Guardant Health, Inc. (GH) Q2 2019 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to the Guardant Health Q2 2019 Earnings Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to Carrie Mendivil. You may begin.

Thank you. Earlier today Guardant Health released financial results for the quarter ended June 30th, 2019. If you have not received this news release or if you'd like to be added to the company's distribution list, please send an e-mail to investors@guardanthealth.com. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward-Looking Statements in the press release Guardant issued today. For a more complete list and description, please see the Risk Factors section of the company's annual report on Form 10-K for the year ended December 31st, 2018 and in other filings with the Securities and Exchange Commission. Guardant disclaims any intention or obligation to update or revise any financial projections or forward-looking statements whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today August 6th, 2019. With that, I will turn the call over to Helmy Eltoukhy, Guardant's Co-Founder and Chief Executive Officer. Helmy?

Thanks Carrie and thank you for everyone for joining us this afternoon. I am pleased to welcome you to Guardant Health's second quarter 2019 earnings call. Joining me today is AmirAli Talasaz, our President and Co-Founder; and Derek Bertocci, our Chief Financial Officer. At Guardant Health, our mission is to conquer cancer with data. We are fueled by our commitment to patients and are developing products across the cancer care continuum. First for advanced-stage patients; second for early-stage patients and cancer survivors; and third for asymptomatic individuals. Consistent with our value of putting patients first, I will start our call with a patient story. A 60-year-old male presented with altered mental status, vertigo, and gait instability. A CT scan and MRI indicated multiple lung nodules, brain metastases, and numerous lesions in the spine and pelvic bones. A subsequent bone biopsy revealed these nodules and lesions to be non-small cell lung cancer. Hotspot testing with tissue indicated the tumor was negative for EGFR BRAF ALK and ROS1 as well as PD-L1. The patient was then referred to another cancer center where his oncologist there scheduled him for a second biopsy and whole brain radiation therapy. At the same time his oncologist also ordered a Guardant360 test. Guardant360 quickly identified an uncommon EGFR deletion that is not picked up by most hotspot tests. The patient was immediately started on an anti-EGFR therapy, osimertinib. And just in the nick of time his oncologist was able to cancel the lung biopsy and whole brain radiation therapy. The patient had a dramatic response to the anti-EGFR therapy and his symptoms improved enough for him to return to work. This story is an example of how the majority of patients today still receive a standard-of-care that often falls short of national cancer guidelines; a standard-of-care that more often than not still fails to include comprehensive genomic profiling and largely relies on often incomplete hotspot testing. Indeed the gap between clinical practice and clinical guidelines is wide. Fortunately, this story also demonstrates that Guardant360 can nicely fill this gap by quickly and non-invasively unlocking critical genomic information that can dramatically impact outcomes for advanced-stage cancer patients. We continue to make tremendous progress with our two commercial products in the advanced cancer setting; Guardant360 and GuardantOMNI. Adoption of both products continues to accelerate and outpace our expectations. To-date Guardant360 has been ordered by more than 6,000 oncologists more than 100,000 times for patients with advanced cancer to determine the appropriate therapy. At the same time, we are continuing to see strong growth and demand for both Guardant360 and GuardantOMNI by our more than 50 biopharma customers for their targeted therapy immuno-oncology programs. This robust commercial progress translated to exceptionally strong Q2 performance. We finished the second quarter with revenue of $54, million up 178% over the second quarter of 2018. Over the same period, clinical volumes grew 77% to 11,875 clinical tests and biopharmaceutical volumes grew 112% to 5,285 tests. Despite this tremendous growth, we believe we are still in the early innings of adoption in the advanced cancer market, a market with more than 700,000 patients in the United States translating to a roughly $6 billion opportunity. Today, we estimate that clinical adoption of Guardant360 is still only in the mid-single-digits with fewer than 15% of patients receiving any kind of comprehensive genomic profiling either by tissue or by liquid. This presents a massive opportunity to build and grow this market. We are also just getting started on the biopharma side where there are more than 1,000 trials with a collective need to enroll over 100,000 patients annually and growing. In the advanced stage cancer setting, we continue to focus on shifting the market to a blood-first paradigm for genotyping, which we believe will be key to further accelerating the adoption of liquid biopsies. At the beginning of this year, we outlined three proof points that we believe were critical to such adoption. As a reminder those were: First, the readout from our NILE study; second, FDA approval of Guardant360 with a pan-cancer tumor profiling label; and finally, pan-cancer Medicare coverage. In the first half of 2019, we have made significant headway building out these proof points and have begun to see an important shift in the perception of a blood-first paradigm as demonstrated by our commercial progress. This growing acceptance of blood-first was particularly evident at the American Society of Clinical Oncology meeting in early June, where there was palpable excitement around the use of Guardant360 in the first-line metastatic setting. We believe recent developments in the targeted therapy space with the approval of the first PI3K inhibitor in breast cancer and the progress of KRAS-directed therapies in both lung and colorectal cancers will only further accelerate the paradigm shift towards comprehensive genomic profiling across multiple cancer types. Additionally, our focus on high-impact clinical studies now more than 120 peer-reviewed publication, including yesterday's MSI publication has led to momentum in the reimbursement landscape with more than 160 million covered lives for Guardant360 in lung cancer. We also continue to advance the other two components of our blood-first strategy. Our team continues to make very good progress in our FDA application for Guardant360 and we believe that a final Medicare pan-cancer LCD could be issued later this year. Shifting gears, not only are we making great progress with our projects for advanced stage cancer, but we continue to make excellent progress with our LUNAR programs. As a reminder, our LUNAR-1 program is focused on developing tools for early-stage cancer patients and cancer survivors, a potential market opportunity we estimate to be approximately $15 billion. Our LUNAR-2 program is focused on early cancer detection. Initially, the target population associated with LUNAR-2 included only high-risk individuals and encompassed a market opportunity of approximately $18 billion. In recent months, we have identified average-risk colorectal cancer screening as a viable application for technology and we believe the addressable market opportunity for our products in this program has grown considerably. We now estimate that the total addressable market associated with our products from our LUNAR-2 program at over $30 billion. This brings the combined total addressable market for our current pipeline of products to over $50 billion. Finally, we continue to be pleased by the progress that our joint venture with Softbank is making in accelerating adoption of our tests with both clinical and pharmaceutical customers in Japan and other parts of Asia. In sum, we are very encouraged by the strong growth across our business. As a result of this progress, we now expect revenue for 2019 to be in the range of $180 million to $190 million, reflecting growth of 99% to 110% over 2018. With that, I will now turn the call over to AmirAli for more details in our clinical developments and LUNAR program. AmirAli?

Thanks, Helmy. In addition to our market-leading technology one of Guardant's key differentiators is our commitment to developing robust clinical evidence. As Helmy mentioned, we are continuing to deliver on this commitment as demonstrated by the growing number of peer-reviewed publications and scientific abstracts in support of our platform. Along these lines, results reported yesterday in Clinical Cancer Research concluded Guardant360 can accurately detect microsatellite instability. In the largest published comparison of blood-based MSI testing to traditional tissue methods, researchers compared the result of 1,145 Guardant360 samples to MSI status that are mined using standard-of-care tissue testing results taken from medical records. The results from Guardant360 were the same as the standard-of-care tissue test in 98.4% of cases. MSI is an important biomarker used to predict response to immunotherapy regardless of tumor type. Less than half of all advanced colon cancer patients are currently tested for this important biomarker. And across all solid tumors, we suspect the testing rate is far lower in part due to challenges of working with tissue samples. By incorporating these results, we should be able to increase the number of patients who get this information and benefit from appropriate immunotherapy. In addition to our progress in advanced cancer setting, we are building on our cell-free DNA expertise to address additional challenges in oncology, such as screening for cancer and detecting recurrence or evidence of residual disease in early-stage cancer patients. Our LUNAR assay launched in late 2018 for research use only is currently being used for applications related to guiding new adjuvant or adjuvant decision-making and recurrence monitoring as part of our LUNAR-1 program. Presentation early June at ASCO and early July at ESMO GI included an analytical validation of Guardant's LUNAR assay, as well as a pilot study exploring LUNAR assays ability to identify early-stage colorectal cancer patients, who may benefit from adjuvant therapy after undergoing an intervention with curative intent. This is particularly challenging clinical setting for the detection of circulating tumor DNA in blood, because patients who have gone – who have undergone curative intent interventions, typically have little to no evidence of disease, and very low residual tumor DNA shedding in circulation. We are encouraged by this progress and remain on track to release a CLIA-validated version of the assay for use in prospective clinical trials by the end of this year. Our LUNAR assay is also being used for applications related to early detection as part of our LUNAR-2 program. To recap, our LUNAR assay not only is able to detect somatic genomic alteration at extremely low levels approaching single molecule detection, but simultaneously combines detection of two separate dimensions of epigenomic signals methylation and fragmentomics into a single assay. At Guardant, we are committed to commercializing tests that will offer superior clinical utility, meaning something that's relevant and useful for patient care. So, similar to our approach with Guardant360, we are using a focused strategy for early detection in spite of the broad applicability of our platform technology in multiple cancer types. We are selecting colorectal cancer in this case. In selecting colorectal cancer as our initial indication for early detection, we considered a number of factors including technical performance, cost, reimbursement and unmet need. We believe colorectal cancer presents an ideal target for integrated epigenomic and somatic detection, because this cancer presents a relatively homogeneous yet broad landscape of aberrant epigenomics patterns. Moreover, colorectal cancer has reasonable level of tumor shedding in circulation. In fact, at AACR we presented exploratory data around the use of our LUNAR assay for detecting cancer in patients recently diagnosed with colorectal cancer. We believe this initial data represents some of the most compelling clinical performance shared to-date for blood-based approach, for early colorectal cancer detection. Beyond these factors, we also assess other parameters such as compliance of the existing screening methodologies. For colorectal screening about one-third of average-risk patient, who should get screened based on USPSTF guidelines, do not comply or fully follow through with the available stool-based tests. This means that, even with available technologies that can detect colorectal cancer with high degrees of sensitivity and/or specificity tens of millions of individuals are still not getting screened. Our early conversations with providers suggest that the logistical ease of a blood-based test would have significant impact to reach the third of individuals, who are not compliant. A high-performance blood-based screening test could be added to a regular menu of tests that a patient gets during an office visit. Therefore, we believe that blood-based tests can pave the way to improve screening compliance, and add significant value to the market. On our last earnings call, we announced our plan to start a prospective colorectal screening study of over 10,000 patients. This study named ECLIPSE is an observational study that will collect blood samples from average-risk individuals between the ages of 50 to 84 prior to screening colonoscopy. We expect the first patient to be enrolled in Q4 of this year, and the duration of the trial will be in line with that of previous screening trials. We currently expect the costs directly and indirectly associated with this trial to total between $70 million to $100 million, including the build-outs of a high-throughput laboratory facility to process trial samples. We believe that, if successful ECLIPSE will be a critical component of our approval package with the FDA. And accordingly, in parallel we are preparing the assay as an in vitro diagnostic product. We are very excited by the rapid progress the team is making, as well as the positive reception we continue to receive from important stakeholders in the space. With that, I will now turn the call over to Derek Bertocci for more details on our financials. Derek?

Thank you, AmirAli. Revenue for the second quarter of 2019 totaled $54 million, up 178% from $19.4 million in the prior year quarter. Growth in the volume of tests performed for both clinical and pharmaceutical customers was the prime driver of the increase in revenue. Higher average revenue per test also contributed to the increase in revenue. Precision oncology revenue from clinical tests in the second quarter totaled $21.8 million, up 127% from $9.6 million in the prior year quarter due to increased demand and higher overall ASP. Second quarter clinical precision oncology volume totaled 11,875 tests, up 77% from 6,723 tests in the prior year quarter. Average revenue recognized per clinical test in the second quarter was $1,839, up 29% from $1,430 in the prior year quarter. This increase was due to revenue earned from tests reimbursed by Medicare for lung cancer patients starting in Q4 of 2018 and increases in commercial payer payments that were beneficially affected by the Protecting Access to Medicare Act of 2014. Precision oncology revenue from biopharmaceutical tests in the second quarter totaled $20.2 million, up 146% from $8.2 million in the prior year quarter due to increased demand associated with companion diagnostic studies and higher overall ASP. Second quarter biopharmaceutical precision oncology volume totaled 5,285 tests, up 112% from 2,498 tests in the prior year quarter. Average revenue recognized per biopharmaceutical test in the second quarter was $3,827, up 17% from $3,286 in the prior year quarter due to increased demand for the higher-priced GuardantOMNI test. Development services revenue in the second quarter, totaled $11.9 million, up 660% from the prior-year quarter due to a ramp-up of companion diagnostic development activities to support CDx programs including those related to AstraZeneca, which were announced in December 2018. Back in March, we communicated that biopharma revenue was likely to be more heavily weighted to the first half of the year. In line with this prior guidance, biopharma volumes were particularly strong in the second quarter. While we expect our biopharma business to grow over the long-term, the nature of these biopharma programs can result in lumpy revenue quarter-to-quarter. In the second half of the year, we expect revenue earned from biopharmaceutical customers to continue to vary on a quarterly basis and for clinical testing revenue to grow sequentially. Gross profit is total revenue less cost of precision oncology testing and cost of development services. Gross profit for the second quarter of 2019 was $37.1 million compared to a gross profit of $9.4 million in the same period of the prior year. The gross margin in the second quarter was 68.8% as compared to 48.6% during the second quarter of 2018. Gross margin improvement was primarily due to higher ASP and growth in development services revenue. As a reminder, effective January 1, 2019, we adopted the new revenue accounting standard ASC 606, using the modified retrospective method, which means that revenue reported for 2018 is not restated in our 2019 financial statements. Instead, the accumulated difference resulting from applying the new revenue standard to all contracts that were not completed as of adoption was recorded opening accumulated deficit as of January 1, 2019. The effect of the adoption of ASC 606 was to increase 2Q revenue by $339,000 compared to the revenue that would have been reported without adoption of ASC 606. The effect of this change is disclosed in our Q2 results press release. Total operating expenses for the second quarter of 2019 was $52.4 million, a 63% increase from $32.1 million in the second quarter of 2018. R&D expenses for the second quarter of 2019 were $19.5 million compared to $11.6 million in the second quarter of 2018. The increase was primarily attributable to work required to support our submissions to the FDA for PMA or premarket approval for Guardant360 and development and testing of assays under our LUNAR program. Sales and marketing expenses for the second quarter of 2019 were $19.4 million compared to $11.6 million in the second quarter of 2018. The increase was due to expansion of our clinical U.S. sales force and increased clinical U.S. promotional activities, additions to our biopharmaceutical commercial team to support growth in customers and programs, and expansion of teams focused on markets outside the U.S. General and administrative expenses for the second quarter were $13.4 million, compared to $9.0 million in the second quarter of 2018. The increase was primarily due to incremental costs related to being a public company as well as legal expenses. Net loss was $11.3 million compared to a net loss of $21.6 million in the second quarter of 2018. A charge of $0.3 million was incurred in the second quarter of 2019, due to an increase in the fair value of the redeemable non-controlling interest in our joint venture with Softbank, bringing net loss for the period attributable to Guardant Health common stockholders to $11.6 million. Net loss per share attributable to Guardant Health common stockholders was $0.13 per share in the second quarter of 2019, as compared to $1.75 per share in the corresponding period of the prior year. We ended the second quarter of 2019 with $822.9 million in cash, cash equivalents and marketable securities. This includes approximately $349.7 million of net proceeds from our follow-on offering, which closed in late May. With a robust cash position, we believe we are well capitalized to commence the ECLIPSE study for CRC screening in the back half of this year. As Helmy mentioned, we are updating our revenue guidance for the full year 2019 to the range of $180 million to $190 million, representing growth of 99% to 110% over 2018. This compares to our previous revenue expectations of $145 million to $150 million. We now expect clinical sample volume for 2019 to be in the range of 44,000 to 46,000 tests, compared to our previous expectations of 39,000 to 41,000. Even accounting for the impact of investment in the planned large prospective clinical trial for our LUNAR program we now expect net loss in the range of $112 million to $115 million compared to our previous expectations of $126 million to $129 million. At this point, I'd like to turn the call back to Helmy for closing comments.

Thank you, Derek. In closing, we believe we have a unique opportunity at Guardant to expand, unprecedented access to cancer's molecular information throughout all stages of the disease. We continue to make great strides against our ambitious goals and look forward to updating you on our progress. With that we will now open it up to questions. Operator?

[Operator Instructions] We ask that you please limit yourself to one question and one follow up. [Operator Instructions] Our first question comes from Puneet Souda of SVB Leerink. Your line is open.

Hi, Helmy, AmirAli, congrats on the quarter, first of all, and thanks for the question. So, first one, if I could ask about the guide. You have a significant step-up in guide here, significantly higher than what we had and what consensus estimates were. So I was hoping if you could first parse out some of the major components of that guide. And, I mean, should we expect a stronger growth here in OMNI to continue or is it just more OMNI ASP-driven? And also, if you could elaborate a bit on the clinical G360 testing volumes to continue to grow. I know Derek gave the guide on that. But just help us understand some of those parts, as well as if there's any contribution from LUNAR and adjuvant setting in the guide as well?

Maybe I'll start and then let Derek chime in. We should see very strong fundamentals to our business all across the board. I think you can see that clinical volume is growing very nicely. Pharmaceutical volumes, I think, a champion by OMNI specifically, are also growing. And so, we see a very robust pipeline going forward in terms of our business. I think, it's fairly equally distributed among the two sides of the business.

Yes, Puneet. So we -- as Helmy said, we think it's equally distributed. We did see a very strong -- as we have mentioned earlier, very strong companion diagnostic development services revenue. And while we are pleased with that, we expect to continue working with a number of customers. We were cautioning that that level of growth won't continue. We do see though that the base pharma business will continue strong and it's driven by both OMNI and G360. But OMNI is obviously a significant element with its higher price level.

Okay great. And then, my question us on LUNAR, the CRC study, the ECLIPSE study. I know you had highlighted last quarter that the study was starting in second half, but I just want to understand some of the key activities that you need to perform over the next quarter or so for the trial to start in 4Q 2019. I know, one is completion of the high-throughput facility, but wondering if there's room for further improvement in assay beyond what we saw at AACR and ASCO? Or if you could provide details around the assays log. And lastly, I know you provided the time line which is, I assume, is in line with DeeP-C. When at the earliest we can see the data here from ECLIPSE?

AmirAli do you --

Yes, sure. So, maybe, first starting from a technical performance standpoint. We are very excited. I'm pleased with where the assay is and with the evidence that we generate and some of that was shared at AACR. So we are very happy with the technical performance. Now as we mentioned, we are running the ECLIPSE trial with the ultimate goal of getting at the end an FDA-approved test if the ECLIPSE study is successful. And as part of that, we need to basically have IVD- grade version of the assay to be used in running those samples. The good thing for us is obviously the ECLIPSE study is an observational study, so we are going to collect the samples and we can now basically store that until we have the IVD-grade assay to run those samples with. And that would generate some kind of timeline for us to build that IVD-grade assay, build a high-throughput operation to run those samples. But in terms of technical standpoint of the performance of the assay, we feel the assay that we have is in a very good position as we mentioned before too. In terms of the timeline, we expect the study -- the first patient to be in Q4 of 2019. In other kind of screening studies when you look at it and based on the way that we mapped out this study, it could take like typically around maybe about just shy of maybe 24 months to finish the enrollment of this study. And then it takes us some time to put the data together and publish the data after the enrollment finishes.

Okay. That's great. Thanks. And if I could squeeze in one last one. On LUNAR and adjuvant setting, when should we expect to see some data there from -- or maybe early investigators or PI-led studies, when should we start to see some data that could potentially give us a view into what that CLIA-approved assay could look like longer term? Thank you.

So I assume actually your question is maybe around the LUNAR assay for LUNAR-1 kind of applications that we have. There are already some abstracts that we have in that setting in colorectal cancer and lung cancer. You could expect that in the upcoming congresses and conferences collaborators of the assay would start showing actually their experiences using that device in even other cancer types lung and colorectal cancer. And as we mentioned during the call, we are on track to release the CLIA version, the clinical version of the assay later this year. And there are some prospective studies that are already designed and they are waiting for this assay to get online for those studies to start.

Okay, great. Thank you.

Thanks, Puneet.

Our next question comes from Brian Weinstein of William Blair. Your line is open.

Hey, guys. Thanks for taking the questions. Just to go back on the CRC stuff for a second here. I just want to be very clear about the assay as well as the trial itself. So first of all on the assay am I to understand that you guys are not doing anything materially to change the -- what we saw previously? Or should we expect that there is going to be some changes to the assay and what you guys think you'll need to get to in terms of sensitivity and specificity in order to have a commercial-grade product?

So I think in terms of the technical performance of the assay, the results we shared at AACR are something we believe are very compelling for a product in the space. In terms of what we are doing around further refining the assay, the nature of that work is largely around upgrading the assay to the requirements of in vitro diagnostics given that this would be a FDA-approved device or is intended to be.

Are you planning to go down the parallel path review? I don't think you mentioned anything about that. But I just wanted to understand if that was something that you guys are thinking about here as well?

So we've been in conversations actually with both the FDA agencies and CMS. But dual track is definitely an interesting option that exists, but we haven't provided comments about our exact path forward here.

Okay. And then switching to clinical testing for a second here. Obviously, there was a surge in volume this quarter. Are you able to kind of put a finger as to really what's driving that? Is it really -- is it the sales force that you're adding? And what are the plans for additional sales force additions later on this year? Is it the NILE study? If you can just give us a little insight into what you think is really driving this massive inflection that we're seeing? Thank you.

Yes. Thanks, Brian. It's a combination of various factors. Certainly, NILE has been very positive for us. We're seeing some early uplift. And I think it really resonates with some of the realities of clinical practice. I think there were a lot of physicians who were on the sidelines wondering if liquid biopsy could be something that could fit in their standard of care. But I would say that along with some early traction with the sales force expansion we made -- if you remember we were primarily 20 to 30 reps for quite a while and then we expanded to just below 60. So we're I think seeing some of the benefits of those sales reps coming in. I would say that a lot of this uplift we're seeing is probably earlier than we anticipated. We think for it to be really sustained some of the other proof points need to come into play. And it's why we're working diligently on the pan-cancer reimbursement and the FDA process as well.

Our next question comes from Tycho Peterson of JPMorgan. Your line is open.

I have a couple of clarifications. So based on your comments on ECLIPSE, should we now expect any data readout until 2022? Or can we get something in the interim?

So the grand plan actually is to finish the enrollment and then publish the whole data package together at the end of this study. We have not planned an intermediate readout in the clinical study to share that information.

Okay. And then -- go ahead.

As you may know like you need to enroll 10,000 patients in order to get like a few dozen maybe 60 to 100 colorectal cancer patients identified. So the cohorts of colorectal cancer patient's is going to be too small to even figure out very early what the performance of the test would be. The confidence interval would be too wide to really assess the performance of the test. That's why we need to wait for the data to get mature.

And then on the guidance for the remainder of the year, is the Palmetto LCD included or excluded? And can you just talk to how you're thinking about that in particular around repeat testing?

So we are expecting that the pan-cancer Palmetto LCD would be issued in the fourth quarter and that it would have some benefit to us in the fourth quarter.

Okay. And then lastly on the MSI study, just curious how we should interpret the results here. I mean is this something that could be offered as a stand-alone stripped-down version of the assay at a lower price point? Or is that not the right way to think about it?

It's something that's included as part of Guardant360 today. So it's something that is benefiting patients, has benefited patients for the last couple of quarters. And certainly something that I think paves the way for these tumor-agnostic biomarkers that are becoming more and more common as the drug pipeline advances. So we think that this is something that is going to continue to drive clinical adoption of these comprehensive genomic profiling technologies and one that is not something that is straightforward to do in blood. And so there was a lot of work that the team did to be able to provide data this robust in this setting.

Okay. Thank you.

Okay. Thanks, Tycho.

Our next question comes from Doug Schenkel of Cowen. Your line is open.

This is Adam Wieschhaus on for Doug. Thanks for taking my questions. Maybe I missed it, but did you provide a payer coverage update? I believe you had over 150 million covered lives by the end of last quarter. Just trying to assess your progress there?

Yeah, we're now at a little over 160 million now. So we continue to make progress with payers. And I think we're very pleased with where we are and what we see ahead of us.

Okay, great. Maybe a guidance question for Derek. I just wanted to clarify. It seems like your increased revenue guidance did not reflect any increase in your full year development services revenue. Is that correct?

Correct. We had indicated that the development services would be more first half-weighted, so we are trying to caution that you not get carried away and look at the slope from Q1 to Q2 and just extrapolate from that.

Okay. And then last on the ECLIPSE study, it sounds like you expect the study to begin in Q4 and take about 24 months to complete. What does that contemplate in terms of when you could be reviewed by the USPSTF considering that the committee seemly meets only at every six years or so?

I think it's too early to comment on that at this time.

Okay. Thank you.

Our next question comes from Derik De Bruin of Bank of America. Your line is open.

Hi, good afternoon.

Hi, Derik.

Hello, Derik.

Hi. Just curiosity, the gross margin was like 500 basis points better than we expected on the quarter. Can you walk us through like what you're expecting on the gross margin for the rest of the year and particularly as you add in this higher throughput facility for the study? Just thinking about pacing on this for the rest of the year?

Right. So the gross margin was really benefited this quarter. But as I said, the very high amount of development services revenue that we recorded this quarter. And as you can see in the financials this quarter, the margin on that was very high so it pushed up the overall gross profit margin. Also the increase in ASP in the pharma business is reflective of the increase in OMNI as a percentage. So we're trying to indicate that while the -- we expect the pharmaceutical business to continue both of those trends were extremely stronger this quarter and you should not expect that level of growth or even that level of revenue on the development services to continue in the second half. So we would expect at least that the gross profit margin would moderate a bit in the second half.

Yes.

So longer-term we obviously are looking to have it be high gross margin, but not this high in this quarter.

Great. That's what I was thinking. Just want to clarify that. So you mentioned the ASP in the pharma business. So you're pushing up against $4,000 I believe is what you said there -- $3800, I believe. Where does that sort of peak out? And I'm just wondering are there incremental increases on that we should look for?

So the - it depends on how much of our business is driven by OMNI versus how much of our business is driven by G360. We are seeing very good and strong demand from a number of pharmaceutical customers for OMNI. So I would expect we could get to certainly 50% of our volume coming from OMNI at least in the near-term. And we're getting close to that level this the past quarter.

Great. On G360 as you approach the FDA approval and looking for that, I guess, how can you think about that changing the utilization in terms of moving more to using the blood-first approach that you're talking about? I guess have you had conversations where is there a big pent-up demand for people just waiting for the FDA approval to, sort of, go out and become more aggressive in terms of this as first line? Just sort of thinking about what the -- how the approval sort of changes the equation.

I would say that -- that's a good question. I would say they're kind of separate questions. If you think about how the test is used clinically that's where I think studies like NILE, I think really address that clinical question of if I use this test in this setting am I going to compromise patient care? Am I going to compromise the biomarker detection rate? What are the logistical challenges of being able to get that information in a timely fashion? And so a lot of that is the work we're doing with stakeholders and clinicians and so on in terms of educating on the merits of what a blood-first paradigm really means in terms of clinical care. As you know, we have this LCD that's in draft form and we're hopeful it will be finalized later this year. That has decoupled a lot of the reimbursements kind of issues that were initially coupled with FDA approval. And so it gives us -- another path forward an independent path. And so what FDA now provides is that stamp of quality. I think, if you think about the market in kind of the traditional setting and think about some of the late majority and the laggards in the market that really want to use something that meets a certain standard they don't really want to take any risks that's where FDA approval, I think will be helpful in terms of the kind of final stages of adoption in terms of getting some of the more in-transition segments on board to a blood-first paradigm.

Great. And I'll ask one final question. The -- can you give us a sense on your OUS revenues and just how that's ramping and when can we expect some news on the front internationally?

So the OUS revenue is still relatively small. The ramp will be driven by will be in the near-term. The progress we make in the Japan market, as you know the joint venture is pursuing both two clinical trials in the Japan market, which we hope overtime will lead to approvals and ultimately reimbursement in the Japan market, which we think would be necessary to have substantial growth.

Great. Thank you.

Thanks, Derik.

Our next question comes from Mark Massaro of Canaccord Genuity. Your line is open.

Hey, guys. Congratulations for a great quarter. My first question is -- I think it's roughly 45% to 50% of Guardant360 tests are ordered for lung cancer. So for the remaining call it 50% ordered for additional cancers. Can you just walk us through what percentage of those are getting paid close to zero? And so really what I'm trying to get at is how should we think about the pan-cancer coverage decision being additive to revenue in 2020 and beyond?

So the pan-cancer LCD remember will be different perhaps in the pan-cancer NCD. So under the pan-cancer LCD the current wording that exists in the draft indicates that it is where tissue testing is infeasible or at progression. And that's not the same as the national coverage decision which we estimate would cover 85% of our volume. So, I think you can look at -- from a Medicare patient standpoint, currently approximately a third of our patients are covered with the current lung Local Coverage Determination. With the pan-cancer, it would be up. We don't know exactly what it would be, but it would probably be up significantly. And then the national coverage determination which would be a result of the pan-cancer FDA approval would move us to about 85% of Medicare patients. And Medicare patients represent approximately 38% of our total volume. As far as the private payers, it will take time. They tend to lag a bit in terms of adopting new technology. So, that is probably a slower evolution over an extended period of time.

Great. I also wanted to ask for housekeeping. Have you submitted Guardant360 to the FDA? And is it your expectation to get approval by the end of this year or is it more like early 2020?

So, actually we are making good progress -- particularly good progress on our FDA application. And as we mentioned in our previous earning call, we are planning to submit in Q3. So, hopefully, in the next earnings call, we would have some additional updates about this.

Okay. And just to clarify as it relates to your CRC assay, have you locked down the assay yet? And is it your expectation that with the combination of markers that you've acquired that it's your hope that your sensitivity and specificity that you read out at AACR would be better in the lockdown version?

So, maybe let me try to answer this question a little bit differently to see if it would help or not. I think analogy of entrants on the Guardant360 side. We have Guardant360 DLT and the technology performance we are very happy with. And then we have to generate Guardant360 CDx as an IVD product. We had to go and make some kind of changes and develop documentation and different kind of reagents that we have to manufacture to have the IVD-grade version of the same assay but the technical performance was really the same if we had to go through that process in order to have the IVD version of that device. So, LUNAR we are very happy with the performance. And where the technology stands with some of the data that we showed in AACR some additional data that we have internally, we are happy with where the assay is. But since we are going to actually submit the ECLIPSE readout as a clinical validation of our LUNAR assay for -- as an FDA basically application for FDA approval -- potential approval, we need to generate the IVD-grade version of the LUNAR assay. So, we are in that process of basically IVDization of the assay that we have. And we have time since the ECLIPSE studies observational, we can collect the sample, store them. And when we have the IVD-grade, we can run the assay using that device.

Okay, that's helpful. Thank you. Your net loss came in about $20 million better than our model. And obviously the commentary about your strong gross margins has been made. Obviously, if you were to strip out the cost of the CRC screening program, we could potentially be talking about achieving profitability in the not-too-distant future. But anyways, when we do layer in the cost of the ECLIPSE study, can you just give us a sense on should we take the $70 million to $100 million and sort of lay that on top of where consensus is now and spread it out over a couple of years? Derek, can you just help us a little bit as we think about spending in the next couple of years?

Yes. So, we've estimated the cost of the trial in the $70 million to $100 million range. And trials of that type often take two years to run. So, if you were to spread that money over that two-year period that's probably as good of an estimate as we can give. There is -- obviously, the upfront is lower because, we're just starting the trial. But we do have a lot of costs that we're working on actually to get the trial going. It's the enrollment that will take time over that two-year period. So, I would put in the cost over that two-year period recognized as upfront start-up costs. And then enrollment will grow probably as most trials do across the trial.

Okay. And if I can ask one more. Obviously, LUNAR-1 is a promising initiative. It's really a research pharma-type program at the moment. Can you give us an update as to when you expect to launch this for cancer patients? I know Natterazot [ph], they launched at ASCO. So can you just give us a sense on when you think this will be launched into the clinic?

Yes. I think that's not something that we've given any kind of update on our guidance. We're taking very systematic approach to our program around LUNAR-1. We believe working with biopharmaceutical customers as well as many of the other activities we're conducting with academic centers and other researchers are going to be kind of the most expedient way to get to something that is ultimately broadly reimbursed in the adjuvant setting. I think, the large kind of hurdle is, thinking about providing and acquiring the right clinical outcome data, so that these types of assays can show that they provide value to the health care system and convince payers that it's something they should be paying for. And so, we believe the strategy that we're taking by right now working retrospectively and then either next -- second half of this year working on prospective clinical utility trials as I said is going to be the most efficient way to ultimately -- to get to a product that is widely reimbursed in a variety of clinical indications.

Thanks so much. Makes sense. Thank you.

There are no further questions. I'd like to turn the call back over to Helmy Eltoukhy for any closing remarks.

Okay. Yes thank you everyone. We look forward to connecting with everyone next quarter.

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.