Collaboration

Jan 3, 2019

Press Release

Good afternoon, ladies and gentlemen, and welcome to VeriCite's conference call to discuss its strategic collaboration with Johnson and Johnson Innovation and the Lung Cancer Initiative at Johnson and 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. As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to Angie 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 and Johnson Innovation and the lung cancer initiative at Johnson and 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 and Johnson Innovation, the timeline for unveiling data and achieving cohort enrollment milestones on our nasal swab test, the commercialization of our 2nd 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, Angie, 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 and Johnson Innovation and the Lung Cancer Initiative at Johnson and 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 and Johnson Innovation is focused on positively affecting human health through innovation. And the lung cancer initiative at Johnson and Johnson under the leadership of Doctor. Avram 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 1st 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 United States 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 3 or 4 when a cure is not likely. Although imaging advances have enabled 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 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 nodules. 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. Now I'd like to walk you through the specifics of this multiyear collaboration and how we believe it will accelerate Veracyte's pipeline. Through the collaboration with J and J 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 multicenter 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 multimillion dollar endeavor to advance discovery and development work for our tests. 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. Also 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 program and to provide J and J with data that they can access for therapeutic purposes. This collaboration will specifically accelerate 2 key programs with potential to benefit the tens of millions of people worldwide who are at increased risk of lung cancer, including nearly 9,000,000 Americans. First is the development of the 1st 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. And 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. And 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 enable to 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 to 24 months. We will inform commercialization timelines as the program progress. The 2nd program to be accelerated is the commercialization of our 2nd generation Percepta classifier, which I mentioned on our Q3 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 twenty nineteen earlier than we had previously expected. We will also continue to build evidence for the test clinical utility beyond the clinical validation 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 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 expression Atlas, which we launched last year. And 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. Now 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 $230,000,000,000 to $40,000,000,000 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 and non monetary value of the deal could be more than $50,000,000 The monetary component consists of $5,000,000 upfront and $15,000,000 in potential milestone payments pertaining to development and reimbursement milestones. The non monetary value of approximately $30,000,000 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 $5,000,000 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. And finally, Johnson and Johnson Innovation has the potential to receive a percentage of sales on the 2 diagnostic tests developed through our collaboration, 1% for the next generation Percepta Classifier and a low single digit percent on our first nasal swab test. In closing, I want to reiterate our enthusiasm for the Johnson and 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 1st 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 of Johnson and 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 JPMorgan Healthcare Conference. Haley, we will now open the call for questions. Thank And 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. Just a few just clarification questions. With regards to the 5,000 patient cohort coming from or a lot of that coming from J and J, are there bronchial brushing sample data as well where samples in the repository? And also, is this a global cohort coming from J and J? Yes, very good question. So we do have some patients enrolled in the cohorts that J and J sponsored, that come from global settings. And 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 2 very large libraries of samples and clinical data that came with that their assets. And we actually have the Aegis clinical trial 1 and Aegis II cohorts as part of this broad collaboration. And all of those patients that were followed with imaging and outcomes for clinical truth had both bronchial and nasal airway brushings. So 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 array as well. So lots of fantastic science can be done here. Great. That's helpful. And as for the $20,000,000 in the payment, the $5,000,000 upfront and the $15,000,000 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 airbrushing? Yes, very good question. So the $5,000,000 upfront and then there are a few milestone payments that are actually associated with the acceleration, 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. And there are then other milestones associated with the longer term work that will be done on the nasal swab test. So it's definitely a combination. Test. From a commercial standpoint, are they and you also talked about the global TAM being getting much bigger for your lung cancer franchise. And so just curious as to kind of Johnson and Johnson's role in terms of from a commercial standpoint. And also could you comment on is this kind of an exclusive deal with Johnson and Johnson as far as sharing of the sharing data or could there be opportunities down the road to expand this further with others as well? Thank you. Yes. So, yes, I hope I'll remember all those. So right now, the collaboration is beginning just around the advancement of these two projects that we talked about. However, 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. But 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. So in the combining of these cohorts and the generation of all of the RNA transcriptome data on these cohorts that we 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 and J's side or our side for diagnostic purposes. And J and 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. But 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. Could you you talked about addressable market increase that was in 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. So, our Percepta classifier was very purposely 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. And so the market for the Percepta classifier is estimated to be about a $500,000,000 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 work up lung nodule patients today. But up to 70 percent of the time, results are inconclusive or not able to roll 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. And 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 nasal 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 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. So there are multiple points across the clinical continuum where we believe we will ultimately be able to build out tests. And this collaboration is focused on the first of these nasal swab tests. And I think with this validation that the field of injury, which is a 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. And so we believe there are many opportunities to build out a portfolio of samples, both in the U. S. Market and potentially globally. And 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 $30,000,000,000 to $40,000,000,000 range, very big. So ideally, this could be detecting patients perhaps LungRADS 2, 34, And could you perhaps time frame this out? When do you how long do you think it takes for you to get to the data level that you would like to see? Is it 2 years? Can you frame that out at all? Yes. 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 of 1,000 nasal samples out of our own cohorts. And of course, as you're developing tests that are going to be entering the market at an earlier stage in the clinical workup, there's less percent of patients, lower prevalence of the cancers. So you have to build much, much larger cohorts to be able to have the test performance validated with the right level of statistical power. And so by teaming up with J and J and accessing what is already over a 5,000 patient cohort, and then 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 prefer for both competitive reasons, as well as other reasons to hold back on any prediction of commercialization until the programs advance. But 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 JC and I paper that showed the feasibility of picking these biomarkers up in the nose. Thank you. Thanks for joining us today. Thank you. Our next question comes from Brian Weinstein of William Blair. Your line is now open. Hey, guys. We had questions and they've all been answered. So Bonnie, we'll just follow-up with you after the call and go over some stuff then, but nothing for us. Thanks. It was very thorough. Okay. Thanks, Brian, and 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