Good afternoon, ladies and gentlemen, and welcome to Veracyte's conference call to discuss its strategic collaboration with Johnson & Johnson Innovation and the Lung Cancer Initiative at Johnson & Johnson that was announced earlier this morning. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will have a question and answer session, and instructions will be given at that time. If anyone should require assistance during today's conference, please press star then zero on your telephone keypad. As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to Angeline McCabe, Veracyte's Vice President of Investor Relations and Corporate Communications.
Thank you, Haley, and thank you all for joining us this morning for a discussion of today's announcement regarding Veracyte's agreement with Johnson & Johnson Innovation and the Lung Cancer Initiative at Johnson & Johnson. Before we begin, I'd like to remind you that various statements that we make during this call will include forward-looking statements as defined under applicable securities laws. Forward-looking statements include those regarding expectations for our collaboration with Johnson & Johnson Innovation, the timeline for unveiling data and achieving cohort enrollment milestones on our nasal swab tests, the commercialization of our second-generation Percepta classifier, and other statements that are not historical fact.
Management's assumptions, expectations, and opinions reflected in these forward-looking statements are subject to risks and uncertainties that may cause actual results and/or performance to differ materially from any future results, performance, or achievements discussed in or implied by such forward-looking statements, and the company can give no assurance they will prove to be correct. These risks and uncertainties are described in today's press release and the company's filings with the Securities and Exchange Commission. Our discussion this morning will be led by Bonnie Anderson, Veracyte's Chairman and Chief Executive Officer. Also joining us this morning is Keith Kennedy, Veracyte's Chief Financial Officer. I will now turn the call over to Bonnie.
Thank you, Angeline, and thank you, everyone, for joining us this morning to kick off an exciting 2019. We are thrilled to announce that Veracyte is joining forces with Johnson & Johnson Innovation and the Lung Cancer Initiative at Johnson & Johnson through a long-term strategic collaboration. Our goal is to advance the development and commercialization of novel diagnostic tests to detect lung cancer at its earliest stages when this disease is most treatable and when more lives can be saved. Johnson & Johnson Innovation is focused on positively affecting human health through innovation. The Lung Cancer Initiative at Johnson & Johnson, under the leadership of Dr. Avrum Spira, is focused on the prevention, interception, and cure of this devastating disease.
Veracyte is a pioneer in genomic diagnostics, including in pulmonology, where our Percepta genomic classifier is changing lung cancer diagnosis, helping patients avoid unnecessary invasive procedures, speeding the time to diagnosis, and removing costs from the healthcare system. In its first year of commercial expansion, this first-to-market test is already covered by Medicare and is increasingly used by leading physicians and institutions across the country. We believe the combined efforts of each of our companies will accelerate our pipeline and leverage the expertise of each party to truly transform how lung cancer is detected, diagnosed, and potentially treated. This morning, I will provide details on the collaboration and discuss why we believe it is so compelling and will deliver significant value to patients and to all of our stakeholders, including physicians, payers, our dedicated employees, and of course, our shareholders.
By way of background, let me remind everyone that lung cancer is the leading cause of cancer death in the U.S. and worldwide. In the U.S., lung cancer causes over 150,000 deaths each year, which is more than the next three most prevalent cancers, colon, pancreatic, and breast, combined. The reason for this is that most lung cancers are not diagnosed until they have reached stage three or four, when a cure is not likely. Although imaging advances have enabled the detection of lung lesions and nodules at a much earlier stage, the false positive rate is quite high, and obtaining tissue from a suspicious nodule in order to confirm or rule out cancer often requires a highly invasive biopsy procedure. This paradigm makes early detection and diagnosis difficult, costly, and quite frankly, risky for patients.
In 2014, Veracyte acquired Allegro Diagnostics with its novel field of injury science and intellectual property to address this problem. The field-of-injury approach is based on the ability to detect genomic changes that signify lung cancer through a simple epithelial brushing in a person's airway. This means that a person's likelihood of having cancer can be determined without the need to directly access the suspicious and often hard-to-reach nodule. Our Percepta Bronchial Genomic Classifier was the first test introduced based on this novel field-of-injury science approach.
The test uses samples collected from the main airway of the lung at the same time as a bronchoscopy, a non-surgical procedure that is used to evaluate lung nodules for cancer. Clinical validation data published in The New England Journal of Medicine showed that the Percepta classifier can complement diagnostic bronchoscopy with a combined sensitivity to detect cancer at 97%, helping patients with low risk of lung cancer to avoid further, more invasive procedures to get a diagnosis. In 2017, extraordinary data were published in the Journal of the National Cancer Institute, showing that field of injury biomarkers for lung cancer could also be detected in the nose, opening the door to a significant new opportunity to detect lung cancer early.
In 2018, as we shared on our Q2 2018 earnings call, we advanced the development of our first nasal swab test using the scientific and IP assets we had acquired from Allegro Diagnostics. I'd like to walk you through the specifics of this multi-year collaboration and how we believe it will accelerate Veracyte's pipeline. Through the collaboration with Johnson & Johnson Innovation, we will combine clinical study cohorts involving more than 5,000 patients with multiple years of clinical outcome data, including patients enrolled in a multi-center global trial that was co-funded by the National Cancer Institute. Having access to these cohorts with clinical truth labels that can be used to benchmark our test performance is important because it means we don't need to build this critical resource from scratch. A multi-year and multi-million dollar endeavor to advance discovery and development work for our test.
Our companies will also collaborate to enroll new cohorts of patients to support the development of the test for lung cancer across the clinical continuum. As part of the collaboration, Veracyte will contribute bronchial brushings and nasal swab samples from our already expansive lung cancer biorepository and deploy our innovative RNA whole-transcriptome sequencing and machine learning technology on the entire combined clinical cohort. Through our RNA-Seq platform, we will be able to extract this rich genomic content to advance our diagnostics programs and to provide J&J with data that they can access for therapeutic purposes. This collaboration will specifically accelerate two key programs with potential to benefit the tens of millions of people worldwide who are at increased risk of lung cancer, including nearly 9 million Americans. First is the development of the first non-invasive nasal swab test for early lung cancer detection, which I just mentioned.
We believe the ability to detect lung cancer through a simple, non-invasive nasal swab test could be a truly important advancement in the fight against lung cancer. We believe this provides an opportunity to improve the diagnosis of lung cancer for patients presenting with a nodule by imaging. Secondly, we believe it could better identify patients who are likely to have lung cancer and would benefit most from CT imaging while reducing the number of false positives. Lastly, we believe that someday a nasal swab test could perhaps even identify patients with precancerous conditions who would be candidates for preventative therapies. We now expect to be able to unveil early data on our first nasal swab test early in 2019 and to advance cohort enrollment milestones for our development and validation efforts during the next 18-24 months. We will inform commercialization timelines as the program progress.
The second program to be accelerated is the commercialization of our second-generation Percepta classifier, which I mentioned on our third quarter earnings call, will be transitioning to our RNA whole-transcriptome sequencing platform. Through this collaboration, we now anticipate that the test will launch in the first half of 2019, earlier than we had previously expected. We will also continue to build evidence for the test's clinical utility beyond the clinical validation data that will be available prior to launch. By moving the Percepta classifier to an RNA sequencing platform, which is what we did with the Afirma in thyroid cancer diagnosis, we can access the entire transcriptome of genomic data and build classifiers with our machine learning algorithms, potentially further increasing the test's accuracy.
This platform will also provide extensive amounts of gene alteration data that physicians may one day use to help inform lung cancer treatment decisions, similar to the role of the Afirma Xpression Atlas, which we launched last year. As we continue the enrollment of patients in our ongoing clinical studies, we will be able to further expand our robust biorepository in lung cancer, providing a valuable resource to biopharmaceutical companies for the development of potentially life-saving precision medicine therapies. I'll talk about the value of this collaboration to our shareholders. Importantly, in addition to underscoring the promise of our field-of-injury technology and approach, we believe this collaboration expands our addressable lung cancer diagnostic market to the $30 billion-$40 billion global opportunity. This is based on our calculations regarding the number of patients at risk globally who could be eligible for a non-invasive test.
I would also like to address the financial terms of the agreement. We estimate that for Veracyte, the combined monetary and non-monetary value of the deal could be more than $50 million. The monetary component consists of $5 million upfront and $15 million in potential milestone payments pertaining to development and reimbursement milestones. The non-monetary value of approximately $30 million is attributable to clinical cohorts that will be accessible to Veracyte through this collaboration. As a result, we expect our 2019 biopharmaceutical service revenue to increase by approximately $5 million. As we work through the GAAP accounting treatment for the remaining milestone payments, we will provide more details on the financial treatment aspects of the full agreement.
Finally, Johnson & Johnson Innovation has the potential to receive a percentage of sales on the two diagnostic tests developed through our collaboration, 1% for the next generation Percepta classifier and a low single-digit % on our first nasal swab test. In closing, I want to reiterate our enthusiasm for the Johnson & Johnson Innovation collaboration and that we are thrilled to be working with the Global Lung Cancer Initiative. We are especially excited about the development of the first non-invasive nasal swab test for early lung cancer detection, which builds on the novel field-of-injury science. While other approaches, such as liquid biopsy, are under exploration to also solve the challenge of early detection, evidence is lacking on how early liquid biopsy can detect the cancer in the blood.
In contrast, airway genomic alterations have already been validated in the bronchial airway and have been shown to be feasible in the nasal airway as well, giving us strong confidence in our approach and plans. We look forward to working with J&J Innovation and the Lung Cancer Initiative at Johnson & Johnson to bring such life-saving advances to patients in the years to come. Before we open the call up for questions, I'd like to wish all of you a happy, healthy, and successful New Year, and we look forward to seeing you next Thursday at the J.P. Morgan Healthcare Conference. Haley, we will now open the call for questions.
Thank you. Ladies and gentlemen, at this time, if you would like to ask a question, please press star then one on your telephone keypad. If you'd like to remove yourself from the question queue at any time, please press the pound key. Once your question has been stated, we ask that you please place your line on mute to prevent any background noise. Our first question comes from Sung Ji Nam of BTIG. Your line is now open.
Hi. Thanks for the questions and congratulations on the deal.
Thank you.
Just a few clarification questions. With regards to the 5,000 patient cohort coming from, or a lot of that coming from J&J, are there bronchial brushing sample data as well where samples in the repository? Also, is this a global cohort coming from J&J?
Yes, very good question. We do have some patients enrolled in the cohorts that J&J sponsored that come from global settings. In addition, some of the cohort does include both bronchial airway brushings as well as nasal brushings. In fact, I would also specifically remind you that when we made the acquisition of Allegro Diagnostics, they had two very large libraries of samples and clinical data that came with their assets. We actually have the AEGIS clinical trial I and AEGIS II cohorts as part of this broad collaboration. All of those patients that were followed with imaging and outcomes for clinical truth had both bronchial and nasal airway brushings.
We have a great start to be able to not only begin the discovery work on the nasal swab test, which we have done, but also have a great comparator to not only the patient's outcome clinical truth, cancer or no cancer. We also have comparisons of how that would work in the bronchial airway as well. Lots of fantastic science can be done here.
Great. That's helpful. As for the $20 million in the payment, the $5 million up front and the $15, potential payment in the future, is that solely allocated for the nasal swab test development, or could some of that be used towards further development of the Percepta, the bronchial airway brushing?
Yeah, very good question. The $5 million upfront, there are a few milestone payments that are actually associated with the acceleration, commercialization, and reimbursement of the Percepta next-generation classifier coming to market, which, as you know, we now predict to be a near-term activity. There are other milestones associated with the longer-term work that will be done on the nasal swab test. It's definitely a combination.
Okay. Lastly, you talked about the royalty payments to Johnson & Johnson for the test. From a commercial standpoint, you also talked about the global TAM getting much bigger for your lung cancer franchise. Just curious as to kind of Johnson & Johnson's role in terms of from a commercial standpoint. Could you comment on, is this kind of an exclusive deal with Johnson & Johnson as far as of the sharing data, or could there be opportunities down the road to expand it further with others as well? Thank you.
Yeah. Yes, I hope I'll remember all those. Right now, the collaboration is beginning just around the advancement of these two projects that we talked about. However, the companies will work under a common steering committee, where they will have three members to the steering committee, as we will, and we will be able to share and collaborate and share information around global markets and things like that together through that steering committee approach. We're quite excited about that. There are no aspects of the agreement today that address any collaboration beyond these two projects specifically. The second part of your question was the exclusivity.
In the combining of these cohorts and the generation of all of the RNA transcriptome data on these cohorts that will be part of the Percepta V2 and the nasal swab test, we will have the exclusive rights to all of the findings that come out of that work, whether it be on J&J's side or our side, for diagnostic purposes. J&J will have the right to use all of that data and knowledge that comes out, whether it's from our side or their side, for therapeutic purposes. Neither company is prohibited from working with others in the field as it pertains to other aspects of lung cancer or other programs we have in development.
Great. Thank you so much, and Happy New Year.
Happy New Year.
Thank you. Our next question comes from Paul Knight of Janney Montgomery Scott. Your line is now open.
Hi, Bonnie. Congratulations on the deal.
Thank you, Paul. Thanks for joining us today.
Sure. You talked about addressable market increase that was a little static. Could you talk about what this potentially does to the addressable market, and is not Percepta looking at, what, 150,000 patient market today?
That's right. Our Percepta classifier was very purposefully positioned as part of the workup that is done today on patients post CT scan, where they are determined to have a nodule and for those patients that can't clinically be classified as low risk or high risk because those patients will already either go through CT follow-up or invasive workup. The market for the Percepta classifier is estimated to be about a half a billion-dollar market opportunity, and that could be expanded slightly with the introduction of the new test that might be able to test a little bit broader set of patients within that paradigm of bronchoscopy workup.
Just to remind everyone, bronchoscopy is a great non-invasive tool to workup lung nodule patients today, up to 70% of the time, results are inconclusive or not able to rule out cancer, and that's when we perform the Percepta classifier, which is designed to detect those patients who have a low likelihood of having cancer so that they can avoid the typical invasive biopsy workup to get a diagnosis. As I said, when we combine Percepta with bronch, we have a 97% sensitivity, so we're sure not missing many cancers, which is really important.
The market expansion, as we bring forward these potential nasal swab tests, we will open up the clinical care continuum to be able to address earlier stage detection, guide stratification at perhaps the stage of nodule identification, move earlier so that we could potentially even test patients and try to get them into a lung cancer screening program, those with a higher risk of lung cancer. There are multiple points across the clinical continuum where we believe we will ultimately be able to build out tests. This collaboration is focused on the first of these nasal swab tests. I think with this validation that the field of injury, which is very non-invasive, it's like having a brushing done of the nasal airway, similar to what you would do if you went to have a flu test done.
This is a very accessible sample, something that could be collected in the doctor's office or ultimately in a pharmaceutical environment, or in a pharmacy environment, in your local pharmacy. We believe there are many opportunities to build out a portfolio of samples, both in the U.S. market and potentially globally. Based on the number of patients that are at risk globally that could be a potential for this test, we estimate that market opportunity to be in the $30 billion-$40 billion range. Very big.
Ideally, this could be detecting patients, perhaps Lung-RADS two, three, four. Could you perhaps timeframe this out? How long do you think it takes for you to get to the data level that you would like to see? Is it two years? Can you frame that out at all?
I would say that we would be very much expecting to unveil early data, sort of proof of concept and early cross-validation data in 2019 on the nose. As you might remember, Paul, back on our Q2 call last year, we mentioned that we had just sequenced a couple thousand nasal samples out of our own cohorts. Of course, as you're developing tests that are going to be entering the market at an earlier stage in a clinical workup, there's less percent of patients, lower prevalence of the cancers. You have to build much, much larger cohorts to be able to have the test performance validated with the right level of statistical power.
By teaming up with J&J and accessing what is already over a 5,000 patient cohort. In addition to that, we are also going to collaborate on building more cohorts of patients. We should have plenty of patients to accelerate the work that we already began last year and be able to begin to see some data emerge as early as 2019. I think we'd prefer for both competitive reasons, as well as other reasons, to hold back on any prediction of commercialization until the programs advance. We're at a very near-term point of being able to see what kind of data can corroborate the early performance data that was published in the JNCI paper that showed the feasibility of picking these biomarkers up in the nose.
Thank you.
Thanks for joining us today.
Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star then one at this time. Our next question comes from Brian Weinstein of William Blair. Your line is now open.
Hey, guys. We had 10 questions, and they've all been answered. Bonnie, we'll just follow up with you after the call and go over some stuff then, nothing for us. Thanks. It was very thorough.
Okay. Thanks, Brian. Thanks for joining us today.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may now disconnect. Everyone, have a great day.