NantHealth Inc (NH) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the NantHealth Q4 2016 Earnings Conference Call.

(Operator Instructions)

I would now like to introduce your host for today's conference, Robert Jaffe, Investor Relations with Nant. Sir, you may begin.

Welcome, everyone, and thank you for joining us today to discuss NantHealth's 20146 fourth quarter and full-year financial results.

On the call today are Dr. Patrick Soon-Shiong, Chief Executive Officer, and Paul Holt, Chief Financial Officer. Bob Watson, our President and Chief Growth Officer is out due to a family emergency.

This call is being broadcast live at www.nanthealth.com. A playback will be available for three months on NantHealth's Web Site. I would 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 today will include forward-looking information reflecting management's current forecast of 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 U.S. generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies.

Investors are encouraged to review NantHealth's press release announcing its full 2016 fourth quarter and full year 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.

Today, Patrick will provide a brief overview of the Company and that will be 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.

Welcome to NantHealth's 2016 Fourth Quarter Financial Results Conference Call. It's a pleasure to present to you today.

As you all know, in early 2016, in June, we completed our successful IPO and we then launched our GPS test. Today with me is Paul Holt, our Chief Financial Officer, and Ron Louks, our new Chief Operating Officer.

So, before I start I'd like to introduce you to Ron Louks who has just joined us. He came from BlackBerry where he was President of Devices and Emerging Solutions. And in that role, he was responsible for the whole P&L of the device business unit. Ron has been in the mobile industry for more than a decade and with the long history of successful execution. It gives me great pleasure to have him join our organization.

His past history, Sony Ericsson where he played crucial role including Chief Technology Officer and his role at the HTC as Chief Strategy Office and his role at OpenNMS, the world's largest open source metric management Company as Chief Executive Officer, gives Ron incredible experience and expertise in operations in his previous world of mobile technology and has commercially shipped over 250 million phones globally in addition hundreds of millions of accessories.

So, welcome, Ron, and we look forward to him really taking this Company with me to grow into its next stage.

So, let me remind those who may be new to the Company and maybe those familiar with regard to the brief overview of how we created a Company with a mission to really press healthcare transformation. The Company is best thought through in this segment of GPS, which enables a test, a medically-defined test, which enables the ability for the doctor and the patient to have the most informed decision before treatment begins.

The second element, which we just quietly announced at HIMSS is this concept of artificial intelligence. And then the third element obviously is the area of software of NantOS, which strives to establish an interoperable system and provides then the opportunity to enter this era big data and augmented intelligence.

So, let me turn first into GPS. The way to think about GPS is to think through the elements since we've launched this in the following ways. One, what is GPS' adoption? Two, how are the physicians understanding the GPS clinical utility? Three, what is the ordering velocity with that understanding? Four, what is GPS's coverage? And then five, what is our expectations for the growth both in the United States and international?

Let me turn to adoption. Year-to-date, 260 foreign colleges have ordered a total of 1,286 GPS commercial research tests. In Q4, [452] tests were ordered, of which 326 were commercial and 126 were research.

When we say the word commercial, these are clinical patients who are afflicted with cancer and research are patients with cancer or very few samples of degenerative diseases in which we were applying this test to educate both the scientific community as well as the practicing physician.

I'm pleased to report today that between February and November 2016, the first consecutive GPS Cancer Tests were completed in a single academic institution for patients afflicted with cancer, and I'm excited to say that the data, which will be presented at some conference in the future, demonstrates a significant increase in identification of FDA-approved drug or clinical trial for patients with refractory cancer.

In Q4, we expanded adoption of GPS Cancer [further] with the licensing authority but state authority, and since then, 138 tests have been ordered. Additionally, during the quarter, 87 GPS profiles were ordered under the agreement with the pediatric research institution in California. So, clearly, adoption is now beginning to take hold, but I think as important as adoption is the understanding of clinical utility. So, let me turn to the clinical utility.

Under our CLIA-CAP conditions, our partner, NantOmics, has completed the analysis of thousands of patient samples of using GPS Cancer, which has demonstrated the efficacy or resistance threshold of chemotherapy, of targeted therapy, of monoclonal antibody therapy, and hormone therapy. We've provided this table in our press release with this data and you can see this in our Web site.

Why is this significant? The significance of this validated finding is now the ability to better inform the practicing physician or oncologist of these choices they would have with the standard of care and be able to choose the right chemotherapy or right targeted therapy which will most likely benefit the patient before treatment begins.

One of our collaborators has reviewed the concept of what are the effective genomically-directed agents versus non-genomically-directed agents. We have now published this data. And what is exciting using any [course one] showed a progression-free survival of a genomically-directed decision significantly improves progression-free survival in such a patient. So, we clearly have now taken concerted educational process to demonstrate the clinical utility with GPS patients receiving standard of care including chemotherapy, hormone therapy, and monoclonal anti-body therapy.

Let me now talk about the ordering philosophy. So, it's worth noting that our experience with these ordering physicians is once they passed this education [phase] with the profile they want to profile this without the regard to the underlying insurance Company's returns. And I also want to remind you of -- as we're learning about the ordering philosophy and we presented it from the private [quarter], we continue to believe that the time for you to ordering philosophy study is the point where the physician is always ordering the profile for 50% of the [eligible] patient is approximately 180 days. I think you need to keep in mind that we launched GPS commercially just in June 2016.

Let me now speak to the coverage of GPS. By December 31, 2016, the number of patients with cancer covered by payers with GPS testing was approximately 322,000. This number includes lives in anticipation in the completion of the private project with the Horizon Blue Cross Blue Shield. We have increased to eight the number of payer contracts with self-employed and payers that now cover GPS Cancer and our potential sales pipeline in payers have increased to 27 in Q4 from 18 in Q3.

Importantly, this quarter, we announced the -- last quarter, we announced the International Association of Fire Fighters relationship and they have now endorsed the GPS Cancer that will benefit approximately 310,000 international fire fighters employee members. And sadly, as some of you may be aware, fire fighter has a propensity to cancer. In addition, the International Association of Fire Fighters have also added approximately 300,000 additional beneficiaries of both across U.S. and Canada.

Further, we have initiated this pilot trial with Horizon Blue Cross New Jersey with GPS Cancer and discussions importantly are now underway with CMS for both potential local coverage determination and national coverage with GPS Cancer are covered by Medicare. Some of you may be aware of the recent positive coverage determination by Palmetto for comprehensive genomic profiling in non-small cell lung cancer.

We are in discussions with both CMS and presented to both ourselves to both the local and national CMS. And we believe that the GPS test can meet their eligibility requirements for payments once NantHealth is in the position to submit claims under the LCD of the coverage determination by Palmetto.

So, we are now focusing our efforts on pilots given the nature of our [prior disclosed path projection] with GPS and we will believe these pilots when successfully signed will accelerate adoption of the program. As I announced, the potential sales pipeline has now increased from 18 in Q3 to 27 in Q4.

Our plan for the current year includes aggressively expanding our sales effort and the addition (Inaudible - microphone inaccessible) organization will really facilitate us adding experience sales and account management staff. While the investments will be across all our sales teams, the majority of the investments will be the sales team's [going on] on payers, both the commercial and self-insured and our field teams that would educate physicians.

I want to turn a little bit to our Fortune 500 self-insured employer to provide GPS Cancer to their 1,000 insured lives. Unfortunately, this continues to be delayed. While we expect the GPS Cancer will be made available in the insured in Q1 2017, we now expect the profile to be available late in 2017.

Let me turn now to the NantOS segment. In Q4, we completed 39 go live projects. We are now number 2 in market share in connected care with over 25,000 device connects licenses now sold to date and we have 18 electronic medical records -- diverse electronic medical records. It integrates more across more than 300 provider claim sites.

I believe that this integration will allow us to create what I call the adaptive learning system, which we've been developing for 10 years. This will now include our unique software, our middleware, our hardware systems, infrastructure, which we call NantOS.

This operating system will enable us to collect an index and analyze and interpret billions of molecular clinical operations and financial data derived from novel and traditional data sources by continuously improving decision making and optimizing clinical pathways, decision algorithms over time. We -- and our mission at NantHealth is to establish adaptive learning system which we believe could transform healthcare and transform the delivery of healthcare and automation.

I believe personally that health coverage is not healthcare. I believe that care -- the opportunity to really manage care through this adaptive learning system. So managed care is not the management of care and this philosophy that health coverage is not healthcare and managed care is not the management of care is, we are uniquely positioned as a Company to help this nation in its quest to find a better care at lower cast.

So with regard to the NantOS business side. We have contractual commitments with NantOS and NaviNet has increased to 96 in Q4 from 35 in Q3. Our full total net revenue has increased more than 70%, we hit our first $100 million from $58 million in 2015, and largely excitingly due to the 181% increase in SaaS revenue.

And then finally, I would close by congratulating our team and staff, who exhibited our new suite of oncology solutions and provided demos at the HIMSS 2017 Annual Conference. Independent market research and opinion research Company called Black Book Research awarded NantHealth the honor of number one in personalized healthcare solutions, number one in precision medicine tools and for achieving the highest client satisfaction.

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

Thank you Patrick and hello everyone. For today's call, I'm going to review both our fourth quarter and full year results ending 31, 2016. I'll begin with the fourth quarter. For our 2016 fourth quarter, revenue was $24.1 million representing an 18% over the $20.4 million we reported in the same quarter of the prior year.

Our growth was driven primarily by the acquisition of NaviNet which we completed in January 2016 and contributed approximately $10.6 million in revenue for the quarter. Software and hardware and other services revenue declined by $1.4 million to 1.8 million respectively, primarily due to a small number of device connect and NantOS project completions compared with the prior year, as well as the reduction in revenue related to our home healthcare subsidiary.

GPS-related revenue was approximately $25 million. GPS revenue recognized in the quarter primarily came from three sources, our international distributors, cash received from payors who we don't have agreements with just yet, profile deliver to patients who are insured by payors who [assumed] we have agreements. The total number of commercial GPS profiles delivered was $233 up from $154 in our 2016 third quarter and zero in the prior year fourth quarter.

A substantial majority of the $233 commercial GPS profile delivered in the quarter while patients insured by payors who we not yet have agreements with result in cash basis treatment. We expect the proportion of revenue being recognized in a cash basis to come down over time as we gain experience with the growing number of payors who are covering our GPS profile.

Turning to other revenue lines, we continue to generate excellent growth in our recurring maintenance and SaaS services. The increase in the fourth quarter was related to acquisition of NaviNet as well as expansion of our customer-based for NantOS decision support and device connectivity software platforms.

As we complete implementations of our solutions, we add to our recurring revenue streams. Some of recurring SaaS and maintenance revenue grew to $14.9 million and $3.4 million in our fourth quarter respectively compared with $9.4 and $2.5 million respectively in the year [go] quarter.

Gross profit was $4.3 million or 18% of revenue compared with $9.6 million or 47% of revenue in the same quarter a year ago. The decrease was tied to several factors including the inclusion of approximately [$0.90 million in stock compensation expense and reduction in volume of high-margin software revenue, a decline in our other services revenue margins and increase in the volume of GPS cash provided without corresponding revenue due to cash basis accounting.

Our SG&A expense was $21.3 million compared to $16.6 million in last year's fourth quarter. This increase is primarily related due to the inclusion of NaviNet's operations as well as approximately $2.2 million stock compensation expense.

Our R&D expense was $12.8 million compared to $7.2 million a year ago. The increase includes approximately $1.8 million in stock compensation as well as the inclusion of NaviNet R&D expenses. R&D expenses and percentages in total revenue was 53% compared with 35% a year ago.

For the 2016 fourth quarter, we recorded an income tax benefit of $4.5 million versus an income tax expense of $0.4 million in the prior year fourth quarter. Our tax provision in Q4 related to our convertible debt offering which occurred in our fourth quarter. We recorded the loss from related party investment of $33.1 million of which $29.8 million was due to a reduction in the fair value of our NantOmics investment.

A decline in the fair value of our investment in NantOmics was primarily caused by a change in the risk profile of our financial projections from NantOmics with the result of the delay in our GPS revenue growth of our original expectations. There is no change in our view of the GPS growth opportunity and its tremendous value to our community.

On a GAAP basis we reported net loss of $60 million or $0.49 per share compared with $17.9 million or $0.35 per share for the 2015 fourth quarter. Our 2016 fourth quarter results include stock compensation expense, timely initiation of investing after our IPO in June 2016.

Investments we're making to support future GPS growth including our patient engagement center, an increase investment in NantOS platform. On a non-GAAP basis, we reported a loss per share at $0.18 compared to $0.10 in the fourth quarter of last year.

Turning briefly to our annual financial results. Our 2016 full-year revenue increased 72% to $104 million from $58.3 million last year. Our 2015 revenue growth was based primarily on our acquisition of NaviNet which contributed approximately $41 million revenue in 2016. We also benefitted from revenue growth -- from our revenue platform as well as acquired fusion related revenue.

This was offset by approximately $8 million decline in device connect related revenue as a result of fewer large device connect implementations completed compared with 2015. We have several large implementations that we expect to complete in 2017 and we believe these implementations will allow us to grow device connect related revenue in the current year compared with 2016.

On a GAAP basis, we reported a loss per share of $184.1 million or a $1.69 per share

compared with $72 million or $0.99 per share for 2015. Our 2016 results include stock compensation expense tied to the initiation of investing after IPO in June of 2016. Investments we're making to support future GPS growth including our patient engagement center and increased investment in our NantOS platform.

On a non-GAAP basis, we reported a loss per share of $0.69 compared with $0.54 last year. I also note we ended the year with $160.4 million in cash and our cash flow from operations in the fourth quarter was negative $18.5 million.

Operator, we've completed our prepared remarks. We would now like to open the call to questions.

(Operator Instructions)

Sean Dodge with Jefferies.

Patrick on the ordering velocity, given GPS is only launched in June, it's fair that fourth quarter won't necessarily be representative of adoption. But since we're now just a day away from closing out the first quarter, have the ordering trend you've seen played out during the first quarter consistent with your -- your thoughts or understanding that it takes stocks 180 days to reach its velocity?

Yes, I think -- Sean, thanks for the question. I think what's happening now, we've gotten smarter of how to present this to the practicing clinicians. I think from ASCO, what we did we delved deep into the science and I think the science frankly overwhelmed the physicians who when we went through the genomics, the transcriptomic, the 20,000 genes of 3 billion base payors between the large group pathways.

We needed to reduce it down to, I guess tell me what this [does] for you as it relates to outpatients. And we finally figured out that what we needed to do was to take the NCCN Guideline which is actually the standard operating care. So if anybody goes to the NCCN Guideline and pulls up lung cancer, pulls up breast cancer, you see maybe 20 or 30 or 40 different combinations of single agent, of combinations of therapy, of chemotherapy that our [payors] to choose -- can choose from and get reimbursed.

And quite frankly, doctors literally just choose whatever they're comfortable with, whatever their practice is comfortable with, without regard to the presence or absence of the systems factor in the tumor of that patient. So we then made the effort and I would urge you to go to Web sites as we couldn't [put it] on press release, it just wouldn't fit.

By doing -- showing thousands and thousands of samples under clear CAP certification of how you would be able to measure the resistance factor for cisplatin and how were you to repair the measures, the resistance factor with Taxol. As soon as we reduced it down to that kind of information, the light bulb went on and doctors said, oh my goodness, that means every patient that I give cisplatin and Taxol to, need to know this.

And as you know that 90% almost of all chemotherapy agents used in -- with breast cancer, lung cancer, et cetera. So, the light bulb is being going on -- we've gotten smarter and not go so deep into the science to the clinical physicians. And you begin to see examples in Florida and Maine and in -- these are community oncologists not academic scientists where most of the care is [given], that all of a sudden the velocity is taken off.

You know, Dr. Mamus who's gone on record is saying, he does this for every patient now regardless of the insurance and so there's a new challenge to get the coverage obviously. We do the test and hopefully the insurance will pay for it because we just feel a moral and scientific and technical and clinical obligation to do that when the -- when the doctor sends in the order.

So we now have practices such as New England Associates in Maine, Mamus in Florida and the University of Indiana that now consecutively do this for every patient. I don't want to blow the science because some of these doctors want to submit the [stages] at ASCO, so I don't want to preclude the (Inaudible - microphone inaccessible) to submit any of these to ASCO.

But I've seen the preliminary elements of their findings in the ability to find an actionable response or the ability to put the patient in clinical trials that's incredibly exciting because it's heartwarming once this data comes out that people recognized it is very actionable and completely different to any other panel out there. I think the velocity will change.

Having said that, we need to be conservative, this is technology that doesn't exist anywhere in the country. So therefore, their educational period across this nation needs to occur in a practice by practice and it needs to go [instead] in the -- not academic level but at the community level. So that's an added challenge which means that we need people to go out as a sort of liaison or sales force, almost door to door.

So it's a combination of velocity and also basically of [axis], so we investing -- there is no question we investing. I think it's important investment to make as you recognize these losses but it's an important investment to make in the future of cancer care and in the future of educating the doctors. So, I hope that answers your question, that we do need the six-month velocity. I think you should, in your analysis, keep to that to -

Okay. So maybe on that last point, how -- how important of a rule is your technology offerings playing and helping to get a doc ordering velocity? If we -- so maybe for example we looked across -- your clients are further along in their technology implementation and I guess maybe that would be cancer treatment centers. Are you seeing or have you seen quicker uptake by the docs there versus those that are -- or maybe not as involved in using the technology that accompany GPS?

Well I see -- the way to answer this question is once the doctor understands the test, the way they described it to me they say it becomes like a drug, meaning it's addictive. They almost cannot do without it.

So the best way to think about it is if you use x-rays, just x-rays and all of a sudden you see a CAT scan and then you see an MRI, then you see a PET scan, then you wonder, am I doing the right thing for my patient, the advantage of using (Inaudible - microphone inaccessible) you know making a decision based on the plain old x-ray when in fact I have the option to look at the MRI, CAT scan or PET scan.

We reached that stage now where those doctors that used it feel they cannot do without it and we obviously need to work away through the country. I'm very confident we'll hit that point. When that will be? I can't predict. I don't want to give you a prediction but I'm incredibly excited. I think we reported today the first complete consecutive 100 GPS cancer test in the academic institution.

And I think the fact that it's in an academic institution is telling because some of you may recognized that this actually takes away revenue from academic institutions because they plan to do their own panels through the pathology department. So it actually depletes their revenue, their own internal revenue of an inferior test or be it the panel.

And the fact that this academic institution now with [two] reports. To give you an example of this, we've attended one of two, the [two] reports of this academic institution reports that two reports are packed, completely packed, standing room only for people to attend the [two] reports because they're thirsting to learn how this test works. And this 100 consecutive tests as I said will -- the data will be presented at an upcoming scientific meeting.

But I think what -- the other thing that's also impressed me now, one of these academic institutions now published a paper where they compared what they called genomically informed decision versus just a regular guess of NCCN Guidelines. And you remember this genomically informed test, some of them were GPS, some of them were just regular exam analysis and not necessarily are tests.

But the importance of the point was, when they look at progression-free survival for any [post] one, so the way they did is they take the patient's own progression-free survival in these late stage cancers and compared the patient to themselves. They found p = 0.001 improvement of progression-free survival when it was genomically informed decision versus just a guess and that's logical.

So it is this kind of very not complicated information but information that needs to be conveyed as we struck our way through taking this complexity down to reducing it to information and point of care before the treatment begins.

Brandon Couillard with Jefferies.

Patrick or Paul, can you help me understand the delta between tests, GPS test orders and test delivered and kind of where we are in terms of the turnaround time? It just seems to be a wide number and are you seeing a number of instances where you need to go back and get additional sample?

Yes, so ordered and delivered and then I think I need to clarify very clearly with people regarding the turnaround time. And again, we want to clarify we cannot make magic. What happened sometimes, in fact many times, the tissue arrives at our doorsteps and sadly there's no cancer tissue in the sample or sadly the paraffin block has been kept in formalin for 12 hours and the cancer has been completely destroyed, meaning there's no DNA that can be retrieved.

Having said that, we go through the process anyway because we don't want to not try and then if you find no tumor we call the site back to see if there's another block they could send us. But the time of ordering is still that time of ordering which [should] be the time delivered.

If and this is an important point, we receive a block, it takes us maybe a day or two to do the slicing and what we called the extraction. It takes us three days to do the actual sequencing and less than 24 hours to provide the [advice] of that report. And about four or five days within that same time frame in parallel to do the proteomic analysis.

So in the ideal world, from a technical perspective we can turn this around in seven days. We tell everybody 14 to 21 days and we can make the 14 to 21 days but what we can't overcome is the logistics of not receiving adequate tissue. I hope that helps. So, there's difference between ordering and delivering is largely not under our control because it all depends on how well the tissue is retrieved, processed, and then once it hits our door, we have something [to throw].

Okay. Thanks and one more on the payer side sort of multipart here. Can you give us an update on the status of cancer treatment centers, number one? Number two, you spoke to further delays with one of the big self-insured employers, can you elaborate on exactly what is causing that push out, again?

Okay.

And then number three, any chance you get us the number of orders in the quarter for the year for whom you do have reimbursement coverage.

Okay let's take this one at a time. Cancer treatment centers in America, I think we just signed them -- they're just starting the process now working the way through -- we have multiple programs with them. One is they even the software program arises that's --

Correct.

-- going on and then the GPS, they want to -- we've launched with them just the pathways in the Eviti Program. So, that's mainly what we've launched with them w them. With regard to the GPS, we'll be going through them to do the education portion of it. The big disappointment has been the launch of GPS with this large international Company which I'm sure you had in your numbers at present because and, again, that's not under control -- our control.

When we entered into this agreement with them, they thought we thought that they were going to be associated with one insurance Company because they were moving from one carrier to separate new carrier. They moved to the new carrier and the chief medical officer was credibly knowledgable of this new carrier as was completely onboard.

The new carrier then had a whole new organizational change within themselves and needed to get themselves up to speed which they're doing now but it gets more complicated that because we discovered we can't because it's a national organization across the United States.

We have only one carrier covered some portion of the employees and it depends what -- how many employees are with the different carriers. And so now instead of us working to two carriers -- I mean, one carrier, working to two carriers all simultaneously and they want to go through their medical policy process as if we're doing coverage not just for this large self-employee but for everybody in the country.

So, it is that complexity sadly. It was under coverage -- not coverage, it was [on to] administration more than coverage because Bank of America has agreed to cover this. So, that's the State of Affairs and we've pushed this all to I think late 2017 and I'm really hopeful that -- that's when this can start but that -- unfortunately, that has been part of the slowdown the trajectory because we had anticipated this trajectory would be taking and we in fact spent a lot of our time educating the benefits people about this.

We were completely [solving those]. So, there's not been a lot of support this complication of getting carriers even though they could [probably be] administrators to [buy off] of this [policy].

Joe Munda with First Analysis.

Patrick, I wanted to kind of dive into the commercialization strategy. You talked about hiring a new COO. First off, can you give us some sense of what the commercial team looks like as far as reps, educational people and as well as what the ramp we can expect over the course of 2017 to look like and how your new COO really sees commercialization of GPS, I guess in the next year or two years or so. Thank you.

Oh, thank you. So, one of the challenges we had while we're flying this [airplane] we're actually launching something new. It was also integrating NaviNet and Harris which is two major organizations which large amount of software and we're running two businesses at the same time and [that is just] so because we wanted to create what we call the integrated health system where we actually captured the data as I said in my opening remarks at the molecular level, as well as the vital signs and EMRs so we can change outcomes.

So, we've taken on this crazy challenge, right, at the mission of NantHealth to help transform this nation's health care. And we ended up with a huge of number of the employees, balanced largely on the software side.

I think my new Chief Operating Officer who's had huge experience of large systems whether the Ericsson or BlackBerry of integrating software talent to the hardware talent and he's going to be doing that job to really rationalizing and synergizing the workforce there so that we can [then view] the headcount towards more -- towards the GPS.

So, the goal is not to increase the count in terms of the overall count. The goal is to rationalize the organization now to its growth strategy and I believe while the software growth is important, it will be the GPS growth that could be exponential. So, do not have salespeople that have expertise in Oncology. We have very few. We just brought on new Medical Directors.

So, the -- it is to be considered this if you're selling [taxel] or cisplatin drug or irinotecan or [taxane] because it is the test that actually is almost a universal companion diagnostic to therapy. So, it's been very hard for software salespeople to go into Oncology Offices and say: Let me tell me about [taxel].

We have to repurpose or reengineer a recruitment, and we very much in that mode now. So, that's hopefully by June by ASCO this year. We've reengineered the work of sales teams for the -- for more towards GPS.

Is that helpful?

Yes. That's helpful. My other question regarding reimbursement. You talked about an LTD to test for coverage also from CMS, any idea or timeline if you were handicapping it, where we sit today versus when possibly you can get a coverage decision?

Well, I got to tell you we have very active discussions with both national and local, both CMS and FDAs but I was incredibly encouraged Foundation Medicine put out the press release obviously that the Palmetto covered for lung cancer, and if you read that coverage with regard to just those panels of how GPS test obviously covers all those genes and more.

What we need to clarify and we are in discussions with the Palmetto is that it also covers the germline and I think back, if you look at all the CMS codes, did the whole coverage for germline and did all coverage for [Giardia] disease and did all coverage for BRCA and what's amazing is that we covered all one test, and as you may know, more [Moldex] was established to do exactly that to prevent this what do you call [stacking] of [pains] and I think with the answer to that tissue.

So, on one hand, we've initiated the discussions with Palmetto and we'll continue that. And now they had -- we've also initiated discussions in D.C. with regard full national coverage and I'm -- I don't want to handicap it but so far the multiple meetings we've had have been met with enthusiasm. So, I really can't give you an answer but I really believe that this movement by the local coverage in Palmetto will start landslide to both regional and national.

Okay. Just one follow-up to that Patrick. I mean, as far as reimbursement itself is concerned as a fee or a rate if you will, based on the I guess comprehensive nature of the test, would you envision that reimbursement would be actually higher than foundations current rate for their -- for the lung cancer that they are being covered under [at all]? Would you think it would be higher than in that rate?

Yes. Well, I guess, with specificity or I don't know what foundations rate is but I can tell you if you start adding the rate of BRCA1 you have rating of oncotype by adding the rate of a -- the panel. When we're measuring 20,000 genes and the RNA and the transcriptome and the quantitative proteomics. So, what was exciting for example, we showed but I won't go into details but had our clinical utility presentation which we brought three MDs into the room with CMS.

We showed that it just one patient alone was -- would have been [without file] test on Herceptin for three years was avoided because another drug and other complete response and the drug which got -- cost $9,000 and Herceptin. So, one-month supply of Herceptin covered the cost of this test. So, I think they began to see just the economic advantage of the test. If you were on cisplatin and there's no evidence that you should have received cisplatin when you're a child, you go [deaf] -- 50% of children go [deaf] for life.

The ability to prevent cardiac disease or neuropathy and toxicity for being on either anthracyclines or taxane, the drugs themselves are cheap now because the generic -- the complications are very expensive including cardiac failure. So, that begins to see not only the clinical utility but the economic return. So, I'm not too concerned about the pricing and I think you do know that we said our average pricing is $11,500 in your model.

Thank you. Our next question comes from Richard Close with Canaccord Genuity. Your question, please.

Yes. Thank you. I just wanted to follow up on Brandon's question earlier. It was three-part but I wasn't sure if you gave the number of orders for the fourth quarter that were from the payers that are currently providing coverage? Did you provide that number?

I don't think we broke it out that way. So, I don't have -- frankly, I don't have that numbered but I think [it was here], but I don't think we're going to break it out that way because really what we said that there are some people that are willing self-pay and some people that will cover it in different ways. But we haven't broken it out that way.

Okay. And then maybe on the firefighters, if you can just talk a little bit about that --

Yes.

-- in terms of how you envision relationship and is that a process of educating the beneficiary through patient engagement or just talk a little bit more about that and how you expect that to ramp.

Well, I could tell there's one that was satisfying relationships we've had now. So, we were approached. We didn't go and solicit by how shape are the [president] of the national [by parties] and the reason we were approached is you may or may not know that sadly the firefight is of a higher incidence of cancer than anybody else in the country that cancer is now the leading cause of death and 60% the names added to this more than [five] firefighter memorial wall since 2002, patients from firefighters who died of cancer.

So, to them, this is a desperate emergency and I have the opportunity to do address not only the [president] -- all the presidents in multiple meetings and what is exciting, they now entered into a system with us and if you're going [with site] you'll see that without -- where 310,000 of the employee members and approximately 300,000 of beneficiaries will be covered.

The way we actually planned to do this with them is one was like the Supplemental Benefit Program where we'll cover all lives and when the patient has cancer, or if the patient has cancer, we will do the test but it will have been basically be covered in premium sort of way.

So, we don't enter into this issue of having to educate that particular patient at any one time. These are young people who have cancer. It's a really exciting opportunity for us in which we've taken a different payment model but it will work out just fine.

So, when do you begin recognizing revenue then on that?

So, Richard, this is Paul. So, that payment model is still being developed and in the works but it's more of a process of a PM model with some --

Right.

--- guaranteed minimums.

And we're signing them the -- we -- so what we're going to local to local, so what's happened at the present and all the presents of all the organizations across the country including Canada and we're going local by local now in signing up each local union or station on how you describe them and then I supposed you will then begin recognizing that as we sign [is that for].

So, we will take them at -- there are certain minimums involved. It will be able to take those minimums and then they'll be based on [true-ups], so it depends on the number of tests that ultimately come out of that relationship.

Well, threw those up at the -- in six-month intervals for example. At which point, we'll see some nice recurring revenue but some potential jobs along the way too. So, it's kind of an exciting approach towards this that we'll have find [Sharon] more as we sign these folks up.

But I think what was very satisfying to me is they had all a very detailed MD analysis. They had public health analysis and they looked every test. They were very sophisticated but understanding the test out there and selected us. So, to me that was very satisfying. It took them about three to six months for them to go through this entire process and add all the tests we got selected.

With respect to the 27 payers that you're in discussions with, is there any way you could let us in terms of how many are those 27 may be are existing NaviNet customers?

Well, interestingly, NaviNet has now changed. We now have 750 health plans. So, the chances of these 27 being -- also being NaviNet customers are very high. I don't have -- I think it was exactly which of this but NaviNet now is NaviNet open. We have a relationship now with 750 health plans payers. So, the chances of them being brought to that is probably very high.

And I would add to that some exciting growth in the self-employed insured market, we got quite a few very, very large self-employed or employers that are self-insured that we're bringing into the pipeline and I think probably more to say about that under the next call.

And if you could just give us an update when you think the technology integration with the GPS cancer test, I guess this is a follow up to Sean Dodge's question earlier but when you think the -- they'll be alerts through NaviNet if someone is covered by -- someone got -- has cancer and then alerts the doctor that they are covered.

Well, you know what's exciting is that exact -- you're exactly right. So, the idea of integration software so that [NantHealth will lead] for the coverage but at least would impact the disease, right? I know probably old business perspective, that's important to [lead] for the coverage. From my perspective as a physician is to alert the doctor that this patient should be on this particular drug or this clinical trial.

So, we we've [written] out to integrate everything and that's exactly what the cancer treatment centers of America and what they're doing with Allscripts and there what we're doing with other EMRs in which we're integrating right into place we've soon moving into [other] entry side of it so that you could be seamless.

But let me -- I think that's a good segue for me to sort of make -- sort of many announcements here now is that as we're evolving this GPS cancer test, this GPS cancer test will now evolve into what we call complementary or companion or universal diagnostics in clinical trial. So, this entire clinical trials component is under the auspices of NantOmics and NantBio [of sister] companies.

What we intend to do is to have NantHealth have complete control over the [La Barge] which you have roll was on the NantOmics and so that there could be clarity with regard to the -- both the sequencing, as well as the marketing and what will happen soon is NantOmics will then enter into relationship with NantHealth as relation to the clinical trial component [which he had to forward in] NantOmics side to the business.

So, that you'll begin to see in the next two quarters as that evolves. So, just to give you that heads up, okay?

I show no further questions in queue. I would now like to turn the call back over to Robert for closing remarks.

And thank you all for joining us today. We look forward to sharing our progress on our next scheduled conference call in May. Have a great day.

Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.