Foundation Medicine's (FMI) CEO Dr. Michael Pellini on Q4 2015 Results - Earnings Call Transcript

| About: Foundation Medicine, (FMI)

Foundation Medicine, Inc. (NASDAQ:FMI)

Q4 2015 Results Earnings Conference Call

February 23, 2016 04:30 PM ET

Executives

Kim Brown - Director, IR

Dr. Michael Pellini - Chief Executive Officer

Steven Kafka - President and COO

Jason Ryan - Chief Financial Officer

Dr. Vincent Miller - Chief Medical Officer

Dave Daly - Chief Commercial Officer

Analysts

Isaac Ro - Goldman Sachs

Dan Leonard - Leerink

Aurko Joshi - William Blair

Jon Groberg - UBS

Tejas Savant - JP Morgan

Tim Evans - Wells Fargo

Operator

Good day, ladies and gentlemen. And welcome to the Foundation Medicine Fourth Quarter 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]

I would like to introduce your host for today’s conference, Ms. Kim Brown, Director of Investor Relations. Ma’am you may begin.

Kim Brown

Thank you, Chelsea and good afternoon everyone. Thank you for joining us for Foundation Medicine’s 2015 fourth quarter call. Our earnings release and related financial information is available on our website at foundationmedicine.com.

Before we begin with management’s prepared remarks, I would like to remind everyone that comments made by management and responses to questions on this call will include forward-looking statements and information. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied. Please refer to our SEC filings for a discussion of these factors.

Here this afternoon to discuss results for the quarter and year ended December 31, 2015, are Foundation Medicine’s Chief Executive Officer, Dr. Michael Pellini; President and Chief Operating Officer, Steven Kafka; and the Company’s Chief Financial Officer, Jason Ryan. Foundation Medicine’s Chief Medical Officer, Dr. Vincent Miller; and its Chief Commercial Officer, Dave Daly are here as well and will participate in the Q&A portion of the call.

And now, I will turn the call over to Foundation Medicine’s CEO, Dr. Michael Pellini for his opening comments.

Dr. Michael Pellini

Thanks, Kim. Good afternoon everyone. Thank you for joining us for our year-end conference call. Foundation Medicine is leading a transformation in cancer care. We innovated and commercialized comprehensive genomic profiling approach to catalyze more effective therapeutic options for patients living with cancer. These initial efforts contributed to a new era of precision medicine, one in which our molecular information approach drives highly informed clinical decisions and in parallel provides key insights for the efficient development of anti-cancer therapies. These synergistic components of our business uniquely differentiate Foundation Medicine as the leading molecular information company. And importantly they position us for continued innovation, growth and value creation in 2016 and beyond.

As this is our year-end call, our team will review Foundation Medicine’s 2015 results and key accomplishments. We’ll also provide insights as to how we will continue to build a diversified molecular information business.

To begin, we posted revenue of $93.2 million for 2015, representing a strong increase of 53% over 2014. I’ll walk you through the clinical business results first and then turn to our biopharma results.

Clinical revenue grew 34% year-over-year. We delivered approximately 33,000 FoundationOne and FoundationOne Heme tests a 36% increase over 2014. This represents solid growth, especially in a market that is complex and still evolving.

As we think about our clinical business in 2015, it’s clear we faced market challenges that impacted utilization and volume. That said, I am proud of our team’s response. We brought on new experienced leadership and talent to strengthen our commercial organization. We focused our efforts on continued education among oncologists and pathologists with innovative programs like Precision Medicine Exchange Consortium and through our partnership with Roche and Genentech. We expanded our suite of decision-support tools with important new applications like PatientMatch GeneKit to drive actionability, clinical stickiness, and simplicity in test ordering. [Ph] Together, these efforts contributed to a returned quarter-on-quarter test volume growth and more important they position us for strong 2016.

On the reimbursement side, we continue to work closely with many payors. And our efforts delivered important wins in 2015 including Palmetto’s final LCD, UnitedHealthcare’s national coverage agreement in metastatic non-small cell lung cancer, the addition of several new and renewed payor -- regional payor contracts and our most recent program with Horizon Healthcare which is New Jersey’s Blue Cross Blue Shield plan. I’d also like to touch on efforts with our local Medicare administrative contractor, National Government Services or NGS who recently finalized their LCD for the coverage of certain hotspot panels for patients with non-small cell lung cancer, as we came to expect the final LCD very closely aligned with the draft policy and covers only a limited number of genes.

While it’s disappointing for patient care that NGS did not even set minimum validation standards for these types of tests and further that the LCD group’s all panel tests of less than 50 genes into one category, I do want to make it very clear that this LCD does not apply to Foundation Medicine. In fact NGS made the distinction that the LCD and the related hotspot codes are not meant for comprehensive genomic profiling, which is an important point of differentiating for Foundation Medicine. While we will continue to work with NGS whenever possible, in parallel we will continue to push on additional options for Medicare coverage as well as on other third party payors for our tests.

Now, I will turn to our biopharmaceutical business. Revenue increased 80% year-over-year, underscoring the significant opportunity with new and existing biopharma partners who continue to lead the industry towards precision medicine and cancer care. Our partners are pushing to make this information-based approach, standard of care for the development of targeted therapies and immunotherapies. Importantly, we believe this continued growth demonstrates that our biopharma business is not simply a short-term byproduct of clinical business, rather it is an integral and synergistic component of our overall business with a market opportunity that is both significant and growing.

And just to give you an example of how the synergies will play out in the future and drive clinical volume, consider our work in companion diagnostics. We expect pharma to increasingly rely on more complex companion diagnostics for drug development. Let’s face it. If we continue to trend a single marker companion diagnostics, oncologists, not to mention payors, will quickly become overwhelmed with the complexity around selecting the appropriate test for each patient. Our strategy is to eliminate the complexity and renew the guess work for physicians by working towards a universal companion diagnostic. Ultimately we do believe a single validated assay will provide physicians with much of the necessary genomic information to point them to the relevant therapeutics.

We believe that this will drive clinical volume in the future as the work we are doing with the FDA will further differentiate and strengthen our offerings. Innovation has been and will always be part of our Company’s DNA and it’s critical to our leadership position. In December, we launched our liquid biopsy assay FoundationACT for research used to our pharma partners. Along with our partners, we have full confidence that we are bringing both clinically and scientifically robust ctDNA assay to the market. FoundationACT is the third clinical product developed and launched by Foundational Medicine in only four years.

In 2015, we also launched new tech enabled programs and products that capitalize on our unparalleled information knowledgebase, FoundationCORE. For example, we launched SmartTrials to enable connectivity between physicians and clinical trial sponsors to accelerate patient enrollment and access the targeted therapies. No other company has the ability to facilitate enrollment at such a rapid pace and with such accuracy.

And finally, to further support our molecular information approach and maintain our market leadership position, in 2015, we published 56 peer reviewed manuscripts in top medical and scientific journals. We presented over 100 podium talks and posters. We launched a large multicenter validation study to support the commercial launch of FoundationACT and we made real strides towards the development of a universal companion diagnostic.

This level of activity is significant, given our stage and size, and it’s indicative of our ongoing commitment to transform cancer care. As we look back over 2015, as a chapter in our Company’s relatively short five-year history, we can say with confidence that we made great progress, progress which was led by rigorous scientific and clinical data. We have built a fully integrated molecular information company that is pioneering an entirely new market. And while the oncology ecosystem is still evolving, we are betting ourselves in biopharma and in clinical practice in ways that are difficult to replicate.

Now, I’ll turn the call over Jason for a review of our financial performance. Jason?

Jason Ryan

Thanks Mike. I will start by reviewing the fourth quarter and full results, and then turn to the outlook for 2016.

Total revenue for the fourth quarter was 26.1 million, which was a 39% increase over the $18.7 million recorded in the same period last year. Clinical testing revenue in Q4 was $12.0 million, a 16% increase over the same period last year and a 13% decrease from Q3. That decrease was expected, given delayed revenue impact from the Q3 volume shortfall. During the fourth quarter, we reported 8,286 clinical tests, a 15% year-over-year increase and a 3% from Q3. Q4 reported tests included 7,382 FoundationOne tests and 904 FoundationOne Heme tests. The average reimbursement per clinical test recognized in revenue was approximately $3,200, consistent with prior quarters.

Revenue generated from our biopharma customers was $14.1 million in Q4, a 20% increase from Q3 and a strong increase of 68% over the same period last year. During the fourth quarter, we delivered results of 3,104 tests to our pharma customers. Our pharma revenue continues to be driven by three components, first, profiling clinical trial assessments; second, data products including access to FoundationCORE; and third, regulatory and companion diagnostic support. We remain very excited about the long-term opportunity in total addressable market surrounding each of these three components and we plan to provide additional detail over the course of the year.

For full year 2015, total revenue was 93.2 million, a 53% increase from the $61.1 million reported in 2014. Revenue from clinical testing was $49.2 million and biopharma revenue was $44 million. OpEx in the fourth quarter was $34.0 million, a slight decrease from $35.6 million in the third quarter; that decrease was simply due to timing of certain investments, as well as stock-based compensation. Full year OpEx was $129.1 million excluding the one-time Q2 charge of $14.4 million related to the Roche transaction. This compares to $86.9 million in 2014. We ended 2015 with a healthy balance sheet and approximately $232 million cash and cash equivalents and marketable securities.

Turning to the 2016 full-year outlook, we expect total revenue to be in the range $110 million and $120 million. The midpoint of this range represents a 23% increase over 2015. And we do expect our pharma revenue in particular to drive top line growth over the near term as we deepen and expand our pharma partnership. We expect to report in the range of 37,000 to 40,000 FoundationOne and FoundationOne Heme tests during 2016. The midpoint of this guidance range suggests 17% growth, and we expect volumes will ramp over the course of the year. Our volume guidance does not yet include FoundationACT utilization at this time, we plan to update clinical volume guidance after we gained meaningful commercial experience with the new assay.

Lastly, our annual guidance for OpEx is $175 million to $185 million. The increase in projected OpEx year-over-year is driven by key investments in R&D and technology as well as some incremental investments to support our commercial and reimbursement activities. Also note that roughly 30% of the year-on-year increase relates to non-cash items such as stock-based comp and depreciation. Examples of new R&D and technology investments include our work on immunotherapy testing platform, our development of universal CDx platform, further optimization of the ctDNA assay, expansion of SmartTrials and other tech applications just to name a few.

So, it’s important to note that these new investments in 2016 are not solely intended to drive 2016 revenues but also to support meaningful leverage in revenue growth in the years to come. In the meantime, we are well-capitalized and in a position to put our balance sheet to work today.

With that, I’ll turn the call over to Steve to walk through some of our 2016 business objectives in greater detail. Steve?

Steven Kafka

Thanks Jason and good after everyone. As Jason just said, it is essential that we continue to invest strategically across our business in order to capitalize on our $12 billion to $15 billion clinical market opportunity and our more than $0.5 billion pharma market opportunity.

Today, I’d like to outline some important initiatives which we believe will continue to differentiate and strengthen out molecular information business and to create value over the near and long-term. We have five key objectives for 2016 we’ve announced publically, each is both the revenue driver for Foundation Medicine and a yardstick for investors to measure our progress throughout the year.

First, we expect to launch our liquid biopsy assay FoundationACT to clinical customers later this quarter. FoundationACT was developed with the same focus on quality and accuracy as FoundationOne and FoundationOne Heme. This exciting new product will complement our existing solutions, initially use when a patient tissue is not available. Key to its differentiation from other liquid biopsy offerings is the data we’re generating from our ongoing analytics and clinical validation studies. We recently presented data at AGBT, demonstrating the analytic validation of our assay across all four classes of genomic alterations, surpassing all of our specificity and sensitivity expectations.

Our clinical study is also aimed to help direct physicians with the most appropriate use of this assay. This is particularly important since preliminary studies suggest that many tumors may not shut detectable ctDNA into the bloodstream. Taken together, our efforts underscore our commitment to the best in class quality and to the guidance for physicians that we believe is so essential for patient care. Going forward, our commercial team will now have increased leverage as they go to market with a full suite of comprehensive genomic profiling assays.

Our second goal is that later this year, we expect to submit for FDA premarket approval our first companion diagnostic for Clovis Oncology’s ovarian cancer therapy Rucaparib. To-date, we signed three companion diagnostic agreement with Clovis, with Roche as a component of our overall collaboration, and most recently with Mirati Therapeutics. Mirati will utilize our CDx platform to identify non-small cell lung cancer patients, most likely to respond to their kinase inhibitor glesatinib..

With additional collaborations expected in 2016 and with the majority of targeted agents expected to require a companion test in the future, we believe this growing line of business demonstrates the demand for what will ultimately be a universal companion diagnostic solution. We believe we are well-positioned to be the partner choice of with this approach.

Our third objective for 2016 is to meaningfully expand our data solutions that aim to improve the actionability of our assays to physicians and that represents another opportunity for us to create value from FoundationCORE. One example of this expansion is our SmartTrials program.

As we mentioned on our last earnings call, we are working with Loxo Oncology to identify patients, maybe eligible for their novel MTRAC inhibitor. We have strong interest in this offering from other pharmaceutical companies and we expect to sign new agreements in 2015. Also in 2016, you will hear more about the important strides we are making with our Precision Medicine Exchange Consortium or PMEC. PMEC brings together oncology thought leaders from leading academic medical centers, regional hospital systems and community oncology networks who all share desire to improve clinical outcome in oncology treatment through molecular profiling. We established PMEC, not only to facilitate cross organizational genomic and clinical outcomes data exchange but also and importantly to create an enhanced clinical trial network. More to come throughout the year but we do expect PMEC to be an important differentiator for Foundation Medicine, strengthening our position as a thought leader and ultimately driving clinical volume.

Our fourth objective is to obtain Medicare coverage and payment in at least one indication and to broaden our third-party payor coverage. Mike has already discussed our progress and goals in his comments, so I’ll just keep it short. The reimbursement progress we made thus far with Palmetto, United Healthcare, and now Horizon, position us very well to achieve some important reimbursement milestones this year.

Our fifth objective is to commence commercialization activities outside of the United States with Roche. April will mark the culmination of our 12-month business planning period and we’re on track to launch in the several countries the plan. As we introduce FoundationOne to Roche, our early focus will be on market development activities to drive adoption and to build evidence for reimbursement in each of these markets. We look forward to sharing additional details on this expansion throughout the year.

In summary, we have a lot planned for 2016 and many other initiatives underway behind the scenes. And clearly, the business objectives we set forth for this year further highlight the fact that Foundation Medicine is much more than a test. [Ph] We remain focused on building a long-term and differentiated molecular information business that will deliver value through accelerating drug development and improved patient outcomes.

And with that we will return to Mike for his closing comments.

Dr. Michael Pellini

Thanks, Steve. As we often do, I’d like to conclude this call with a patient case. So, 69-year old woman presented with relapse invasive ductal carcinoma of the breast, previously she had undergone a lumpectomy and axillary lymph node dissection and chemotherapy was given after surgery to prevent recurrence of disease. Unfortunately, her disease recurred six months after surgery when her follow up mammogram showed a new 1.8 centimeter mass in her breast. Biopsy of this lesion demonstrated recurrent disease. The biomarker status of her cancer was estrogen receptor and progesterone receptor negative and no evidence of HER2 overexpression was detected. Thus to reclassify [ph] this having triple negative disease, a notoriously challenging type of breast cancer. The patient failed first line standard chemotherapy leading few additional treatment options. At that point her local oncologists were a FoundationOne and the results showed the tumor harbored a 32-fold amplification of EGFR which had been reported in some research studies but is certainly not routinely out [ph] in clinical care.

The patient was referred to a prominent breast oncologist who recommended treatment with an EGFR tyrosine kinase inhibitor, erlotinib, given the possibility [ph] of treatment option and her good functional status. With additional assistance from our FoundationACCESS program, then its pilot phase, treatment with erlotinib started in October 2013 and she has experienced an ongoing response for 25 months, as [indiscernible]. We along with our partners and clients are making a difference at Foundation Medicine we see it every day.

And operator now, I think we can open the line for Q&A.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our first question comes from the line of Isaac Ro with Goldman Sachs. Your line is now open.

Isaac Ro

I wanted to start with a question around reimbursement. You obviously gave us a lot of detail on the process here with NGS as well as Palmetto. And I am curious if you guys have given much thought to the operating plan this year about whether it makes sense to continue working under the NGS jurisdiction or if there is a strategy in place to think about maybe getting yourself in a position to get oversight from Palmetto? Just any thoughts around how you could maybe work with existing reimbursement construct there on the LCDs that’d be helpful?

Dr. Michael Pellini

Hey, Isaac; it’s Mike. I’ll take that one initially. So, we will continue to work with NGS here in New England. [Ph] I think it’s important to understand that their final decision on the LCD was not really surprise to us, at least since the draft came out and we really guided to, we did not expect any significant shift. What we did suggest and what we were hoping for is that there would at least point out that there is a difference between the type of testing they were covering and paying for versus what Foundation Medicine is doing. They really did not do that in the draft to LCD. So importantly in the final LCD, they did differentiate Foundation Medicine’s approach or comprehensive genomic profiling from the test that they -- from a narrow hotspot panel.

So, we have seen a little bit of movement from NGS -- we’ve seen a little bit of movement from NGS, so we will continue to work with them going forward, there is no doubt about that. However, in parallel, we have a growing business. This is a company that will continue to have new opportunities in front of it in terms of market expansion and in terms of new products. And as we grow this business, we will want to continue expansion opportunities outside of Cambridge, Massachusetts. It’s not most cost effective place to build a lab for the long term. And so, we’re in the process of evaluating other opportunities. And as we look for facility opportunities through expanded facilities, one of the factors that will come -- that come to the play is in fact reimbursement. So, Isaac, we can’t give any specific direction in terms of whether or not we will definitively open up a lab in an area that’s covered by Palmetto or one of the other MAC, but we can tell you that it’s certainly one of the important criteria as we do make a final decision here.

Isaac Ro

And then maybe just a follow-up, I think Jason made the comment about putting the balance sheet to work. And no one said I think in context of the universal CDx platform you’re working on. But I am curious if you could maybe put some sharper edges around what you meant by that? Is there anything that’s really -- is there short list of items that you mean when you talked about putting your balance sheet to work that include things like the facility expansion you touched on or I just want to make sure I interpreted that comment within the range of likely outcome? Thank you.

Jason Ryan

Isaac, I was mostly referring to the increase in investment than in OpEx during 2016 within the guidance that we provided to really around R&D as well as technology product developments. So those are the activities I was pointing to.

Operator

Thank you. And our next question comes from the line of Dan Leonard with Leerink. Your line is now open.

Dan Leonard

Mike, it sounds like you’re more saying when on the opportunity in pharma that I’ve heard you in a while. Is that fair? And if so, could you elaborate and maybe provide final points about how much of the 2016 results you’d expect to be from pharma as opposed to clinical?

Dr. Michael Pellini

So, I’ll start but I’ll quickly turn it over to my colleagues here, Dan. I think it’s important to take a step back anytime we look at the clinical business and/or the pharma businesses in recognizing that both of these elements are critical to Foundation Medicine’s success. We’ve been stitching this together now for over five years and in fact we’ve always aimed to balance the work that we do on the pharma side together with the work that we do on the clinical side. And one of the points that I was working to make in the introductory comments is that these aren’t two separate businesses, these are highly synergistic. And so now, to your question about 2016, I’ll turn it over to Jason for additional color there.

Jason Ryan

Yes, Dan. So while we are not guiding to the specifics of the split between clinical and pharma revenue, I can and I will sort of go back and emphasize what I mentioned in the prepared remarks which is that we do see a majority of the revenue growth year-on-year from ‘15 into ‘16 coming from pharma. And so what does that mean, it means that clinical revenue maybe relatively consistent year-on-year. And here is why, and there are couple of reasons. So as we move -- number one, as we move in network for example with certain payers taking on at healthcare, we may get paid in the near term on fewer plans, for example on one plan and that’s okay if we feel like there is path towards expanded indications, and we do think that there is a path there. That’s one example.

A second here would be on ex-U.S. side. So, as we continue to work with Roche and really get into the heart of the ex-U.S. commercial collaboration with them, there’re obviously shared economics as we work with them in all these different countries. So in the near term and the scale is lesser and we’re building out in those countries, we’ll share those economics. And key point, it might have all of ours in 2015 that is clearly a collaboration that’s meant for the mid to long-term where there is tremendous leverage where we don’t make significant investments in those markets. And so we remain really excited about that. What it means is in 2016, you may see relatively consistent year-on-year clinical revenue whereas pharma revenue we think will continue to expand.

Steven Kafka

Dan, it’s Steve. I just wanted to quickly also address your point about [Indiscernible] because I think we’re actually opposite of [Indiscernible]. The pharma business is continuing to diversify in terms of its different sources of revenue in the way that we’re working with these companies. And so Jason just said, we see that as a real growth opportunity in 2016 and beyond. But also remember this is increasingly connected to our clinical business in real ways like for example with our CDx partnership with three partners and growing, in SmartTrials addition, we’re really helping physician to take action on the clinical test with enrollment into these clinical studies. So I think we’re actually quite excited about where the business is going to go and how it helps us and overall integrated Foundation Medicine.

Dan Leonard

Okay. And that was coming across that’s what I was trying to flush out further. And then my follow-up question, curious about the outlook for Heme. Do you think there is a path to accelerate volume growth in Heme in the near term here or do you think we need to wait for perhaps some ASH data in late 2016 and look for maybe a 2017 growth trajectory?

Dr. Michael Pellini

Yes. Dan, it’s Mike, I’ll start that and then may Dr. Miller adds a little bit of additional color there. But, we do remain excited about the Heme market and there is definitely a market for FoundationOne Heme. So, we’ll continue to invest in the product, we’ll continue to invest in generating the data. Today, I think it’s fair to say that we have a niche opportunity really primarily in multiple myeloma and then some refractory treatment AML. But if you think about the overall market, we’ve always described the Heme market as about 10% of the solid tumor market. We’ve been saying that since we launched FoundationOne Heme. And in fact, the Heme volume has really mimicked that market opportunity on relative basis. And for the past four, five, six quarters, we’ve been somewhere between 11% to 13% of our total solid tumor volume. So, it’s been stable but we still think it’s important market, it’s still relatively young. But we do expect FoundationOne Heme to grow as the overall market expands. Vince, do you want to add some addition color on that.

Dr. Vincent Miller

I guess I’ll just add that one thing I’m aware of and maybe that there is a reclassification for some of the leukemias and lymphomas that is anticipated to be released some time in 2016. I think it is anticipated that they may suggest genomic characterization of some of these tumor types, more widely than previous. And that may in turn enhance awareness and adoption opportunities.

Dr. Michael Pellini

It’s definitely taking longer but we’re generating the data and we still think it’s an important product.

Operator

Thank you. And our next question comes from the line of Amanda Murphy with William Blair. Your line is now open.

Aurko Joshi

Hi, this is Aurko in for Amanda Murphy. I had a couple of -- two part question. The first one has to do with liquid biopsy assay. And I was wondering how investors should think about the space, given that multiple people are going into it? And second, what are some of the milestones that investors should look at, both on development as well as the reimbursement side?

Dr. Michael Pellini

Aurko, it’s Michael. I’ll start that and again differ to my colleagues in a moment here. But the way to think about FoundationACT is that it’s a product that we’re bringing to market for a very specific reason and that is we know that about 10% to 15% of cases of specially patients with metastatic cancer, do not have tissue or these patients cases don’t have tissue. And so we want an option for those patients from whom we cannot obtain tissues. And so immediately, what we believe FoundationACT does is solve void for these 10% to 15% of patients. Now that’s how we’re positioning the product. As you know, we’ve also started a fairly large clinical trial, national clinical trial which will ultimately guide the additional indications for FoundationACT. So it’s the accuracy of this test, the comprehensiveness of the test, the fact that we’re capturing all four classes of all duration will absolutely differentiate FoundationACT from -- we believe will differentiate FoundationACT from any other product in the marketplace, but we still have let the data drive the ultimate clinical indication. And so, we’re going to encourage a commercial market to be patient and we’ll encourage our -- the investor community to be patient. This is focused on 10% to 15 of cases from whom we cannot get tissue and will continue and will generate the data to what the clinical indications unfold from there.

Aurko Joshi

Yes. That makes sense. And so the latter and long run, I guess would it be fair to say that the definition of reimbursement will be driven by such generated data or is there a milestone down the road we should look for aside from that maybe at volume which you think it will pick up or something of that nature?

Dr. Michael Pellini

So, we certainly have learned from the reimbursement process with FoundationOne and one of the things that we have done is we started working with the payors and speaking to the payors early about the need for Foundation about FoundationACT. And so just like anything, it’s going to come down to the clinical data, it’s going to come down to the indications and then ultimately it’s going to come down the health economics. So, we are not going to guide on the reimbursement process for FoundationACT but we do think that we’ve learned a thing or two from the process that we went through with FoundationOne and will certainly incorporate those learning’s into how we seek reimbursement for FoundationACT.

Operator

Thank you. And our next question comes from the line of Jon Groberg with UBS. Your line is now open.

Jon Groberg

Mike, when do you expect results from the Horizon and COTA clinical study?

Dr. Michael Pellini

Vince, do you want to talk about the study a little bit?

Dr. Vincent Miller

Yes, sure. Hi, Jon. So, of course lung cancer is one of our most common cancers and the leading cancer killers, so there is plenty of it around. So, I think the study will accrue quickly. And of course this is an observational study. But I would -- not so much about this as something gating reimbursement; I would really think about it more as almost a paradigm that we might use to bring the other payors with whom we are not contracted yet around non-small cell lung cancer but also there is no reason it couldn’t evolve to other disease base. It’s certainly got a lot of attention and we think it’s presented well as sort of this part model of leading cancer center payor and Foundation Medicine.

Jon Groberg

And is there something within 12 months, two years, when do you expect the first data start coming in?

Dr. Vincent Miller

So, we haven’t guided to specific timelines on it. And I think we will probably leave it at that for now.

Dr. Michael Pellini

Jon, importantly, timelines is certainly important but also we’re getting compensated for running FoundationOne during this process as well. So, this is pilot, it’s a big pilot. We think it’s an important one for new paradigm in terms of how we can work with payors to generate the data, so we are not always out there on our own generate the data. And so there are many reasons to pursue this opportunity with Horizon.

Jon Groberg

Okay. And then maybe just for Steve. I think you mentioned starting to monetize FoundationCORE with pharma. Can you talk a little bit about, maybe help us think about as that growth, what that could be worth; is there any way for some numbers around how pharma partners are starting to look at that 68,000 plus patient data base?

Jason Ryan

The data component of our pharma business is one of the three important pillars of that business that we’ve talked about, the others being the sample profiling and the companion diagnostic. And within the data component, there is really today -- maybe think about this in three different categories, and I think those will expand over time. One would be access to the genomic data and queries, immediate queries around the genomic data that’s something we’ve been doing for the last year or two years actually already. Second category here would be around the combined clinical genomic data and for example the relationship we have with [indiscernible]. And then the third, the new category is how we are utilizing FoundationCORE for connectivity around clinical trials and the SmartTrials example that I shared in the prepared remarks.

So, what we had said back at Analyst Day that this part of the market, given what we know today is at least $200 million to $300 million market opportunity. And we’re learning a lot as we go, so that’s I think in a the early estimate of what this could look like but there is a lot of excitement I think from our pharma partners. And I think importantly just last comment is that it is very often in aspect of our relationship with pharma that is integrated into the other way that we work with them. And so the query of the database is often connected to sample profiling or work around companion diagnostic is connected to some aspects of the data too. The great example the way this business is integrated and really driving the clinical component.

Jon Groberg

So, maybe just to clarify it. Help me think about it. If you think about, Jason, you said your pharma business was going to be basically the lion share of growth in terms of -- I know you are very early to start to predict these things but in terms of year-on-year growth, is most of that growth going to come from sample profiling or is most of that growth going to come from the data side that we are just talking about is there any way to kind of think about where that growth is coming from?

Steven Kafka

Hey, Jon. It’s Steve. So, I think that it -- I would encourage you to start to maybe move away from thinking about this business as a profiling driven business because it really is going to be increasingly integrated and each deal is frankly unique because as I just mentioned, there often multipart, multi-component transactions. And so it’s not anyone component, it’s really I think across the business and often in these multipart relationships with a given company.

Operator

Thank you. And our next question comes from the line of Tycho Peterson with JP Morgan. Your line is now open.

Tejas Savant

It’s Tejas on for Tycho. Just a couple of questions on liquid biopsy to start out. I know there is a study that you guys -- I think it was Geoff Otto quoted at AGBT talking about tissue blood concordance and how that was pretty variable across different types of cancer and the diagnostic yield of the tissue base test was also significantly higher. I know you guys have spoken in the past of about 40% of patients with metastatic solid tumors not sharing deductable levels of circulating tumor DNA in the blood. So, how does that tie into your test development process and the initial target market? And secondly, how low can you get this number, or is that more of a question for folks like Illumina who make the hardware and focus on the chemistry side of things?

Dr. Vincent Miller

Tejas, it’s Vince Miller, I can kick it off and if others want to add. I think the beauty for us is that we can do it the right way. And so we have this integrated suite of products, so we have the FoundationOne backbone. We can conduct this study and get the data for doctors and patients, both in a disease specific way and a stage specific way, because one of the trends is that earlier stage cancer generally has less circulating tumor DNA than later stage cancer. So, I think the data will determine things. And we start with this population for whom there is no genomic profiling, those are whom there is no available tissues. So, clearly this is a huge opportunity for those doctors and patients to get a best in class assay we believe. That being said though, additional indications beyond that will have to be borne at over time. And, whether it applies to 8% of patients, 28% of patients or 48% of patients where there is no circulating tumor DNA that will be sorted out by disease.

Tejas Savant

And then in terms of Medicare, Mike, could you just give us some quick comments on what happens to the 81455 code this year? And eventually could it return to a sort of capital process at some point down the road as well? And how that impacts your conversation with NGS?

Dr. Michael Pellini

So, it’s interesting. Before NGS actually priced the code, they covered and priced the code or provided a coverage determination for the code, there was a lot of talk in the oncology community that these two codes for the 5 to 15 and the plus 50 NGS based test would have to be revamped. So, I guess, Tejas, I would encourage everyone not to read too much into a single decision made by one Medicare administrator in the North East because what we have also seen is the at least in the case of Foundation Medicine, we have seen United Healthcare, we’ve seen Palmetto, Horizon Blue Cross Blue Shield, Priority Health and other regional plans who have developed a coverage policy or in the case of Horizon, a pilot which we hope will leads towards the coverage policy for comprehensive genomic profiling. And they have done so at a reasonable rate, at a rate that is consistent with the guidance that we have given, to be more specific.

So, I think that there are lot of moving parts here. And we just continue to focus on what we can control and that is generating the data, interacting with both the Medicare administrators but also national CMS because we think it’s important to educate them as well, as well as the third party payors to focus on comprehensive genomic profiling as a unique way and a powerful way to assess the patient diagnose with certain types of cancer. And we believe that the value added reimbursement will come along as well. So I don’t know direct answer to your question in terms of what’s going to happen as we think about the Crosswalk, but this is how we think about it. It’s value added. We focus on our indication. And we focus on this comprehensive assessment for patients who really need this approach to have the best treatment option.

Tejas Savant

And then one final one from me, in terms of international markets, can you shed some color and how that re-launch is done, which other markets have you launched in since? And what are you assuming in terms of international test volumes within the context of your 2015 guidance?

Dave Daly

This is Dave. Thanks for the questions. Well, first of all looking holistically at our ex-U.S. markets, as Steve mentioned in his prepared remarks, we’re wrapping up the business planning process and as that draws through close we’re preparing to launch in the different wave countries. And while each country is different, as is U.S., so we do have experience with the Israel launch. And with that launch in particular, Q3 was really a transition from Teva to Roche. And as Roche began to develop its presence in the market toward the end of Q4, we saw nice volume ramp coming from the team there.

And we expect very much the same thing as we launch in the different markets, our market development efforts followed by a nice ramp in volume to meet our expectations. So, Jason, do you want to…

Jason Ryan

Tejas, with respect to guidance for the year, the vast majority of the volume guidance that we gave is still within the U.S., as Dave mentioned Israel is a great initial example but we’ve also got another six launches during ‘16. This can take some time to ramp up and we think of it as more of an impact in later ‘16 and into ‘17.

Operator

Thank you. And our next question comes from the line of Tim Evans with Wells Fargo. Your line is now open.

Tim Evans

Earlier in 2015, you guys talked about what you called competitive noise. I wondered if you could just give us an update there; what are you seeing on that front right now?

Dave Daly

This is Dave, thanks for the question. Actually there is no material change in the competitive environment since our last discussion. Really it is that liquid biopsy and hotspot noise. So, we really expect, first of all with our upcoming launch of our FoundationACT, ctDNA product that’s going to help with our competitive positioning and provide leverage for our commercial team. And I think as Vince mentioned, going out with a suite of products really helps us address each of the different clinical needs. And then likewise really focusing on our execution from a commercial perspective in terms of access and education, so not just focusing on the intensive test itself but focusing on enhancing the actionability whether that’s access to drug or access to trial or even financial support for the test itself, and then to help mitigate some of that noise, it’s really about the education. And again, leveraging our work with Genentech and the biomarker testing team as well as our own efforts with our clinical team.

Dr. Michael Pellini

Tim, It’s Mike. I’ll add one another piece to that as well. We entered 2016 with I think with a very different commercial organization than we had at the start of 2015. If we look at our data, the Chief Commercial Officer, our SVP of Marketing, our SVP of Global Sales, our Head of Reimbursement, we have tremendous commercial leadership in place and just much more experienced as a company in selling into the space than we did as we started out 2015. And do we believe that’s another piece that will translate to growing test volume.

Tim Evans

Okay. And I wanted to sort of one, to Jason, on the balance question coming back to that. I hear you that there is a lot to be done, a lot of investments to be made, just wondering how do you balance that against the cash burned kind of given I guess 200 million on the balance sheet and it looks like based on our modeling that you’ve burned about 100 of that in 2016, And how do you assess that the investment need versus the cash burn?

Jason Ryan

It’s a good question. And we balance it carefully. And I think it really -- your question gets to the conviction that we have in the market and what we see out there on a quarterly basis and what we learned about this market. So, we I think fundamentally and I can back that in the detail but we’re big-big believers in the size of this market and where it’s moving, and especially given this cycle between our pharma work and acceleration that will create in clinical marketplace. And so because we’re very large believers and incidentally Roche is a really large believer in this opportunity, taking our foot off the gas or trying to manage the bottom line too soon, we think can sacrifice top line two years from now or couple of years from now. And we’re not yet in a position to want to do that.

Your numbers are roughly correct. We haven’t given guidance for cash from but that’s ballpark I think reasonable. We ended the year with $232 million in cash, it seems that we’ll end the year next year or this year with a strong balance sheet as well. So we really look at these investments, as I mentioned in the call, as not those investments required to support today’s revenue, truly some of them do, but a lot of these around CDx, around new product development, around the technology tools to support our clinical products that Dave and his entire team feel can make this -- can embed in the clinical practice, these are the pieces that get us really embedded there. And again we’re talking about a patient population that’s 1 million plus in the U.S. alone and we really are the front edge of that and we feel that way. And if we didn’t, to be honest with you as a management team, we would probably feel go back little bit on the OpEx.

Operator

Thank you. And your next question comes from the line of Paul Knight with Janney Montgomery Scott. Your line is now open.

Unidentified Analyst

This is actually Bill Martin [ph] for Paul. Just one question, if you guys could, and looking at that kind of OpEx number specifically, R&D. Could you maybe bucket how you’re thinking about spending on act versus software versus bioinformatics, maybe bust moving forward where you see a lot of dollars going to work?

Jason Ryan

Sure. What I can -- it’s Jason. Thanks for the question. What I can do is to tell you directionally what we’re investing in. And I maybe repeating myself a little bit, I won’t break out the actual dollars. But as you think about our R&D line, you’ve got first of all some of the ongoing trial that Vince and his team run. So, there is that clinical piece of R&D. There is a research piece of R&D of FoundationACT, optimizing FoundationACT frankly optimizing our current clinical products, developing the immunotherapy testing platform, so on and so forth. That’s sort of your true research. And then there is a technology organization here which is a significant effort around not only certainly facing customer products but internal technology infrastructure really to scale what we’re doing, so we can operate at a larger scale. So, think of the year and increases year-on-year in R&D is focused on the universal diagnostic work that were doing, the new technology product development, ctDNA launch and optimization as some of those drivers of the R&D line.

Unidentified Analyst

Got it. And then maybe just one quick follow-up, as you guys were kind of talking about, thinking about it more in terms of the software moving forward driving some of that pharma revenue, how does that maybe change the business model, as you start thinking about the operating composition of the company? Thanks.

Steven Kafka

I think what you are getting is we shift away or sort of expand beyond sample profiling as a our primary way of working with pharma customers, what does that do from a margin perspective and from our overall value contribution perspective. I mean I think that for example with the genomic data access that’s sort of software services kind of relationship and so as those are as a standalone basis really nice through margin opportunities for us. So, I think we, as I said before really are building the business in its integrated way. And so down with the a new pharma customer, which is down with the interesting pharma customer really looked to ways that we can partner -- fundamentally this is about helping them get their drugs to market faster. We now have this whole suite solution. And I think that our ability to translate that foundation, the value foundation we’re seeing growth numbers that we’ve had and that we’re talking about the future.

Operator

Thank you. And I am now showing any further questions at this time. I would now like to turn the call back over to Dr. Michael Pellini for closing remarks.

Dr. Michael Pellini

Great, thank you. Just in conclusion, we are excited about the future of this company and specifically our business objectives for 2016. As you heard from Jason, our company goes on the strong balance sheet; as you heard from Steve we have great partners in Roche and other biopharmaceutical companies; we have a pipeline of innovative clinical and tech products. And together these do position us well for continued growth and value creation over the long-term. And as always, I’d like thank our investors, our partners, our employees, and of course our physician clients and their patients. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.

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