Q3 2020 Veracyte Inc Earnings Call
[music], Yeah afternoon, ladies and gentlemen, and welcome to the embarrassed <unk> third quarter 2020 financial results Conference call. At this time, all participants I know that's only mode. After the speakers recipes shenya there will be a question and answer session to ask a question.
So can you won't need to press star one on your telephone keypad I'd now like to turn the conference over to.
<unk>.
<unk>, Vice President corporate Communications and Investor Relations you may begin.
[music]. Thank you Terry good afternoon, everyone and thanks for joining us today for a discussion of our third a third.
Third quarter 2020 financial results.
With me today are Bonnie Anderson parasites, Chairman and Chief Executive Officer, Keith Kennedy, Our Chief operating Officer, and Chief Financial Officer, Giulia, Kennedy, Our Chief Scientific Officer, and Chief Medical Officer, and John Hanson, Our Chief commercial officer.
Before we begin I'd like to remind you that various statements that we make during this call will include forward looking statements as defined under applicable securities laws.
Forward looking statements include those regarding our future plans prospects and strategy financial goals and guidance product attributes and pipeline drivers of growth expectations regarding reimbursement and other statements that are not historical facts at.
It also includes statements regarding the potential impacts to our business, resulting from the COVID-19 pandemic the potential timing for recovery of our business and anticipated timing of the launches of new products availability of artists internationally and our total addressable market managements assumptions expectations and opinions reflected in these forward.
Looking statements are subject to risks and uncertainties.
It may cause actual results and or performance to differ materially from any future results performance or achievements just discussed in or implied by.
Such forward looking statements.
The company can give no assurance they will prove to be correct and will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum.
Please refer to the company's November 2nd 2020 press release and the risk factors included in the Companys filings with the Securities thing. Its exchange Commission for discussion of important factors that may cause actual events or results to differ materially from those contained in our forward looking statements.
Or to this call, we announced our third quarter 2020 results, which are available on our website at <unk> Dot Com under press releases in the Investor Relations section well.
We also published a business and financial presentation, which we will reference during our remarks. This presentation is also available on our website under events and presentations in the Investor Relations section.
I'll now turn the call over to Bonnie Anderson parasites, Chairman and CEO.
[music] Thanks Tracy.
Thanks, everyone for joining us today, we delivered a very strong third quarter 2020 results across multiple measures of success.
Revenue and volumes increased significantly over the prior quarter rebounding to pre pandemic levels ahead of our projected timing or total revenue was $31.1 billion, a 50% increase over the second quarter of 2020 and slightly above our prior year.
Results.
We've outlined our key takeaways for the quarter on slide four of the business. Some financial presentation, Tracy mentioned and with that as a backdrop, let's walk through the quarter highlights beginning with commercial growth.
Revenue from genomic testing them products was $30.3 million, an increase of 79% over the second quarter of 2020 and 13% over the third quarter of 2019.
Our pharma business led the recovery with volume's, surpassing the third quarter of last year by 6%.
Our pulmonology franchise since recovering as well, although at an anticipated slower rate.
We delivered a solid quarter with our Prosigna breast cancer test as well in fact, our Prosigna revenue for the first nine months of 2020, most of which comes from our European operations has already achieved our free pandemic full year 2020 revenue goal we continue to.
Build out our EMEA team to drive her signet gross and lay the ground work for the international introduction in late 2021 of our in busy a test on the encounter instrument.
Additionally, our bio pharma in diagnostics company partnerships continued to advance, including our Julian Jay and a certain pharma partnerships, which are fueling our lung cancer and lymphoma pipeline products and our luck so Eli Lilly program inside her cancer.
Mavi <unk> continues to progress forward with their work in high volume called the testing using me and founder aiming for an easier way submission to FDA by the end of the year.
We had a very strong quarter in terms of reimbursement expansion a key catalyst in our business.
However, we received the big coverage decision for our Prosigna breast cancer test from the German government, specifically, the federal Joint Committee or G. B.
Giving women in this large European market access to our genomic test, which labs can perform locally on the encounter platform. This was a great win for us.
We also achieved important reimbursement milestones for our genomic tests that we perform in our CLIA lab.
In September the centers for Medicare and Medicaid services, or CMS approved a new advanced diagnostic laboratory test or a D. L. T status, where do you envisage classifier under the protecting access to Medicare.
Our Pam.
This designation March the unique nature of our cats, which improved diagnosis.
Okay, pulmonary fibrosis and other interstitial lung diseases.
It also initiated a specific market based approach to Medicare pricing for the test, which will be based on the medium price paid by private payers.
CMS price the test at $5500 and we believe the price will win remain at or near this level when the market based rate becomes effective on July 1st 2021.
Additionally, we received favorable preliminary national Medicare prices for new CPT codes for Afirma medullary thyroid carcinoma, classifier and expression Atlas we.
We look forward to updating you as pricing is finalized and believe this will facilitate both Medicare and private payer reimbursement expansion.
Finally, we are also pleased to report a positive medical coverage policy for the Afirma expression outlets from a large blues plan in New York State.
Evidence development is her third metrics of success and we made great progress here in the third quarter as well.
In Europe, we launched a compelling study known as pro pure that's bringing together are thought leaders in other clinicians across Europe to achieve consensus on the evidencing clinical utility of the most frequently use genomic breast cancer tests, including.
Prosigna.
The study is led by an independent we now own scientific committee of 12 breast cancer experts with participation from 180 clinicians across Europe and.
And we'll utilize Delphi methodology, a well established technique for facilitating consensus on complex issues that procure study will take place over about a 12 month period after which the scientific committee will submit its results for peer reviewed published.
Station.
Also related Prosigna data were published last week in the journal of clinical oncology, which suggests that the underlying biology, which the test is built may help explain its higher likelihood of predicting long term risk of recurrence among eligible women.
Karen <unk> other breast cancer tests.
We also expanded the library of clinical evidence for cats, and dogs cancer lung cancer, and interstitial lung diseases, which we believe will further help facilitate physician adoption and payer coverage and reimbursement.
This quarter, our cats, where the focus of two publications and five abstracts at key meetings, including in oil and by E poster presentations like really strong Shelly.
Just studies demonstrating the strong.
Clinical utility of our Mama and Percepta classifiers were published in the journal Cytopathology and chest respectively.
External researchers also shared real world data in three eat posters at the American thoracic Societys virtual annual meeting, which reinforce previous finding suggesting our percepta and busy classifiers ability to improve diagnosis of lung cancer.
And Oh geez.
Additionally, at the chest meeting two weeks ago, two abstracts related to our pulmonary R&D efforts were presented including an oral presentation on the foundational field of injury science that underlies our end development nasal swab test for early lung cancer diagnosis.
Yes.
We also continue to advance our pipeline development during the third quarter and remain on track to introduce four new genomic test next year.
These encompass our nasal swap cost supplier and Percepta Atlas in lung cancer are envisia classifier on the encounter system in international markets and the landmark lymphoma, Subtyping test pending an F.D.A. grant a margin, though the classification request.
We are especially excited about expanding our lung cancer portfolio, which we believe will transform the early diagnosis and treatment of lung cancer, giving physicians and patients tower full new tools to help them the mortality curve in the fight against that.
World, leading cancer killer.
Our noninvasive nasal swab test will give people with lung nodules clear answers earlier in the dog workout. This could mean, they could be taken to surgery or put on treatment faster. If they have one cancer or can avoid further work up including risky invasive procedures if there.
And on Joe's are benign.
Our Percepta Atlas will provide what we believe will be the most comprehensive gene alteration information in lung cancer.
Helping to direct patients to appropriate targeted therapies that are available or in development probably at diagnosis.
Importantly, it will also serve as a vehicle for building the first bio repository of lung cancer biology to include early stage cancers.
We plan to hold a virtual and faster R&D day on December 16th.
Focusing on our lung cancer franchise.
Yeah, Matt will allow us to share new data for our nasal swab test and our percept Atlas as they continue to advance in development investors, we'll hear from thought leading physicians.
How about how our lung cancer portfolio is positioned to positively impact patient care and we will provide a deeper look into our scientific approach and data as well.
We'll provide updates on progress across our lung cancer portfolio, which we estimate has a total addressable market of $40 globally.
They tune for more information about this event shortly.
I will now turn the call over to Keith for a more detailed review of our third quarter 2020 financials.
Thank you Bobby also referred to our business and financial presentation, which you mentioned earlier and which is available on our website.
Turning to slide six the table and footnotes shown here along with the details in our FCC borrowings further explain how we recognize and report revenue under U.S. gap.
We're just rushing purposes, we make and barring testing and product revenue to describe our diagnostic testing business.
While pharma and collaboration revenue to describe our strategic arrangements.
As a reminder, that sales or data or other services to our customers are classified under biopharmaceutical revenues and all other non customer revenue were classified under collaboration revenue in Arkansas validated statements of operations and comprehensive loss.
Turning to slide seven our performance against six key performance indicators or T. P ours for the third quarter of 2020.
Compared to the prior year third quarter was as follows.
Total revenue of 31.1 million was in line with the prior year quarter.
Testing and product revenue of 30.3 million increased 3.6 million or 13%.
Bio pharma revenue <unk> point, Eightmillion decreased 3.4 million principally due to the recognition in the prior year quarter of 4 million in revenue from Johnson and Johnson.
Gross margin of 67% decline 400 basis points, principally due to the decline in bio pharma revenue.
Gross margin, excluding bio pharma revenue was 66% in both the current and prior year quarter.
Operating expenses, excluding cost of revenue of 24.8 million.
Increased 1.2 million.
Net loss was 4.1 million increased 3.4 million due principally to lower bio pharma revenue right.
The reduction in interest income on invested cash and higher amortization of our intangible assets.
Net cash provided by operating activities was 1.8 million compared to 1.6 million used by operating activities in the prior year third quarter.
The 3.3 million increase in cash flow from operations relative to the prior year quarter is due to a 4.9 million reduction in net working capital.
A 1 million increase in depreciation and amortization.
<unk> point 4 million increase in stock based compensation and a point 4 million increase in other operating cash flow items offset by a 3.4 million an increase in our net loss.
Genomic volume 10242 inch.
Increased 3% and included 9000.
437 Afirma.
502 Percepta.
And 303 and IZEA reported test.
From the second to third quarter of 2020.
Sequential reported test volume increased 97% for Afirma.
52% for and IZEA.
And 30% for Percepta.
As Bonnie has mentioned, we expect the pace of recovery to remain more gradual for percepta principally from fewer underlying procedures performed during the pandemic.
Slide eight provides a further breakdown of revenue into testing and product revenue bio pharma collaboration revenue and total revenue was.
As previously mentioned.
Testing and product revenue increased 13% or 3.6 million for the third quarter of last year offset by a 3.4 million decline in bio pharma revenue.
Total revenue was slightly above the prior year quarter.
Testing revenue of 28.2 million includes 2 million and Fido pathology services.
Slide nine and 10 illustrate our pacing and performance year to date against the same capex metrics.
As well as break down our revenue into testing and product biopharm and collaboration and total revenue.
Year to date revenues down, 8% and genomic volume is down 9% principally due to the impact of code it in the second quarter.
For the three months and nine months ended September 32020, we.
We accrued on average between 20 820 $900 for both the Afirma classifier and expression outlets, which met our revenue recognition standard.
Yes, it was between 90 and 95% of the <unk> reported Afirma classifier test volume.
The next eight slides outline the sequential and year over year results underlying each of the Cape yards.
Consistent with prior quarters, we present, you know big volume trends on slide 12 genome.
No Big volume includes commercial volume for pharma Percepta Dizzy a genomic classifiers genomic volume represents tests, we perform in our CLIA laboratory.
In December 2019, we acquired a person of breast cancer prognostic gene signature asset, which is the only commercial test we sell on the encounter platform as of September 32020.
We intend to expand our offering of diagnostic tests sold were distributed to third party laboratories to run on the encounter platform, which we also intend to include in product revenue.
To give investors insight into our total test volume trends, we added tests sold to third party laboratories that met our revenue recognition standard to our genomic volume and showed those trends on slide 13.
On the right here in graphic on slide 13, we identified the quarterly volume of commercial Prosigna test sold since we acquired the tops in December 2019.
For those of you that are not viewing the presentation. Those volumes are 680 in Q4 2019.
2482 in Q1 2020.
1249 in Q2 2020.
And 1448 in Q3 2020.
From the second to third quarter 2020, the sequential reported test volume increased 16% for Prosigna.
We expect the pace of recovery to remain more gradual for cigna, principally from pure underlying procedures performed during the pandemic.
We continue to see a rise in reported Toby cases, and expect governments to continue to evaluate restrictive measures to attempt to contain the spread of the virus.
We are uncertain that intra quarter or seasonal trends, we typically see in the business will hold in light of coated.
And we have been encouraged by the recovery to date.
As a result, the continued rise in cases and the impending flu season, we remain cautious about predicting the slope of the recovery.
In light of uncertainty in the market. We are not currently returning to giving guidance.
We continue to expect minimum corporate travel and expense associated with large group meetings, we plan to continue to leverage digital and virtual selling.
We believe it's prudent to plan for the impact of the pandemic through 2021 and.
And we hope to continue to update you each quarter as we manage through this very challenging time.
As shown on slide 18, we have $340 million in cash and we believe we have significant resources available to manage through the pandemic.
I will now turn the call back over to Bonnie.
Thanks Keith.
In closing I'll refer you back to our key take away is on slide four of our business and financial presentation.
We are very pleased with our third quarter results as our business is rebounding from the Pan Genotypic ahead of schedule, we have significant momentum across all of our products [laughter]. Both our original tests performed in our CLIA lab, and our Prosigna breast cancer assay.
This includes strong revenue and volume growth, along with reimbursement milestone and evidence development to further fuel progress.
We are on track to launch for novel genomic tests, and 2021, including our nasal swab test him Percepta Atlas as part of our expanding one cancer portfolio and.
And we continue to exercise strong financial discipline with margins in line with expectations and positive cash flow from operations in the third quarter of 2020.
Importantly, with our successful equity raise in August we now have $345 million in the bank and no debt, giving us extensive strategic flexibility as we establish ourselves as a global genomic diagnostic leader and position the company for long term.
Profitable growth.
With that I will now ask the operator to open up the call for questions. Please.
Ladies and gentlemen, if you have a question at this time. Please press Star then the number one on your attached on telephone easier.
If your question has been answered or you wish to remove yourself from the queue piece for us.
HM.
These sales will be compiled a few many roster.
Your first question comes from the line of when it seems about from SVB Leerink. Your line is now.
Hi, Bonnie Thanks for taking the question. So first of all congrats on the strong quarter here in terms of volumes Afirma volumes, obviously came in strong but on pulmonology volumes or were a little bit weak and as you pointed out or it could be due to the.
Seizures, and so I just wanted to understand I know you mentioned braun cost a bit werent distracted with coated I assume that's what's.
Continuing to be the case here in third quarter and I'm wondering if you could confirm that and then and what are the expectations for improvement in light of discontinuing a as we can to deal with coated and then on prosigna good to see that you're reaching the volumes, but for the full year already.
In terms of the revenue, but wondering how should we view that in light of the recent you shut down.
Yeah, well on the back of coal that that's why we keep on taking cost with with everyone.
The historical axles are where are what they are but it's still difficult to predict the future, but look back when that's all hit we projected our afirma business would be the first to burn down to rebound and were correct on that Afirma has a large percent of the market.
That is concession offices, and it's very easy for physician offices to open to patient care and control the flow of patients very easily we continued to see hospital environments.
Take for constraints and the flow of patients has not reached what it should be both by our data and other folks data I think guy and he is doing well, but keep in mind. The prior year numbers were really low on them busy it because it was just getting off the ground. So all in all I think we're very pleased.
With all of those products and then when you add to that.
The tremendous progress in hitting Prosignas original annual number through the first nine months I'd say, we're really pleased on all of those fronts.
I think that's the line.
Answer a workout will slowly you know assuming kobe doesn't create more shutdowns, which it may.
We will begin to continue to see those procedures unfold like we are certainly there's been growth there over prior quarter.
But just not to the magnitude of the others and yeah I would say our European market is obviously the strongest per segment.
It is both the fact that we have continued to gain great reimbursement coverage had a really big win this quarter in Germany, which is a huge market. We're super excited about that and I keep in mind. When we brought the team over 4% now we kept all of the people associated with them.
ER business in place we've since actually added a few positions and we continue to plan on adding a few more positions here and there as we go into 2021 in anticipation anticipation of launching our second menu item in a busy Armenian.
In addition to of course Cigna.
So you know all in all we're Super pleased with where things are and we think we're in a great position to continue the momentum.
Okay. That's that's very helpful. On the detailed on the nasal swabs I know youre, providing a complete update here on lung cancer portfolio in December but.
But just in terms. So you know going into that event, if you could lay out for us.
How should we be looking at the data and sort of the you know traditionally verisign has taken an approach historically where are you.
We have steadily build data and clinical evidence behind an asset over time or should we expect this to be any different and and should the data by you know year end that you're expecting here should that be sort of oh should we assume that it's going to be a little bit more accelerated corporate.
Centrally for publication and reimbursement after that I know you provided the 2021 timelines for this but just trying to understand as we go into this dataset how should we be actually viewing you know this data kras assay that you have a delivered her well I'll give an internet.
Going to bounce the ball over to our Chief Science, and medical office or Giulia, Kennedy and let her actually walk you guys through how this works I mean, we've we've been down this radio a few times.
We're not doing anything different this time than what we've done in the past and you're right. It is an entire series of data that starts a in the early feasibility work like what's what we presented last year at chest and goes on going through the whole process of launching the tests.
But typically final validation data for publishing the validation of a study it's not gonna come late until late in the process. Because there are still additional studies and work that has to be done before you're ready to unveil that but let.
Let me turn it over to Julie.
Q through that and then maybe give you a little he gets the nature of some of the data we expect to show an R&D day as well Julien.
Sure.
So we've been training our algorithm, which has included developing many candidate algorithms and then we obviously refine them to ensure that we're in count accounting for all the various lung biology's that we would encounter in the real world clinical practice different cancers stage.
His knowledge all locations and the other factors we continue to explore those.
And right now we're still an algorithm training, but we do expect to Walker <unk> algorithm within the next several months [laughter]. The next step would be to do typical to what we do with all of our products extensive analytical verification studies and these are designed to.
Provide a view toward the robustness of the test and then once were satisfied with that in advance of commercializing as Bonnie said, we would be unblinding. The independent validation test said late in the process. When we're sure that we have the algorithm Doug.
That we've locked that we're satisfied with it.
And I'm just <unk>.
Color into what will be presenting at the R&D day in December.
And since Weve last unveiled data a chest to 2019, where we showed some early feasibility for the nasal swab classifier. We've since then acquired additional samples cohorts to add to the training and have added both there.
You know make data and the clinical data to our various algorithm development exercises. So what we're going to be a presenting in December it's what's called cross validation data, it's not an independent of that it's within the training set.
And on various versions of the algorithm because of course, we haven't walked yet.
Well continue to refine these draft algorithm until we determine we're ready to walk.
And pick a final choice.
Investors should see more data on more patients Oh.
Oh view of some of the development hurdles that we've encountered along the way and how we've sold some of those hurdles.
And how close we continue to believe that will be close to the early feasibility data, which the key opinion leaders that we work with are quite excited about.
Oh at that time, we'll also highlight clinical positioning a data patient benefit for all of our tests in the percepta lung cancer portfolio across that portfolio.
So that's what we can expect at R&D day next month.
Thanks, John.
That's great. Thanks for thanks for all the details I really appreciate it last one if I could squeeze in a Bonnie envisage guilty that was great to see great to see the reimbursement here, but just trying to also understand what you know how are you thinking about the uptake of that product now where they'd be LT and end of Keith could elaborate how accretive could this be longer term and.
In terms of gross margin at peak levels went on encounter thank so much.
Sure I mean, yeah. This was a great success of the test was priced at $5500 as you know and this the is <unk>.
Eligible patient population for in busy as about 70% Medicare eligible patients. So you can kind of do the math.
Having an aging L. T and then what we believe will be a stable Pam are right out of the commercial couch.
Calculated data as we go into effect next July that sets us up to see some nice expansion and not reimbursement per test going through 2021 and beyond.
Right, great anything to add to that.
No you covered that thanks Darren.
Okay, maybe my job between crushing your joining.
[noise]. Your next question comes from the line of Suji nom from <unk>. Your line is now open.
Hi, Thanks for taking the questions and congratulations on the quarter maybe Bob.
Finally, I'm just curious to hear your thoughts in terms of potential delays to 'em delays in terms of lung cancer diagnosis. So what are the implications you think for a very site.
You know going forward over the next eight.
Teen 24 months or even beyond that.
Well, certainly I would say that the implications of code Red <unk> any cancer work up you know certainly we spoke to the US early on in breast cancer patients weren't running out to get their mammograms time.
And I think that it's a sad to imagine that three years from now we may actually be in a position where we see more later diagnosis on these cancers that are big killer. So you know I hope that that we can get get the.
The health institutions and patients.
Kinda rally behind the call change shortly patients do go get the screening protocols that are designed to save their lives, whether it's a mammogram for breast cancer patient or a low dose CTG for a patient eligible for for for screening for lunch.
Cancer and as we ramp up our efforts on both of these clinical indication.
We are certainly going to be advocating for that because the last thing. We want is to start to see those cancer rates on late stage diagnosis go up two to three years from now.
Okay, great. Thank you for that and then it's great to see the Afirma volume recovering very nicely and I realize that the there's still uncertainty I'm with you know pandemic related uncertainty going forward, but we just would you guys be able to share even just qualitatively what the volume trends look like for pharma for the month of October.
Yeah, I mean, I think but you know we're pretty comfortable [noise] that you know the.
The trends that we saw in this corridor, we expect to carry through Q4.
No. We are obviously, a one to shine light and giving any guidance in that regard, but maybe Keith has a few words he could point to err on the Q4.
Peak ski anything you can add there.
No I think you know we had a really good strong quarter. There as you said, there's a lot of uncertainty October Oh, you start to see.
The case load go up and then me, obviously sort of watching a lot of politics going on as well and so you know we don't really know what's going to happen in November December but October trends were similar to what we saw in the third quarter and we are encouraged by that.
Oh, So afirma was doing well and then percepta I'm still maintain some or jogging declines relative to the prior year, but still good numbers and then does he is doing well.
So we'll see what happens from a quarter, but they come at it comes out in line for third quarter, and then we're testing and product revenue will be.
Though it will be end up.
What it was in the prior year, what should be a big win for us.
In light of all the pandemic.
Great that sounds great and then just lastly from me I'm I'm not sure. If this will be discussed that the the investor meeting in December but the noble study just kind of curious is that largely to continue to enhance your existing pass the worries that to develop new tests in lung cancer.
Yeah, then the noble study is for future, we have not dependent on any of our developments for building new cohorts, which is why all of that work could continue on interrupted with covance, but because we're doing so many great things in lung cancer and we ultimately want.
To be able to move upstream, but we have a slide in our deck that illustrates this so elegantly that you know once we're able to intercept a patient with a known Nigel and guide that patient to get people with cancer into surgery or treatment early keep the people with benign nodules out.
We then want to move upstream and see if we can use the nasal swab to identify patients pre cancer and that's a big part of her work with chain Jay and so the notable program built around to that future.
Great. Thank you so much.
Thanks for joining our call center.
Your next question comes from the line of Brian Weinstein from William Blair Your line open.
Hey, guys. Thanks for taking the question good afternoon.
I think we just start with a couple on a news or risk and then a one and one on and counter for you Barney but on these are risk can you just go through the Tam here and how you build up to the I think it's 750000 patients and how the new U.S.P.S.T.F. draft changes the way that you view what that opportunity is and then can you talk about the minimum.
Performance levels that you think are necessary from a the PPV and NPV side I believe that the data it was 76% on the P.P.V. and almost 98% on the on the negative predictive value I'm from the data last year, a chest, but how should we think about that relative to kind of where things ultimately need to need to be.
Yes, a very does so well I would say first of all the feasibility data that we put out sort of showed our cards in terms of where we think roughly.
The ultimate test needs to be but that the critical level for the cut off on the loan side is obviously sensitivity while the key aspect of cut off on the upper end specificity I think we're very comfortable we're going to get to cut off that have those two.
And characterize very well and then a question just become the number of patients that we can put into those buckets. So how many of the true benign patients can we keep home undergoing a workout no.
Making sure that we continue to drive a cut off that's going to be highly sensitive I think our NPV on the early Saturday there was something like 98%, which was remarkable and then on the upper end sort of the opposite if we're going to cut off and and create a high highly specific tests we want.
To make sure that we are not putting a lot of benign patients falsely into that bucket and so the question will become do we continue to move 50%, 45%, 55% into that bucket I would say.
Both of those we wouldn't need to get to the same numbers that we brought to the move.
It's a high risk or low risk for feasibility to have a very very acceptable test are the key is not letting the sensitivity on the on the low end or the specificity on the high end suffer those are the key metrics so well.
Well look forward to moving to date, along showing a little more data on the cross validation side at R&D day, and giving people a little more flavor to that.
You know the key.
It's really fairly straight forward for us the channel will increase.
Yes in fact, the preventative taskforce comes out it makes a final decision to lower eligibility criteria for patients getting screened we typically don't change our numbers on market sizes until after those things get finalized because then you're just moving numbers all over the place.
We also tend to not really look at the number of patients.
That might get screened and found to have nodules. Because there are a lot of parameters set up out there that you you know very well that not every time a nodule that has found its going to be paid to be worked out and that's correct. Because if a patient has a two millimeter nigel than last.
Thing you want is that patients getting worked up and so we sized the market using the criteria of that already exists what patients with lung rads, if they're coming through screening or what the feature characteristics are of the nodule with its an instrumental nodule test side the number of patients.
We believe in today's market would be referred for work up and those will be all the patients that we would expect to have our test paid for.
Got it that's very clear. Thank you so much and then about.
Oh on encounter and we were about a year in here could you just talk about the updated view on that product and the opportunity is and how well it is advanced over the last year.
Yeah. So first of all I would say we have to.
Definitely reconfirmed that we picked up.
The best platform for doing distributed testing that exists. So there's no doubt in our mind. This platform is incredibly robust.
You know the hundred plus customers that we have around the world running prosigna on the platform. We have won technical service person that supports all of those customers that tells you how incredibly robust platform is now when we.
Acquired the platform, we were very clear that we weren't going to go out and.
On her lessened proliferate a lot more accounts with a lot more instruments, because quite frankly that was the challenge Nanostring had if it's very difficult to justify a high cost piece of equipment on one single menu test on that platform and so instead, we put our effort to accelerate.
The menu Weve advancion busy a task that will come out late next year.
A new menu item on the platform, we've advanced our lymphoma test through our collaboration with a certain pharma in lymphoma and look forward to adding that menu to the test and then we remain on track to move the nasal swab test.
Over to the encounter following its launch in the U.S. market, which will happen. The second half of next year out of our CLIA lab.
But we are you know Weve got partners now that are looking to expand that menu, including cardiac whose work is still underway. A we've got that covered testing with our partner Novvi de Act and I would say, we also have a tremendous pipeline as interest from pharma.
Companies that are working and collaborating with Nanostring today, we'd build a bridge so that as those companies reach a point, where they are ready to entertain moving a CB acts along they get handed off to us and we will determine at what point should we then entered the enter the situation.
And and migrate that customer from and Nanostring research customer to Amerisafe clinical.
Diagnostic customers. So there's a a lot of every I'd say every lever we pointed to as value creation. When we announced that deal has been confirmed that that still is the case and we're very excited about where we are I think.
I think next year as we come towards the end of the year and begin to unfold. These new menu items and begin to just re accelerate prosigna on the back of new coverage decisions as I said, we've hired a couple new country managers, we've hired an additional marketing lead for EMEA.
We're we're set up very nicely to to see the wind off of this deal that we did less than a year ago.
Got it thank you so much.
Thanks for joining us.
Your next question comes to the line of Thomas thinking from Lake Street Capital. Your line is now open.
Great. Thanks, guys for taking the questions just one for Keith I'm on the gross margin excluding bio pharma can you talk a little bit about what do you think we should be or how we should be thinking about that you're kind of back to where you are mid last year and it seems like it seems like a happy place for the gross margins to the but particularly as we roll into 2021 can you give us some some.
Flavor for how you see that how you see that evolving.
Yes, as we said before we try to keep a call. It a 64% to 66% margin years, we're launching multiple test obviously from a the more we do in our mix.
Further along the reimbursement curve that that obviously helps.
But 64% to 66% is where we'd like to see that and we obviously Q2.
You know, we got to test what the bottom of that May look like and a shock in the volume.
So we have some downside protection there so [noise].
Pretty good about it.
Great and then I know you are you guys are incredibly busy with a with an exciting 2021 coming out, but I'm trying to balance that against this this cash balance that you have or is there or are there for us or.
From a strategic perspective, how are you thinking about best utilizing that cash position. There are there additional testing you're looking at bringing on board or how should we think about how you might utilize that cash you have on that.
Yeah. That's a good question I mean anything called ultimately, we're set up with with incredible strategic flexibility now, having no debt and having substantial cash on the balance sheet, we feel good about that.
Over the next few years, we're going to be executing on all sorts of friends to accelerate this business take advantage of.
What we now have and what we have the ability to accelerate and that's going to mean, taking on some new capabilities and certainly Ah you know expanding menu.
Everywhere, we can to become a global advanced genomic testing company with the broadest menu, reaching global markets and so I think theres multiple ways, we could use the cash, but we'll I'm sure be be smart and pull the trigger and things that seem to make them as strategic.
Sense for the business.
Great I appreciate taking the questions. Thanks, guys.
Thanks for joining us.
Your next question comes into line can you give someone from Morgan Stanley. Your line is now open.
Hi, guys. Thank you for taking the time this is edmund on for Tejas, Oh, I am and.
Hi, guys just to circle back on or I guess your outlook and your thoughts on for Q and beyond.
I appreciate the color that you guys provided all good reasons, we're being cautious and not providing that guidance, but given your performance in the quarter is there anything else beyond this more than just conservatism like are you actually seeing any reversal of trends among your physician practices with hospital settings or is it purely just being.
Being careful.
Yeah, we aren't but I think as you pick up the newspaper every day or I guess, you don't pick that up anymore, you online [laughter] and look at the news every day, just a really uncertain world we live in out there.
I think we don't feel like we have any greater crystal ball than anyone else and that it just behooves us to not provide guidance in a world that's incredibly uncertain.
That said, we're really pleased with where things are as Keith said earlier, you know October remained strong which is great.
But clearly you know it's hard to just see out a couple of months in the environment that we're in.
And then will we probably will provide guidance for next year as we come off of our Q4 call. I think we'll have a lot greater line of sight to what what what might be possible for next year at that point.
Got it. Thank you very much and I guess kind of similar and similar lines of looking forward you guys had mentioned that you were a.
Rehiring. Some people ahead of the product launches that youre expecting cars coming off but I'm just in terms of your operating Opex side, how should we think about like you're scaling up your audio sales force given the you got to Ah well some of the other employees that are leaving the Oh, how should we think about this and particularly I'm you know Keith Yeah, I'll, let Keith get into.
Some of the numbers, but look we're living in a different world No. I mean, we are we have embraced and our clients have embraced a whole new world of digital and virtual engagement Ah Digital education Medical education has always been our number one.
Marketing program, because continuing to have peer to peer education on our products is what moves the needle on adoption. So we've embraced that Jon Hanna pivoted very early on and Oh well.
That working so well you just have to be smarter around the number of feet, having a grand et cetera.
Keep in mind, though that next year, we are going to be you know moving toward the introduction of new products, that's going to mean market opportunities to expand and Ah you know I'm sure I'm sure that we will continue to layer in a more reps and our sales and marketing.
Organizations as we get organized around exactly how how to bring these poor market products to market on the backdrop with what we're doing today, but I don't know Keith do you have any operating expense.
Insight there.
Yeah, I think this quarter, we've always talked about sales and marketing or our acquisition cost getting to a target of around 35%.
This is where we ended up this quarter.
Not are they you know we're in a point where people aren't traveling individuals taking over or we think that's great I do believe our sales and marketing as we ran multiple test will go back up to go up to 45% of sales, but long term I made the point of what's possible.
Oh this quarter is indicative of that and so I'm less concerned with the amount of money. We have enough discipline, we tend to be that as John and I goes from say 11 million this quarter and he spends you know $14 million or $15 million in a quarter as we ramp that that that's that's not up.
Problem, we need to we need to penetrate those markets, we need to get physicians using the tests. You know this is not a perfect world Oh. The reason we have this capital is so that we can go in there and smartly address each of those markets markets.
So I'm pretty pretty optimistic about the future.
Got it. Thank you guys. That's all very helpful and just one last one for me on can you provide us with a little more color on your cooperation with Navidea at Suncoke at 19, I know you guys had stated that you still expect to see you a submission, but yes, and but as the federal.
Issuing you is enacted to settle and.
[laughter] rapid antigen test sets scaled up rapidly and GPCR is still considered the gold standard where do you see them at Navidea solution filling the gap.
Yeah, well first of all maybe day access isn't exactly a collaboration Oh, we basically granted mavi de acts the rights to use our technology and platform to develop a very high ultra high throughput coven testing.
Machine and he is they are getting that you you may or may not recall the founders of Mavi de acts for the original adventuresome founders and she also of Nanostring. So they know the technology behind the product probably better than anybody and what they are.
No one is taking advantage of the multiplexing capability that we like in the test, we like being able to put 800 genes a into a single test what they're doing is taking advantage of that sophisticated large scale multiplexing multiplexing many patients chose things.
Cobot gene and asking to allow them to get to thousands of patient throughput in a given.
And.
The IEA raised from F.D.A. have halted with the exception of very high throughput testing because that is exactly the unmet need out there.
You know, they're still doing the work advancing you know their feasibility I believe they remain Ah you know, making good progress and believe that they are on track to continue to file that he made by the end of the year, which I think a F.D.A. will accept because of the significant product.
Friend shading, the differentiation, you're gonna bring and also keep in mind. This technology doesn't require any amplification or anything it's super Super simple and to be able to have a single technician runs thousands of patient samples for a single instrument in a given day is pretty remarkable.
So we'll keep you posted as I'm sure they will as that moves along.
Got it. Thank you very much gone. Thank you Keith you bet, thanks for joining us.
[noise] our last question comes from July 15th.
<unk> Your line is now open.
Great, Thanks, Hi, everybody and.
First question just on Germany, Congrats on a positive coverage decision I was just curious if prosigna was getting.
Decent volumes in Germany already and I know, there's a couple of competing test now that have positive coverage in Germany. They want to have a distributed platform and one was supposed to but but but is it now and I was just wondering what are your thoughts on sort of.
How this rolls out for you is Germany.
As opposed to become meaningful meaningful revenue stream.
Yeah, I think Germany will be a strong market for US you know, it's very hard to drive adoption of the test when there is only one test and the markets it's covered.
And that was the situation in Germany, and that got shaken up and now you know there are multiple tests covered but we believe we have a very strong relationship with some of the top centers. Some of the kao ALS that actually advocated for prosigna to get those coverage decisions and.
And we're in a very strong position being able to provide and counters for local testing within the market, which is a big desire for Germany, as well and we have a really great team.
That won't be able to pivot and cover Germany, Mary immediately and look forward to that contributing to next year.
Got it Okay, and then keep is it possible to get the pulmonary revenues in the third quarter and then as far as revenue per test, it's been sort of running around $1500 a house.
And with the changes [noise].
Specifically for Newsy, a reimbursement what does the level look like.
2021 2022.
[noise] you know so.
So you want to be longer revenue.
I think we said it was like 1.7 million not you kind of backed into that number.
For Q3.
On revenue and in terms of revenue per test.
We're doing well on the revenue per test, that's ticked up a little bit.
On the long side isn't does he is really.
It has gone well and well Bob will get obviously with C.L.T. status as Bobby said over 70% of the AD market in Medicare.
And we will come back out and.
All right [laughter], how to build the model going into next year, but I would sort of you know in Q4, you know Keith.
Keep at around the same rate until we sort of determine the impact and how the bill wind goes who just started going for the test.
We'll come back volumes I've got high right now, it's going to make a meaningful difference in Q4, we'll lay that out on the Q4 call for the rest of the year in the model.
Yes, you should get a book you should get a bomb next year correct.
Yeah. You you you know you can imagine that would be about that could be a cofounder of hours or test.
Well after I want to do the math and really get into the numbers next year lay that out for all the analysts who would people can build models I don't want to pencil with that on a call, but it'll be it'll be very positive.
Great and then last question. So let's Mark are you expecting a decision from the FDA fairly soon I guess should we came up with maybe thinking that it would be in a week or so.
Correct.
No no no no there's no empty a decision that happens in a week in fact, the shortest would be a five 10-K route where you know they have to respond to you in 90 days. So no I think what weve I'm pointing to is the expectation that we will commercialize ones Mark in the first half of next year, we think.
We're probably still on track for that.
Okay. Thank you I appreciate it uh-huh, thanks, very much for the call.
I am showing and for your questions at this time, ladies and gentlemen, and this concludes today's conference call. Thank you also for solicitation and have a wonderful day you may all disconnect.
Thanks.
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