contract value. Year-to-date bookings including net new renewals and product expansions were $34 million in total contract value. Overall, we're ahead of plan on bookings. In total, there were 25 signed agreements during the quarter and 58 year to date with current clients. On the net new sales side, I'll mention two sells that were noteworthy. In both cases we sold our NantOS decision support, formerly known as Eviti oncology decision support into integrated delivery systems. This was the third and fourth times we have sold that solution in that construct in 2016. This is very important because historically as you may know, the solution was sold to payers.

In the quarter for example, we sold the solution to Sanford Health and Banner Health, both are very large integrated delivery systems. In general, we believe that sales of NantOS decision support will have a pull through impact on GPS sales. To support that thesis you will note as I did above that Phoenix Children's Hospital which acquired NantOS in Q1 of 2016 became a payer for GPS as well as a provider and an employer subsequent to the quarter end.

With that overview of the business lines, I'll turn the call over to Paul to discuss our financial results in more detail. Paul.

Thank you, Bob and hello, everyone. For the second quarter, we recorded a revenue of $31.5 million, an increase of 167% over $11.8 million in last year's second quarter, at 62% over $19.5 million in our perceived quarter. The principal drivers of these increases came from several sources.

First, NantOS interoperability which includes the acquisitions formerly known as Paris Healthcare Solutions and NaviNet which we acquired in July 2015 and January of 2016 respectively contributed approximately $7.2 million and $10.9 million in revenue in the 2016 second quarter.

Second, we recognize revenue from several large NantOS interoperability and device connectivity software and services, related projects that were completed earlier than anticipated. In total, these projects generated several million dollars of revenue that we anticipated recognizing later in the year. We also experienced continued growth in our recurring maintenance and SaaS services related to expansion in our customer base before our NantOS decision support and device connectivity software platforms.

Totaling recurring SaaS and maintenance revenue was $19.7 million compared to $6 million in our year-ago quarter. Turning briefly to our six-month financial results, total net revenue was in double to $50.9 million from $23.5 million for the first six months of last year. The maternal driver of this increase related to the two acquisitions we completed in July 15 and January 16.

We also had meaningful organic growth in the NantOS decision support and NantOS engagement solution. As Bob noted, we recorded approximately $12 million in total bookings this quarter including the total contract value of net and sales expansions and renewals.

Total bookings in our prior quarter was $22.1 million. Our prior quarter bookings included two large multi-year NantOS contracts which contributed for the larger bookings number. Gross profit was $9.3 million, an increase of $3.8 million gross profit in last year's second quarter of $5.5 million.

Gross profit margin was 29% versus 46% a year ago. This decrease is primarily due to approximately $7 million in stock-based compensation expense we recorded as a result of investing of equity tied to our IPO in June. Gross profit margin excluding the stock compensation expense would have been approximately 52% in our second quarter.

Total SG&A expense was $47.2 million compared to $17.8 million in last year's second quarter. This increase again was primarily related to approximately $23.6 million in stock compensation, again, tied to our IPO in June as well as the inclusion of our two previously mentioned acquisitions in our operations. Our total R&D expense was $24.3 million compared to $5 million a year ago. This increase includes $13.1 million in stock compensation expense tied to our IPO as well as the inclusion of R&D expenses from acquired operation. R&D expense at a percentage of total revenue was 77% compared to 42% a year ago.

The 2016 second quarter included a significant one-time tax benefit of approximately $14.4 million which was a result of our conversion to a C corporation just prior to our IPO. On a GAAP basis, we reported loss per share of $0.52 compared to our loss per share of $0.21 in last year's second quarter.

On a non-GAAP basis, our loss per share was unchanged at $0.15 in both the current and prior year period. On a sequential basis, our non-GAAP loss per share declined by $0.03 primarily driven by our strong sequential revenue growth. With that, I will now turn the call back over to Robert.

Thanks, Paul. Operator, we have completed our prepared remarks and we'd now like to open the call to questions.

Thank you. Operator Instructions We have a question from Charles Rhyee of Cowen. Your line is open.

Yeah. Thanks guys and congrats on your first quarter here. I wanted to ask about first on the payer conversations that you're having, you talked about 13 payers, 8 being Blue Cross Blue Shield, in particular, how much of that is being pulled through either Eviti -- I mean how many of them are maybe already Eviti customers or NaviNet customers that jumps out of these discussions?

This is Patrick. So I'll turn this to Bob in terms of specifically how any are Eviti or NaviNet customers, I think they cross over both, right?

That's correct.

I can't tell you with specifics in front of me which are Eviti, which are NaviNet. But I think they all have -- even Eviti uses -- some of them are both Eviti users and NaviNet users. Some are either Eviti users alone and NaviNet users alone. So Bob, maybe you can address that specific.

Yeah. Some of them are actually -- several of them have neither Eviti nor NaviNet and are complete net sales opportunity across our platform. So the conversations are a bundled conversation including the NantOS platform and GPS at the same time.

Okay, that's helpful. And where would you say we are in these discussions? Is it really -- is it right now about validating the test itself or is there a comparable to test and is it really more about how do we kind of phase that kind of into their medical benefit? Can you characterize sort of maybe what percentages of -- or each of these buckets maybe, you know, I guess sort of the funnel, I guess, the pipeline.

Yeah. So it's interesting, what we have learned as we sort of worked our way through, as you know we started with independent Blue Cross and it was the first issue with that was to get the community in Philly aware, the oncology community in Philly aware of this test because they weren't even aware of the test, right? The insight, the technological insight to leapfrog from genomics to proteomics is a huge clinical shock to the system so to speak.

So we spend a lot of time educating so to speak the oncologist and what's very pleasing is even the thought leaders not only were pleasantly surprised, they were literally blown away by the capability of actually doing a whole genome sequencing tumor normal and proteomics and getting the results in time from a clinical perspective.

So that's taken some time to -- since we've launched to evolve that insight. But with regard to the payers, one that was pleasing and I think you saw from independent Blue Cross, even medical policy, they have reached the stage that there is not only clinical value, but clinical validity, but they also want to get a buy-in of -- by their networks.

So a large amount of these discussions is not are the payers going to do it, in fact we are very close to -- the payers internally agreed to do it. They are massing together the networks of doctors to initiate studies for which they are very committed to pay for the test in their network. And an example for that is in New Jersey where we're exploring that now with maybe three, or four, or five providers, who are competing networks believe it or not that are working together to validate, in their clinical mind, validate the test. So on the one hand, the issue really relates to making sure both the payer and the doctor networks are all in line.

The other element we're beginning to also see and we'll speak a little bit for example to the Bank of America a commitment where that is, without question, being committed both publicly and they want to cover this is the coordination then with the multiple payers in terms of the payers that cover Bank of America for example, Bank of America's combination of Aetna, United and the Blue's anthem.

And so then it's -- there is a workflow element that we need to work through and that's taken more time than we had anticipated and that's why we unfortunately thought we were going to get that workflow through with this quarter, but it looks like it will be fourth quarter where the complicated workflow between Bank of America and their third-party administrator so to speak as to work their way through.

So in essence, there's a lot of logistics, educational and knowledge transfer that needs to happen, but what's exciting is as you've said, we have increased our covered lives now, actual contractually covered lives for GPS Cancer to 200,000, bringing a total of six payers covering GPS.

I don't think if that helps you and Bob, if you want to add anything to that from what I've?

No, I think that's --

No, that's -- yeah. That's helpful. I guess I wanted to ask one follow-up question then you've talked about the plans looking out and thinking this is a very full comprehensive test and certainly some of our conversations with physicians bears that out. But when we think about the broader community oncologist, oncology community, it's often discussed that they sometimes struggle here with all these additional information.

How do you bridge the gap in teaching the broader physician community the value -- not only the value of the test, but how they can interpret the test? Thanks.

No, that's a great question, Charles, and in fact it's a good question because we have actually gotten real smart now on how to break down the test in the sense to unbundle the information because I think providing the entire GPS test was truly information overload. So the way we've unbundled it is to say let's bundle it conceptually these, in terms of your patient you're treating into chemotherapy, let's bundle into monoclonal antibody therapy, or targeted therapy or immunotherapy.

So for the concept of chemotherapy, we have now actually indicated and showed them how when you're about to give Taxol which is a standard of care in many, many cancer patients that there is a protein called TUBB3 that would pre-indicate that the patient would be resistant to Taxol. We can now for the first time measure the presence or absence of TUBB3 and you could actually make a decision whether you can choose Taxol, whether you will choose the statin or some other molecule.

For example cisplatin, we now know that patients when they have ERCC1 which is a protein which is the lead for statin that if the patient has zero ERCC1, we are now seeing and soon you'll start seeing reports of amazing results, complete responses in some cases in response to cisplatin and then you will see some patients with high cisplatin predictively having resistance.

So what is interesting is we have adopted 40 old drugs and spoken to the doctor who is very comfortable with cisplatin, doxorubicin, etoposide, cantothecin drugs that they've been giving for 40 years, as for the first time there's more information about the drug from the patient's tissue than they ever had in the history of cancer.

So we broke it down now into chemotherapy. You may have seen the failure unfortunately from Bristol Myers with regard to the clinical trial on checkpoint inhibitors. It's not a failure. It's actually, unfortunately the inability to capture the right patient because clearly this drug is effective. What we have now shown for the first time, we can now measure PD-L1 levels, at the quantitative level and we will soon be presenting some data internally of a patient with PD-L1 and 500 [atomol], as well as one of the highest levels of tissue received a checkpoint inhibitor with a complete response after metastatic stage 4 lung cancer.

These are very powerful findings that doctors are finding. We have the report completely unsolicited from our international partner that did the standard gene panel foundation test, found no treatment to give, but then found with our GPS test a potential solution, gave the patient that solution, that treatment and had a fabulous response.

So I think by breaking it down instead of information overload into its little pieces of chemotherapy, targeted therapy, monoclonal antibody therapy, doctors are able to consume the importance of this test and how it impact their decision making. So that's how we've learned now to explain this. And we're bringing on medical affairs doctors and other clinicians and nurses to be able to do this kind of education.

Thank you. Yes, thank you very much.

Thank you. Our next question is from Joe Munda of First Analysis. Your line is open.

Good afternoon, Patrick, Bob and Paul. Can you hear me okay?

Sure. Hi, Joe.

Patrick, you had mentioned advance discussions with ASCO regarding the TAPUR trial. When do you expect an answer and I guess opportunities/patient population that you think could be utilizing the Cancer GPS test?

Yeah. So some of you might be familiar with TAPUR trial, the way the TAPUR trial is designed, Dr. Richard Schilsky at ASCO, foremost and chief medical officer of ASCO and Cliff Hudis is the new president of ASCO and we had multiple meetings, the way the TAPUR trial is designed is for approved use of approved drugs, and they have [like seven or eight] pharmaceutical companies and you go to the website for the TAPUR trial.

And the patient and the doctor have a choice of whatever sequencing format they want to utilize. And one of the formats will soon be the GPS cancer. We had to go through a process to get NIH designated, et cetera. And we've gone through that process.

And then after that, the patient will then get the test and match to whatever they can within the TAPUR trial. We have come to an arrangement that if such a patient then cannot match the TAPUR trial, that patient will then fall into [what -- our quote] trial.

The difference between the TAPUR trial and the [quote] trial is the TAPUR is for approved drugs for improved indication. And the [quote] trial is investigation drugs purely combining immunotherapy at the cell-based therapy level, natural killer cell level, dendritic cell level, cytokine level, fusion protein level, low-dose chemotherapy level, investigational commendations.

So this is a very exciting moment. We will be working our way through the documented logistics because obviously the trial amendment of this combination has to go through. And we think in the course of the next maybe three months, we will probably get that done and so, maybe the quarter after that where this will begin. That helps, Joe?

Yes. I'm sorry. The data that's generated...

Well, the data that's generated, I need to figure out where -- how the ASCO released that data. I'm not sure we could -- we don't control the timing or the release of that data from the TAPUR trial. We will control the release of the data from the [quote] trial. Unfortunately, I don't think we've controlled that. ASCO will control that.

Okay. Okay. Then Patrick, you had mentioned setting up a program. You said doctors will prescribe the test for their patient regardless of their situation. How many patients do you envision having to get assistance, to get the GPS test?

Well, the faster we get the coverage, it's hard for us to know that because what's happening now is there's now getting pre-rapid excitement of -- I can talk about an institution at Midwest that's actually ramped out.

They use this so much of [sub-q] test to really -- and they don't have coverage in their region, right? We are yet, we clearly are talking to the insurance companies. So what's exciting to us, it's the chicken and the egg. The fact the doctors actually see value, they will actually help us pressure their local [intrinsic] commercial carriers.

And the commercial carriers do want to cover it because they want to ensure the doctor see value. So, we're breaking the cycle. So in -- we don't want to not allow the doctor to get educated and as Bob said, whether they can pay for it or not, it adds value in many ways. Clearly, it adds value to the patient but it adds value to our database.

And it also adds value to more information that the local commercial payer could cover. So, unfortunately, I can't give you a straight answer, Joe, because I don't know the answer. We hope that we break the cycle as fast as we can. We already have 200,000 covered lives of which we go -- reverse engineer and go find the doctors that cover those 200,000 covered lives. But in the meantime, we will not turn away any request to do this test.

And then finally, Patrick, you -- I think you had -- just as you were ending your comments, the 400,000 from [the 13] payers, are you expecting those 400,000 lives to come online for coverage by the fourth quarter of this year, by the end of this year?

I said 200,000. You said 400,000. Did I say 400,000? I'm sorry. Did I say -- I mean ...Oh, yes. Which 400?

Yes.

What 400,000? You're talking about the ones in discussions. Are you talking about the 200,000 covered -- that's already agreed to?

Right. Right. The 400,000 that are in discussions, as we speak.

Oh, in discussion. Well, sorry, okay, so that 400,000 relates to a self-insured payer. Yes, self-insured, plus some of the insurance companies. So the question is when do we anticipate that actually going live? I anticipate that going live by Q4, late Q4.

And the 13 payers, they're in conversations that I mentioned. Those conversations are lengthy and complex. We expect to close additional of those payers to read -- this fiscal year, they'll go live in 2017. So the next of go-live is large self-insured employer. As Patrick noted, which will be Q4.

I think it's very important for this analyst, all your analysts to sort of watch the number of covered lives grow. It's going to take us, obviously, a while -- when I say a while -- a quarter or two to work through the logistics of the payment systems, the coding, et cetera, for all these different disparate systems they all have.

What I'm learning, they all have very different systems. And then really, I think the first half of 2017 is when the whole ball continue to roll with regards to numbers of GPS test. So we've decided strategically for this quarter and next quarter to really educate both the payer and the provider about this value of this complex test.

And then by the end of 2017, we have a combination of about 200,000 and 400,000, 600,000 covered lives, which then says our penetration only needs to be 10% or 20% of patients that are already covered by GPS. It's a wonderful position to be in. That's why I said in my earlier remarks, we've taken the unusual step of not launching and then hoping to get covered. We took the unusual step of first getting covered and then launch.

But it's logistically more complex and I believe with regard to just getting covered is all kinds of systems that you have to integrate with, with regard to the payers of coding and the integration and the combination of the benefits program of the self-insured versus the benefits program of a fully insured. And that's what we're working our way through, but those are the kinds of problems that are easily soluble. It's just a matter of logistics.

Okay. Thank you.

Our next question from Frank Sparacino of First Analysis. Your line is open.

Hi, guys. I just had one follow-up on the financial side. Paul, you gave out some numbers in terms of bookings for the quarter. I understand that year-over-year is down Q2 '16 versus '15.

And you gave a first half number for '16, but do you have a first half number for '15 and then maybe just following up on that? Is there a backlog figure that you can talk about or plan to disclose just in terms of giving us better visibility?

Hi, Frank. So, unfortunately, last year, I think we didn't have Harris Healthcare. And we also didn't have NaviNet, so it doesn't necessarily lend itself to an apples-to-apples ability to be looking at bookings that way that you're looking to do.

So what we've been decided is that we're going to be providing the bookings number for the last quarter and this quarter and we'll continue to do that, so you'll have a full picture for this year, but that's the limit of what we're going to be giving out in terms of booking information.

And I think your other question relates to backlog. And I think we had some discussion internally about that. And I think at this point we're not going to be providing that given, it's a fairly broad -- this would be a very broad, kind of, measure that has so many different elements. I'm not necessarily sure the -- necessarily the value that you might be able to leverage from it in your -- in your models, so what we provide I think is what we're -- is what we're going to do.

Can we have our next -- can we have the next question?

Yes. Is that it, Frank? [That's the extent of] what I can do.

No. That's good. Thank you.

Thank you. The next question is from [Brandon Kuliok] of Jefferies. Your line is open.

Thanks. Good afternoon. Sorry if I miss this, but could you give us some update on, sort of, the GPS order volumes to date, perhaps the number of doctors that have ordered the tests so far up through early August? And when exactly do you expect ordering functionality to be available through [Evity]?

Hi, [Brandon]. This is Patrick. So, what we're doing is just integrating both ordering versus tests that we're doing, so we are really combining both current tests. I can tell you that our machines are running at full tilt now. Yesterday, frankly, I think we broke the record because we are actually processing 350 whole-genome simultaneously on our massive parallel computing gear.

So, I'm not trying to evade the answer. What we're trying to do is be careful how we solve for the ones that just came along from the programs we're running versus those, actually GPS direct ordering through the contracts that we just received.

So, I think we'd be in a better position, maybe in the next quarter or the quarter after when we worked out the entire logistics to give you the numbers -- the [truly] numbers of tests running. But as I said, I think the opportunity to personnel -- to have secured 200,000 lives that are contractually covered by GPS is the license that we have to actually go and execute against.

Unfortunately, these patients have cancer, so we know where we have to go. And we really have been spending our time when it comes to logistics and making sure the machine really works, making sure our systems can flow and people can actually have access to. They even [stopped] the ordering system, which we're putting place. I hope that helps a little bit.

Sure and then, Patrick, a question for you. I mean, we just saw a foundation medicine decide to go down and joined halfway with the FDA and CMS. Do you feel any need to pursue a more formal sort of regulatory clearance pathway given that development with the main, sort of, I guess, comparator in the market pursuing a more formal approval designation?

Yes, yes. Just you know, I think that event of foundation going to this parallel pathway is helpful. It educates both the CMS and FDA. Let me tell you the good news, however. The CMS has really taken the step unsolicited to cover next generation sequencing for lung cancer.

That to me was a very pleasant surprise. And it covered clinical limited area within lung cancer, but so be it the concept of next generation sequencing, I mean whole-genome -- this is not -- this is whole-genome sequencing.

So what we plan to do and, in fact, this has been in our plans for the longest of time is to seek regulatory approval of our tumor-normal-whole-genome sequencing pro-genomics transcriptomics test. As you know, there is no such test on the market, in the system nor either clear or CAP certified.

So, it puts us in a leading position to set the bar as related to an FDA approved tests and clearly that's in our sights to do. I'm not going to give you any guidance or timing when that's going to happen, but as soon as we've had a more data information, clearly, we'll be announcing that.

But I think that's exactly the right move to have these as regulated tests. I feel strongly, in fact, that we can move this thing out of [LDP] world into a regulated world. I think it should. We've had CAP certified tests, [internal] tests that CAP does.

We're not allowed to unfortunately reveal the results of the CAP tests. What I can tell you, we are very pleased with our own internal results and feel very comfortable that when we take this to the FDA, the scientific validity of the test will be itself. We have -- we are and have been generating very exciting data with [this].

We're using, as we showed you before randomized studies for taxol, randomized studies for cisplatin, randomized studies for [alphabolic receptives] in patients with cancer in which they are prospectively randomized and retrospectively analyzed as it relates to GPS and showing statistically significant differences when we actually do the GPS test and find the presence or absence of the protein as it relates to the treatment that's been given. So, we, in short, I think moving to this discussion with the FDA is not only important. It's something we absolutely actively involved in trying to do.

Thanks. Last one for Paul. Could you quantify the amount of the dollar amount of revenue that was pulled forward from the second half of the year? And could you give us any parameters in terms of cash burn outlook, at least for the full year?

Yes. Thanks for the question. So, what I said in my prepared comments was that these were -- it was several million dollars. I think I'm trying not to get that quite specific in terms of what they meant individually.

So, I think we're going to have -- you stick with what that -- my commentary was there, but it clearly is revenue that we had forecasted to occur later this year. And so, I think we felt it was meaningful enough that we wanted to at least mention that, that we had pulled this revenue forward.

So, I'm going to pause there and then get to your next question. So, in the first half of this year, we've been on around of $25 million a quarter cash burn rate. And that is the range that I think we were running at today. Not necessarily want to provide you any specific guidance here going forward except to say that we're confident that what we have on our balance sheet is sufficient in the long run.

Super. Thank you.

The next question is from Richard Close of Canaccord Genuity. Your line is open.

Great. Can you hear me okay?

Sure. Hi, Richard.

How are you? I just want to clarify because there was some back and forth, I guess, with respect to the 13 payers, 8 Blue Cross Blue Shield and then 2 self-employers, I think you said that was over 400,000 lives in your comment.

And there -- I just want to be clear on that. And then there is also one self-employer that is over 400 lives itself that you expect to start reimbursing in the fourth quarter. Is that how I should understand that, those two groups?

Yes, so it -- maybe it's a little confusing because inside the self-insured employer, it's not cancer lives. It's covered lives.

Okay.

And then for the -- for the insurance companies, it's cancer lives, so sorry for that confusion. So the total, kind of, covered cancer lives, when taking aggregation between the two self-insured plus the 8 Blue Cross Blue Shield association affiliates represent covered cancer lives.

So you can -- you can aggregate them as covered cancer lives. Within the self-insured, it so happens within the self-insured they have about 400,000 covered lives, so maybe that's where the number gets confusing. Does that help you?

Okay. But the ones -- the agreement with the large fortune, I think you said Fortune 500 company that has [4,000]...

That has 400,000 covered lives, that large self-insured company, 400,000 covered lives, so maybe you take a percentage of that, 10 or 20,000 cancer lives. That would go live in fourth quarter 2016 ...

Okay. So that one -- that is formally signed, correct? That's -- they formally signed and they are going to be reimbursing.

Yes. What we've done, we formally signed the large overarching master service agreement with them. We've entered into multiple pathways of oversight. One of it is the health and wellness, which is the hypertension program and the other one is the cancer program.

Okay.

We'll give you soon more color in the health and wellness one which is very exciting and basically going live as we speak. But the cancer program, we anticipate, we [want] to work our way through [their monthly due]. They've got three insurance companies. They're dealing with [Etner].

Okay.

And some -- and United. And we're working through the logistics at least with one of them at this point. And we anticipate -- I've been told that we -- yesterday, we think we'll get this all done by fourth quarter of 2016.

Okay. So, as you look at the six payers that you've already signed up and so as you think about that education process [that] positioned in those particular markets, you talked a little bit about in your prepared comments in terms of how those discussions are going.

How would you just characterize the education and training aspect as -- now that you have some experience with it as compared to how you initially expected it? Is it significantly more challenging or time consuming? I'm just -- I'm just curious your thoughts there now that you guys have a little bit of experience under your belts.

Yes. Well, I think that the biggest thing I learned was data overload was not a good thing. So, we needed -- we found a way to communicate with the average practicing oncologists that -- how they actually saw their patients as it relates to standard chemotherapy. So when we started speaking about the fact that this could help you make a decision about taxol, light bulbs went on.

So, it wasn't about dumbing down. It's about really making it practical with regard to where this information. For those that are involved in clinical trial, it also brought the opportunity for them to get access to clinical trials and those light bulbs went on. And now for the payers, when you see the cost of checkpoint issue and the ability to actually save money and to actually look at -- the [septin] for example.

Those light bulbs are really going on. And then this whole new thing called Oncology Care Model that we're going to participate in which pathways are needed and the integration of [AVT] and GPS in the clinical trials. So, all of these things have happened quite logically in the last maybe two months. And to us, it's an education in its own right of how to educate others.

The thing that I found surprising and challenging is the logistics between the self-insured and the commercial payers and the need to create a code that doesn't exist. So, it's not that they don't want to. It's just a mechanism of how to so do. But once we've actually created that with one or two, it becomes [a template part just to follow]. Independence Blue Cross spent a lot of time for years working with us.

And I came to the conclusion that if you had a medical policy which you can go see on the site with clear indications that is something -- could this be rubber-stamped. But every system has a different coding mechanism, how they work internally. So it's just a matter of actually working the way through. I don't see this is a -- there's no massive road block. It's not like trying to get them to approve it. [It lets you through] working through logistics.

Okay. And I think Bob had mentioned some investments in the teams. If you could just update us, go over those numbers again, Bob, possibly just where your original expectations were at the IPO in terms of those individuals on the ground doing the education and training and what you're taking that to now here in August.

So we -- on my prepared remarks, we made a couple of comments in there [regard -- in your, right,] and in terms of the individuals on the ground in Philadelphia or other markets where we have coverage, we expect to double that team as we go into this quarter.

We probably pulled forward that [higher end] by one quarter. And it's really reflected the fact that we're making good progress with other payers, so it's [de minimis]. And then on the side of the sales organization, talking on a regular basis to self-insured employers and payers, we added three people to that team that bring us at the start of the quarter, so we're up to a total of eight as I mentioned. And again, that was -- we probably pulled our -- [forward] some hiring by maybe a quarter or two.

Interestingly, if I could just add, the three people that Bob just hired and we brought on board is interesting in the sense that one was a very sophisticated person who worked within the insurance company, in fact, was vice president of a large commercial payer.

And the other one as somebody who really worked with self-insured and the other -- and the third one is a member of the team, worked with doctors in terms of second opinion. So we bring in people now who really understand the language, the nuances of communicating at these levels, so that we can help facilitate getting the logistics done quickly.

Okay. Thank you.

Okay. Thanks, Richard.

The next question is from Charles Rhyee of Cowen. Your line is open.

Yes. Same thing, just follow-up question. Now, Patrick, I think you're talking about Indiana where the doctors there are really taking up the test pretty actively, but you don't have coverage. You talked about sort of a chicken and egg situation, obviously in your discussion with payers.

When we think about -- one of the companies that obviously a lot of people compared to and that's also very well regarded test that doctors like to use and to a certain -- to a degree they've struggled to gain the coverage.

Clearly, you've gone -- you've mitigated a lot of that by going and getting coverage scenarios in the beginning, but when you go to other parts of the country, do you run into some of the same situations or does having coverage elsewhere help? Thanks.

Thanks, Charles. Those are good questions. And the answer is the fact that you have coverage elsewhere helps tremendously, since Blue is an international payer. And as you say they dominate in large numbers as well of areas.

I'm glad you're doing a diligence. You know exactly -- I didn't mention where these institutions are, but you're exactly right. I mean, seeing that you know this center, I think you follow up, the reason that they're doing this they're finding tremendous value and excitement out of the test in terms of clinical decision-making for them.

And I think at the end of the day that's the answer, right? I mean if the patient has good outcome driven by doctors that doing these tests even more so, even in the face of no coverage is a testimony that will help the payers that we want to do this.

So it helps very, very much. And the fact that they have a local [group] we're talking to them now -- that's one of them that we are actually in negotiations with. The third thing that's going to help is that our self-insured national payers have employees across the nation.

And they -- we can now also send them into these institutions that want to do them, educated enough. We've made a statement at Sanford Health and small cities in areas like Dakota or et cetera, South Dakota where these populations, they themselves are going to take them as health plans.

So, I think this are all very encouraging. We know we literally just started this at ASCO which is in June and then here we are in August and the kind of momentum we have here is very encouraging and unsolicited momentum which is doing better.

Great. Thank you.

Thanks, Charles.

Thank you. This ends the Q&A session. I'd like to turn the conference over to management for any closing remarks.

Thanks, Tyrone. And thank you all for joining us today. We look forward to sharing our progress on our next call which is scheduled in November. Have a great day. Thanks.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.