Q4 2020 Veracyte Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to burn of sites for quite a tiny tiny play now show the results conference call. At this time all participants are in a listen only mode for the speaker's presentation. There will be a question and answer the question you ask a question.
During the session you will need the Bachelor of one on the telephone as a reminder to the conference call is being reported.
I would like to turn the conference over to the see the Morris various sites Vice President of corporate Communications and Investor Relations you may begin.
Thank you Alex good afternoon, everyone and thanks for joining us today for a discussion of our fourth quarter and full year 2020 financial results with me today are Bonnie Anderson parasites, Chairman and Chief Executive Officer, and Keith Kennedy, Our Chief operating Officer, and Chief Financial Officer.
Before we begin I'd like to remind you the various statements that we may make during this call will include forward looking statements as defined under applicable securities laws forward. Looking statements include among others statements regarding the aerospace anticipated timing of launches of new products in 'twenty and 'twenty. One there are signs of plans objectives expectations financial and otherwise.
The intentions with respect to the anticipated acquisition of decipher.
The expected timing for various stages of completion of the just say for acquisition and its expected benefits availability of various types of testing internationally. There. Besides the total addressable market of current and future impacts of COVID-19 on various sides of business.
Actions parasite has taken or will take in response to COVID-19, and potential timing for recovery of various lines of business. The catalysts to drive momentum through 2021, and various types of long term outlook management's assumptions expectations and opinions reflected in these forward looking statements are subject to risks and uncertainties that may cause actual results of <unk>.
For months to differ materially from any future results performance or achievements discussed in or implied by such forward looking statements and the company can give no assurance that 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 the public for them.
Please refer to the company's February 17, 2021 press release and the risk factors included in the company's filings with the Securities and Exchange Commission for a discussion of important factors that may cause actual events or results to differ materially from those contained in our forward looking statements.
Prior to this call, we announced our fourth quarter and full year 'twenty 'twenty results, which are available on our website of Vera.
The site Dot Com under press releases in the Investor Relations section.
We also published the 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 will now turn the call over to Bonnie Anderson parasites, Chairman and CEO.
Thanks, Tracey and thanks, everyone for joining us today, despite the pandemic headwinds we closed 2020 with strong momentum across the business and are on track to launch multiple products in 2021, including our noninvasive nasal swab test and perceptive genomic Atlas and lung cancer.
And we now have a new general manager based structure in place to drive our business forward.
This month, we hit the accelerator with our agreement to acquire decipher Biosciences, a world class precision oncology diagnostics company, whose market, leading tests and Urologic cancers will expand our presence into seven of the 10, most common cancers further solidifying our global genomic die.
Ignostic leadership and significantly accelerating our revenue growth.
We delivered strong revenue of $34 $5 million in the fourth quarter, an increase of 11% over the prior sequential quarter and 16% over the fourth quarter of 2019, reflecting a strong rebound from the pandemic, our genomic testing and product volume was 13000.
130 tests in the quarter, an increase of 12% over the third quarter of 2020 and 14% over the prior year.
Pending the final acquisition of decipher, which is assumed to occur by April one 'twenty 'twenty. One we are guiding a 'twenty 'twenty one combined revenue target of approximately of $190 million to $200 million, which represents approximately 65 per cent growths over 'twenty 'twenty at the midpoint of the range.
We anticipate this growth will be fueled by the increased adoption of our for revenue generating products in lung cancer breast cancer, So I wouldnt cancer, and interstitial lung diseases as well as by the safest trusts in prostate cancer, while relatively neutral of the market just as the first test have gained.
Rapid commercial traction.
Now, let's cover the highlights of the fourth quarter and the full year 'twenty 'twenty result.
I'll start with commercial growth are first measure of success of.
Business has continued to rebound faster than we anticipated our fourth quarter 2020, and genomic testing and product revenue was $34 $2 million more than double of that of the second quarter when the business hit it's pantone the Clos.
Our Afirma business continues to lead the recovery with Afirma testing volume up 9% over the prior year quarter, and 10% over the sequential or third quarter, our pulmonology business, although improving is rebounding at a slower pace as we had expected we continue to be very pleased.
With our per Signup momentum, where we exceeded our revenue goal for the year and delivered volume in the fourth quarter of 2020 that was nearly triple that of the prior here.
We had several key reimbursement wins during the year, our second success metric.
These included receiving an advanced diagnostic laboratory test or a D. L. T designation and the new Medicare reimbursement rate of $5500 for busy of classifier, which improves diagnosis of interstitial lung diseases, including idiopathic pulmonary fibrosis, the new rate.
<unk> went into effect on October one 2020, and we will apply to the approximately 70 per cent for him busy of patients who are covered by Medicare.
Additionally, we secured our first blues plan coverage policy for the Afirma expression Atlas, which uses comprehensive genomic profiling to inform treatment decisions in thyroid cancer physician demand for Afirma Xa testing continues to rise with the growing number of targeted therapies for the cyber.
In cancer that are available or in development.
The xa rounds out our comprehensive of Afirma offering in.
In which we guide care throughout the patient journey, and the sovereign cancer diagnosis and treatment.
We also achieved a significant milestone for per Cigna with the German government approving reimbursement for the test for all of breast cancer patients with hormone receptor positive her two negative early stage disease.
This is important because each share approximately 70000 women in Germany developed breast cancer and in many cases physicians are challenged to determine which women will benefit from adjuvant chemotherapy based on clinical pathological factors alone.
We are poised to accelerate growth in Germany tour and counter instruments that are already in place to support local pathology testing for patients.
We strengthened our library of clinical evidence our next metric of success for of genomic tests across all of our indications, including 10 studies published in peer reviewed journals in 2020.
Among these was the study published in the journal chest, showing that the percept of genomic sequencing classifier reduced unnecessary invasive procedures in lung cancer diagnosis.
Another study published in the American Journal of respiratory and critical care medicine demonstrated that the envisaged the classifier improves physicians the ability to diagnose idiopathic pulmonary fibrosis without the need for surgery.
We believe these publications will be key to our reimbursement efforts with commercial payers.
In breast cancer, a landmark study published in the journal of clinical oncology by leading breast cancer researchers suggested that the foundational biology upon which our Prosigna test was built may explain the tests increased ability to predict long term risk of recurrence among certain breast cancer patients.
Compared to other breast cancer tests the.
These findings will be among those evaluated as part of the procure study in Europe, which we announced in September 2020 the.
Procure study has brought together top breast cancer, researchers and clinicians to achieve consensus on the evidence and the clinical utility of the most frequently used genomic breast cancer tests, including Prosigna.
The study, which is expected to complete in about a year is led by an independent scientific steering committee of the world renowned breast cancer experts and is gauging about 180 clinicians throughout Europe. The study utilizes Delphi methodology of well known technique for generating can.
Sensus on complex issues.
And the Cypress business, we were delighted to see that last week Jama oncology published an important study validating the decipher prostate RP test is the first independent predictor of overall survival.
The study also shows how predicting metastatic risk with the decipher test can be utilized to better guide treatment decisions in men with prostate specific antigen or Psa recurrence.
We believe this is a significant milestone for the site first development of evidence for the test and in fact, the offer the author of an accompanying commentary in Jama oncology stated that the finding should quote lead to reconsideration of Atco guidelines that recommend the use of the day.
Site for test on the basis of the strength of the evidence and its adoption into routine clinical use should become commonplace unquote, it's hard to get more positive endorsement than that.
Our final success Merit my metric.
It's pipeline development and biopharmaceutical partnerships and here too we made significant advances throughout the year.
Most notably we unveiled preliminary performance data at our R&D day event in December for a first of its kind noninvasive nasal swab test for early lung cancer detection, and our percept of genomic Atlas for informing treatment decisions in lung cancer.
We shared the nasal swab classifier cross validation data for for candidate genomic test models, which demonstrated that when lung nodules are initially detected our tests will be able to identify which patients to work up and how aggressively to work them up today physicians do not have a really.
Liable way to do this which leads to unnecessary invasive procedures and benign cases and delayed treatment in a disease that is the leading cause of cancer deaths worldwide.
We also shared preliminary data for our percept of Atlas showing that the in development tests could accurately detect known gene alterations in lung cancer, including early stage disease using tiny samples from the initial biopsy used to diagnose the cancer.
We believe the percept of outlets will provide the physicians with the information they need to make informed targeted treatment decisions at the time of diagnosis and build what could be the first large scale lung cancer bio repository across all stages of lung cancer.
Tests are on track to launch in the second half of this year.
Also in lung cancer, we expanded our collaboration with the lung cancer initiative at Johnson <unk> Johnson to include the noble Troll, a 9000 patient prospective multicenter clinical study designed to distinguish genomic and other differences in lung cancer development and progression.
Among patients with lung nodules detected by C T imaging.
The trial will provide a robust bio repository of genomic clinical and other data, which we plan to use in the development of future tests, including those that can help diagnose or predict lung cancer at its earliest stages. It's the law.
Cancer initiative at Johnson <unk> Johnson has stated that one of its key goals is to intercept lung cancer before it can even develop and through the noble trial. We are excited to help advance this vision.
Also in Pulmonology, we are on track to commercially launch aren't busy of classifier on the encounter analysis system. So that we can make it available to physicians and their patients in global markets through laboratories that will run the test locally.
This will be the first of our advanced genomic tests that we add to the encounter as we advance our vision of offering a comprehensive menu on the fully automated instrument.
The Pan plan to complete development of our nasal swab test on the encounter in 2022 following its launch in our CLIA lab in the United States. This year and will begin to transition it as part of a broader portfolio to the instrument shortly afterwards.
Pending the close of our acquisition of decipher a key priority will be for us to secure a final Medicare coverage policy for the decipher bladder test and then expand its commercialization into the 320 million bladder cancer market.
The test is intended to provide physicians with previously unavailable information.
About which patients with localized breast bladder cancer may benefit for more intensive treatment for example in patients with muscle invasive bladder cancer. It will help determine which patients will better respond to neo adjuvant chemotherapy prior to bladder removal surgery.
Keith.
The test is the only genomic subtyping tool that we are aware of for physicians in the United States training patients with locally advanced bladder cancer and has it been issued a draft local coverage determination or LCD by CMS for Medicare reimbursement.
I will now turn the call over to Keith for a more detailed review of our fourth quarter and full year 'twenty 'twenty financials.
Thank you Bonnie.
The referred to our business and financial presentation, which Tracy mentioned earlier, and which is available on our website.
In her prepared remarks, Bonnie covers the list of Q4 2020 key highlights for.
Key takeaways illustrated on slide three.
Well as content on slides four and five.
I would refer you to slide six where the table and footnotes shown here along with the details in our SEC filings further explain how we recognize and report revenue under U S. GAAP.
For discussion purposes, we may combine testing and product revenue to describe our diagnostic testing business.
And Biopharma and collaboration revenue to describe our strategic arrangements.
As a reminder, net sales of data or other services to our customers are classified under biopharmaceutical revenue.
And all other non customer revenue are classified under collaboration revenue in our consolidated statements of operations and comprehensive loss.
Post close we expect to include the ciphers test and testing services.
Turning to slide seven we generated 20, 'twenty revenue of $117 $5 million.
Despite the impact of COVID-19, our testing and product business grew 3%.
Pending the completion of the acquisition of decipher Biosciences, which is assumed to occur by April of <unk> 'twenty 'twenty one.
We expect total combined revenue in 'twenty 'twenty, one to be approximately $190 million to $200 million.
Representing growth of approximately 65% over 2020 at the midpoint of the range.
Turning to slide eight we present, our quarterly revenue results to show that the business of has proven resilient through the global pandemic and that the U shape recovery appears to be playing out.
Slide nine shows our performance against six key performance indicators or Kpis for the fourth quarter and full year 2020 compared to the prior year period.
Our revenue gross margins cash flow and volume recovered nicely off the second quarter lows that were driven by the onset of the global pandemic.
As illustrated in the far right column are for quarter 2020 total revenue for total volume of excuse me of 13130 test increased 14% relative to the prior year.
Our fourth quarter total volume included 11221 reported genomic test.
In 1909 distributed test.
Genomic test volume of 11221 included.
10370 Afirma.
572%.
And to earn 79, and Vizio test, representing 3% growth over the prior year period.
10% sequential growth.
Our fourth quarter product volume of 1909, Prosigna test rep.
Represents 181% growth over the prior year period, and 32% sequential growth.
Slide 10 digs a level deeper into total revenue breaking down revenue into testing product in biopharma and collaboration revenue.
The results of shown against the prior year period.
Compared to the fourth quarter of 2019.
Our fourth quarter 2020 revenue grew 16%.
Comprised of 10% growth in testing services, almost 200% growth in our product business and 37% growth in our Biopharma and collaboration revenue.
Testing revenue of $31 5 million includes $2 1 million in Cytopathology services.
For the fourth quarter and full year 2020 average testing and product revenue per reported test was approximately 25 or $2600 and $2500 respectively.
Slides 11, and 12 provide revenue trends sequential and year over year slide.
Slide 13, and 14 provide volume trends also on the sequential and year over year basis.
Slide 15 shows our cost of revenue in absolute dollars as well as our gross margins with and without Biopharma and collaboration revenue.
The remaining slides 16 to 19 showed trends in our operating expenses net loss cash flow and cash balances.
Despite the peak in COVID-19 cases and deaths in January.
Our total genomic tests and product volumes increased approximately 4% over January of 2020 total volumes.
Starting February 12th Winter storm, Yuri of major coast to coast storms spread snowfall and damaging eyes for in the northwest into the South Midwest and northeast, we continue to monitor and take steps to help our customers deal with logistical issues.
Which we expect to persist persist throughout this week.
As Bonnie mentioned, we expect to close the decipher acquisition on or before April one.
In summary, we announced the acquisition on February 3rd and followed that announcement with an equity raise of approximately $594 million.
Which increased our cash balance to over $930 million.
We expect of US 600 million to fund the acquisition and up to $15 million and transaction expenses.
The transaction, which has been unanimously approved by various sort of its board of directors and by an independent of special Committee appointed by the Decipher Biosciences Board of directors.
Is expected to close on or before April one 2021 subject to regulatory approval and the satisfaction of other customary conditions.
We expect the acquisition to accelerate our revenue growth and pathway to profitability. Despite.
Despite the impact of COVID-19 based on the savers preliminary 2020 revenue of $39 million to $40 million the company generated over 130% topline growth compared to the prior year period.
We expect the acquisition of the gross margin accretive and based on preliminary results decipher reported positive operating cash flow for 2020.
I will now turn the call back over to Bonnie.
Thanks, Keith turning to the beginning of the presentation that Keith reviewed slide three lays out the key takeaways from our prepared remarks all.
The next point point, you to slide for which showcases our strategic growth pathway and demonstrates how the various facets of our business all fit so well together the slot.
I'll show. It also shows the key role we believes decipher will play in advancing our business.
Looking ahead, we believe <unk> 'twenty 'twenty, one is going to be another transformative year for various site as we integrate the cipher launch multiple new products and build out of our vision of offering a comprehensive menu of tests, along the care of continuum in cancer and other diseases for physicians and their.
Patients around the world.
We believe our new general management based structure, along with key new hires that will further strengthen our marketing team will help drive strong growth across our products in 2021.
Upon finalizing our acquisition of decipher will focus on ensuring a smooth transition of integration into our business with Dr. Tina Nova to say first president and CEO remaining at the helm as our new G M of Urologic cancers.
As I mentioned earlier, we are going for the.
Our full year 'twenty 'twenty, one total revenue of approximately of $190 million to $200 million. This anticipates three quarters of revenue from deciphered prostate cancer franchise.
And reflects our expectations of continued strong momentum with afirma in thyroid cancer and per segment in breast cancer, we expect our pulmonology business to further recover as the Covid vaccine rollout result in hospitals increasingly performing bronchoscopy.
With three Pulmonology products scheduled to launch this year, along with the anticipated near term opportunity in the large untapped bladder cancer market, we intend to re prioritize our work in the smaller lymphoma market to focus solely on our lymph mark efforts with a third to pharma in 2021.
We will revisit plans to bring forward of Standalone test at a later point in time, perhaps.
Against this backdrop I'll refer you to slide five in our and which we highlight the key catalysts that we believe will drive our business in 2021.
These catalysts fall into three key areas of focus product launches reimbursement expansion and evidence development for.
First is product launches.
In 2021, we expect to launch our Afirma Xa make it available for use on advanced or metastatic favorite cancer that is radioactive iodine refractory advanced fiber and cancer is one of the many solid tumor indications where tyrosine kinase inhibitors have demonstrated the ability to.
Prove progression free disease survival now our Afirma xa will be validated to provide comprehensive comprehensive gene alteration profiling for these metastatic cells collected from the fibroid bed head and neck masses and lymph nodes.
Additionally, we will continue to liaise with Kols in lung cancer, and I L. DS as we prepare to introduce our new lung cancer portfolio of products and the envisaged test in Europe and expect to similarly prepare the market for the planned expanded commercialization of the decipher bladder.
For test in mid 2021.
Our second catalyst is reimbursement expansion.
In addition to expectations for Medicare coverage for the site for bladder test in 'twenty and 'twenty. One we will focus on securing commercial coverage decisions for our Pulmonology tests, the percept of GSE and the envisaged genomic classifier on the back of recent compelling published evidence demonstrating our tests.
Nickel utility.
And third is evidence development, we plan to continue to continue adding to the growing body of clinical evidence supporting each of our tests.
We will unveil clinical validation data for our nasal swab test and analytical validation of paid up for our of perceptive of genomic Atlas respectively. Prior to their launches later this year. Additionally, you actually expect to see data demonstrating the envisage of classifiers ability to.
Living results on the end kind of analysis system that are comparable to those in our CLIA lab prior to the test's introduction on the instrument to labs in international markets.
Wrapping up we are excited to close our acquisition of decipher, which will fully solidify our global diagnostics leadership in cancer and other diseases, while accelerating revenue growth we.
We believe we are uniquely positioned to offer the most breadth and depth and genomic different driven testing in cancer and other diseases for patients everywhere at every step in their journey.
And with over 300 million in the bank after the anticipated close of hard to say for acquisition, we have significant strategic flexibility for advancing our company's long term profitable growth.
I'd like to finish today by thanking all of our employees for their hard work focus and perseverance during a year that through curve balls at all of us.
Despite challenges from the pandemic, we made incredible progress in our business and I could not be prouder of our team or more confident in our strategic vision and our ability to execute on it.
And with that I will now ask Alex to open the call up for questions.
Either of them.
Ask a question you will need to pass for one on your telephone again that is Taiwan on the chart.
On the phone.
Your first question comes from the line of Bonnie.
The solid off from SBB Leerink. Your line is now open.
Yeah, Hi, Bonnie.
Keith Thanks for taking the questions.
So the first one I have here is on the guide.
I just wanted to clarify and maybe I think it's just a matter of clarification that I mean, you are projecting 195 million of the midpoint of the guide you just did $117 5 million.
If we look at what the cipher did and we look at.
$39 million that they just did an.
Take the pro forma number for the year of about 157 in my calculation.
We're looking at about a 25%.
Pro forma increase here for our group.
Both here for the combined the company that.
That is a bit lower than the projected 30% CAGR of that you've had in the past and maybe it's just a function of not including the first quarter, but I just wanted to clarify that point.
Get a clarification where the.
That delta is coming for them.
Yes, I think you're right, we're assuming in our guidance that we closed the acquisition on April one.
And their results are for three quarters not for.
But I can walk you I can walk you through how I get.
We're giving type of the topline guidance, but for those of building a model. We typically all of the analyst of looked at sort of volume of times price to get the revenue.
So not to be indicative of guidance, but let me given that we're gonna of pro forma this end.
Starting April 1st in terms of models, let me walk you through sort of how to get to the midpoint of the 65% growth.
Again this could any one of these parts move around so we're only gotten the topline, but this will help with the modeling exercise.
All of pharma.
If we have if we did 33787 test in 2020.
If we go to 41000 tests in 'twenty and 'twenty one.
It's 21% growth in volume.
Our price is around 2600 in 2020.
Per test so I'm looking at revenue for Afirma divided by volume so.
It's 2600 for 2020.
We achieved $2700.
Per reported test some of it.
The 2700 times 41000 test, we get a little just around the $111 million on Afirma.
Our cytopathology, we think that'll be flat.
Around $77 5 million from 'twenty to 'twenty to 'twenty and 'twenty one.
On the long portfolio.
We did 3614 tests in 2020.
And as you all are seeing the loan portfolio.
During the Covid right now there's less procedures on there so were flat on our volume and do 3700, and I think that'll ramp up throughout the year as vaccines.
Come in come into I think we're at.
You know like 60 70 million people of vaccinated at this point. So we got we have of ways to go but if we can get the 3700 long test.
We did in 2020, we did about $2000 on a blended revenue per test on long.
For something and Vizio.
We know the 20 to 80 $22 85.
And on long products on the combined basis.
We'll achieve about eight and a half million of revenue on long.
And then decipher.
We're expecting that they'll do around 19000, the 19005 hundreds of watts.
19250 test at.
The $2500 per test.
That's about $48 million for the three quarters starting in Q2.
So that should get you to testing of around $175 million.
So that should be about 71% growth over the prior year.
Our product business.
We did about 7088 test in 2020.
So we are doing 9200 tests.
In 'twenty and 'twenty, one that's 30% growth in that business on the volume basis.
And on the price per test, we average about 13 89 1389 in 2020.
So if you just go flat at 13 90 per test of 1390 per test.
Should get us to about.
$13 million.
And revenue that's of 30% growth for that business.
And then our SAR testing and product.
We should go from 44489 test in 2020.
The 73000 about 150 test.
The vs around 64% growth.
And our average price per test should go from around 2500, So I'd say $25 60.
So it's a slight 2% increase in pricing.
We obviously work on that and hopefully we can do better, but that's the sort of where you get to the midpoint.
So that takes your revenue from 111 of hung about $112 million.
In 2022 of 180 $788 million.
So it gets you the 68% growth.
And testing and product.
And on the Biopharma and collaboration side.
We recognized $5 7 million in 2020.
And we would expect that number at the midpoint the around $6 million.
Or 6% growth.
Again, that's of nonrecurring typically business for us.
I would say that we would have Jay that 6 million includes 4 million from the achievement of the milestone of the nasal swab and the CLIA transfer of the.
That technology, so that'd be a price.
Put that in the fourth quarter.
But sort of happened in the second half of the year, but I'd put that in the fourth quarter and then for easy of noble.
The combined call that $500000 per quarter of revenue for $2 million for the year. So it gets you the $6 million.
So in total.
It goes from $117 5 million of revenue in 2020.
Two of $193.6 million.
At the midpoint in 2021 for <unk>.
$76 million increase in revenue and the 65 per cent V. Two of the prior year. So that should get you to the midpoint of how we think about it.
Is that helpful.
Yes.
Super helpful.
Gonna have to read the transcript after this.
That's the most of the detailed.
Not too many of my questions.
No I really appreciate it.
That's the most.
Detailed the diagnostic CFO answer but.
But this is a great. Thanks for clarifying all of that and I really don't have any questions beyond that except that just if I could just.
One broad question is to you know as you shifted towards and counter Hum.
Could you give us a sense of you know what.
Sort of how many of them how many of the tests of truly shifted to encounter and sort of you know.
How that progression is going to play out throughout 2021. Thank you so much.
Yeah right now the only second test the <unk> planned to be introduced in the in kind of this year is the amphitheater tests at the very end of the year.
And then you know we're going to be taking a look at how we line up to accelerate menu expansion on the encounter, especially what's hard to say for acquisition prostate cancer is an important testing area around the world and of the thesis of of that whole strategy is building menu and.
So we'll keep you posted on what the future plans look like thank you. Thanks for joining thank you Bonnie.
Your next question comes from the line of Brian Weinstein from William Blair. Your line is now open.
Hey, guys. Thanks for taking the questions.
Brian So joining Brian of course.
So just one question is the follow up to the.
So the so Reuben just there from Uh Huh Keith.
I'd just say for.
I thought the asps kind of trending closer to 2800 in the fourth quarter there.
Because of it.
I think I heard you say 2500 for all of next year.
The assumption wrong on the 28 in the fourth quarter and if it's not we just being conservative there.
Well they have they recognize they're not up the full reimbursement journey that we are with the history. So you know a little bit over half of their revenue is accrued and the other half is based on cash collections and that can be lumpy, sometimes when you're looking at one quarter.
I'm sorry, you know on a blended basis, that's what it works out.
Okay got it okay.
And then.
Also on.
The guidance I didn't do anything just to make sure nothing really from new product contribution. Obviously these things are coming at the end of the year, but theres really nothing kind of factored in for for days of risk for Nvidia.
And counter.
Getting.
For some of that there's nothing really in the right. That's the we're expecting to get lined up to get of Medicare coverage decision and as you know that takes a while so yeah. We we don't point to a share of revenue in the first air products introduced if that changes throughout the year, we'll update you yeah, yeah, Okay, and then as the broader question.
And then.
You put the GM strategy in place now can you just talk a little bit more about how you think that helps drive revenue and could you. Please also review kind of the sales and marketing structure. That's now in place.
And what your plans are for that sales and marketing structure over the next year.
Yeah, we in November we announced the restructuring of sales and marketing of managed care and then lining up some of the operational support functions underneath that by clinical indications. So what it's going to do for us is bringing focus to the two mature products, where the market end and reimbursement is already.
The in place lining up our endocrinology and breast cancer business under one G. M that include sales marketing managed care support services et cetera, and then pulling all of our Pulmonology programs under one G. M. For the same reason going a really deep and clinical understanding and are building the relationship with Pulmonologists.
Which will be the call point for the entire portfolio that team of course has the challenge of launching three new products of share our nasal swab test our percept of genomic Atlas and of course Symphysion encounter. So we have a lot of investment going into that area, but we wanted to put a team together that would have ultimate folk.
<unk> in Pulmonology, we think that's the right way to do that I mean early on we had that with Afirma because it was our only product range and we could get the leverage across three indications, but when we got to five it and quite frankly, we needed to do something to bring that focus back which is what we've done and with the acquisition of the site.
For end of this new structure its works perfectly because the doctor Tina Nova is going to stay on and be the jam for Urologic cancer. So we now have the business set up in the way that we can drive both focus and growth with this new structure.
Yeah, Okay, great. Thank you guys. So much for taking the questions. Thank you Brian.
Next question is for all the songs.
Your line is now open.
Hi, Thanks for taking the questions I just have a couple of clarification questions.
On the prostate cancer of the besides for coffee expanded Medicare indication is that the the LCD that wage effects of last year at the end of last year or is that something new.
They didn't get an expanded indication towards the end of last year for sure and there are a couple of new expanded indications going through the share a smaller opportunities to get coverage and then the the bigger decision. The share of course will be on the bladder cancer test, which already has the draft and we.
Expect to get to final later this year.
Gotcha.
And then just on the receptor and then VP of commercial coverage expansion.
Next year are of this year I guess.
Just given the you know the headwinds on the Pulmonology franchise.
Franchise last year, just kind of curious what would be driving the.
The expanded commercial coverage.
Of all the new data, it's all of the new evidence of it came out showing really great clinical utility and even though the pulmonology suites have been somewhat suppressed.
Suppressed in terms of the number of patients. They can put three of those suites, obviously theres still a lot of interest in the data continues to emerge and it's really the data that will drive the coverage decisions.
Okay.
Thank you that's it for me. Thank you you bet. Thank you.
Next question is from to have for von <unk> from Morgan Stanley. Your line is now open.
As you go on for.
Thank you for taking my question could you talk about the cadence of commercial channels.
The prepare for nasal ruskin other launches, including bladder cancer.
Sure.
At what point would you begin to scale up of investment to expand the sales force for encounter.
Or should we expect that to be out of 'twenty two event that'll.
That'll be of 22, and 'twenty three of them and we will be have already begun some of the market shaping activities in Europe for the launch of the expanded menu on encounter but much of the early access is gonna be sites that have already made the investment in the instrument and we're bringing the menu.
To them, which is a great way to having the intro into.
Into that market as we bring more menu onto the encounter of that's the point when we will start to accelerate the expansion of installed base.
But it's really not prudent to do that too quickly still with just one or two of menu items on the encounter. So that's how that'll work and we really have built into our plans for the year and Keith can kind of give you a little bit of an indication around that.
The a relative.
A modest increase because the test being launched is typically taken to the market and in pilot fashion and are until we get Medicare coverage, we won't really accelerate the efforts around driving growth. That's always the way we've done this with this new the.
With this type of business and with the bladder, it's it's sort of unique because what we love about the ciphers Urologic cancer franchise is its all of the same call point.
So they will be and again to accelerate on the back of a final Medicare coverage decision that comes later this year with the same sales team and the same physician client so you'll get a lot of leverage there kind of like we do in Pulmonology. So Keith do you want to give a little bit of indication on how the spend is.
To go through the air Yes. So we you know the first quarter is typically for people that are new the story is our slowest quarter.
Premiums reset of people tend to go get procedures done at the end of the year.
He had COVID-19 cases, and things, peaking in the first part of weird weather here. So we probably do you know we did $31 million last year through January I was saying we were slightly up two two last year of February last year, we had a really good month March we had a really good month so.
Well, we do 31 $32 million in the first quarter, we do decide for in the second quarter that adds build generally have a 10% pop in our business from Q1. The Q2 relatively flat Q2 to Q3, and then we usually get the 10% increase as you saw this past quarter from Q3 of the Q4. So we will have seasonality in the.
In terms of sales and marketing we were around excluding decided for around 115 people in the field.
For U S and international we got about 14 people internationally 15 people internationally, we will build that.
We've been between 35, 40% of revenue on sales and marketing costs and so we liked the we you know we're targeting long term 35 per cent of revenue.
Ciphers around that number as well so.
So we would like to stay.
Even though we're launching multiple products sub 50, and then scale back down to 35 per cent of revenue all of it.
Sales and marketing so that's how we sort of think about it.
We burned.
Less than $10 million of cash in 2020, we generated positive cash flow of $4 million in the second half of the year. So the first half of the year's worth of the burn as we generally of our burn in the first quarter of those burn in the second quarter net of mill rates and it gets less and then we pick up in the third and fourth quarter.
We expect similar trends this year, we will I of transaction expenses around the deal I said up to $15 million. So I will come back and identify that separately when we file and tell you, where that's where the expenses heading in our financial statements.
And then.
When we spend 600 million of acquire of this business the <unk>.
GAAP accounting is any of their stock is accelerating so any ex.
Expense associated with the acceleration of it wasn't contemplated in anticipation of the deal we will have to book that expense into our financial statements on day, one but that will be part of the 600 million. So some of the 600 million or the majority of that will actually get capitalized on.
Our financial statements, but a portion of that will hit is a P&L expense for the acceleration of stock we have not gotten of what that number is but when we do we will we will highlight that number when we close the transaction.
Thank you that was the Super helpful and then just.
A quick one.
The question.
Let's think about the progress around the finalization of algorithm for it.
I know you mentioned the second half launch.
Validation data on the finalized algorithm and the <unk>.
Time frame.
Yeah that will come out in advance of the launch of the product for sure. There's a lot of analytical work and assay optimization and testing that has to happen once we lock the classifier.
To prepare the laboratory and show the robustness in the assay in advance of unlocking the validation data that usually happens you know kind of the last testing that is done before we wrap up and then our go to market, but at this point. We are you know you develop a tremendous comp.
In the space on all of the data and all of the subtype analysis that you look at and so you know we're in the mode now of law and verification testing of moving toward that launch.
Okay. Thank you.
You bet. Thank you.
Next question is from Thomas Flaten from Neil.
Sweet capital your line is now open.
Afternoon, guys. Thanks for taking the questions.
Just a quick clarification on the site for field team I know there was the plan in place there too.
About a third to that field force is that is that the plan is still a go or is that on hold pending the integration.
No. We we actually aren't we're in agreement to go head of Nat I think it was an addition of maybe five additional hires coming into this year and that's lined up to our plan for the the bladder tests coverage decision as well so that'll happen, but it's relatively modest when you.
[noise] Center.
And then Keith is there are there potential for synergies in the middle of the P&L, maybe most specifically the G&A line or is this should we just think about stapling the numbers on onto yours.
Preliminary step from a modeling perspective.
Yeah, I'd staple the numbers on the running really well and lean.
As a private company and we're focused on helping them remain successful in accelerating their volume and you have no plan to starve the business or make any changes that would there would risk of that.
And then just one final one with respect to the to the U shaped recovery I think that's kind of panned out really well, particularly on the afirma side in a few quarters ahead of where we thought it might be a could you give us some more color around what youre seeing with respect of the Pulmonology suites.
Go slow or the relatively speaking are they providing any intelligence to your field team of about wind volumes might recover its oh, yeah. All of our field teams plugged in Ah I can tell you there's been a ton of our interaction medical education everything like that has continued to unfold.
The challenge is that first these pulmonologists are the same pulmonologists that are caring for COVID-19 patients. So you know and I see is the segregated in the in the wards and you know all of that as Keith pointed out in his prepared remarks January was a really high infection rate. So.
Pulmonologists have been yanked in to help with the pandemic because that is their specialty. So that's part of it and then the second part of it is until patients get vaccinated theres still an uncomfortable going into a hospital and undergoing a procedure to get.
Worked up for either of our early detection of nodules and there's less screening going on to find those nodules are just like there is less mamograms going on defined breast cancer patients right. So it's kind of the downhill effect of just the overall impact of the pandemic.
The reason our Afirma business rebounded.
Quicker, which is what we anticipated by the way is because about half of that market is in the community Doctor office market and those doctors quickly maneuvered to not put patients into the waiting room to set them up with text messages. So they can wait in their car come in one of the time and even though volume going through.
Of the Doctor's office still isn't what it may have been a couple of years ago. The doctor's maneuvered around the safety factors and got back to business and seeing patients. So we think the the pulmonology products will rebound.
I you know affirm I kind of was ahead of ahead of the curve and at the Palm products are about where we thought they would be with the yield curve. So no big surprises there.
I appreciate that thanks, so much guys.
Yep.
Next question is from Mike Matson from the <unk> Company. Your line is now open.
Hi, Thanks for taking my questions I guess I, just I appreciated the comments on the kind of Opex outlook, but I was wondering if you could maybe comment on gross margin outlook for 2021.
It sounds like you're expecting a little bit of of.
Benefit there from the safer.
Yes.
We are targeting 64% to 66% gross margins as we layer in products.
Okay. Thanks, and then.
From a share count perspective post the slate it's stock offering.
It seems like it should be around 66 million approximately but foundry.
And we had 58 million and I think.
I think we issued eight 5 million.
Okay.
Yeah.
Alright, that's all I have thank you. Thank you.
Next question is from the Sandy Draper of home Trust Securities. Your line is now open.
Thank you so much not of I'm not a whole lot left to ask here.
Quick ones on the unearned counter I think Keith.
Got it.
Are you per cent growth.
I was just trying to be clearly you guys have turned that around and going well.
Mostly just over half of the comps or maybe talk to what you do.
Doing is driving that business because right now you're not expanding the Tam of panel.
The getting better and then the second follow up probably for the Bonnie.
The comment is like.
The cipher.
The reshuffling your thoughts on what the next one or two products are on the encounter.
Am I reading that right now not expecting to show me the card, but just think of it sounded like you were suggesting.
Two more areas youre going to sort of rethink the strategy of what's next.
Yeah, I mean, yeah. Thanks for the question first of all Yeah per Cigna has gone very well I think in our hands. The team is just highly focused we've got a lot of good clinical support people and you know dedication and and now a very well trained team leading it.
There has been some great data come out of them per segment of the last year. We've made a few really great hires, especially in Europe to.
The lead new market segments and businesses as country managers and we just got of Germany coverage decision on which is really going to feel of some nice saw light into that as well. So we're seeing the per segment business goes you know really strong we're very very pleased with that under under our attention and then yeah I think when you're sick.
Sitting here with a portfolio of tests of the address seven of the 10 top cancer of spy incident. It makes sense to rethink what is the best priority of moving tests onto the encounter and I think what we'll be doing is maybe thinking out of the box and how we might be able to accelerate that.
On the road and we've had a very good success re.
Sort of optimizing the envisaged a classifier the test the assay and the algorithm onto the end kind of a platform. It's gone extremely well. So we think that we're in a position to maybe accelerate some of those over over the next few years it won't happen overnight, but prostates obviously of.
A really big market to go after if we end up with breast cancer prostate cancer lung cancer, our I P. F. I mean that that begins to build on the menu that you can take anywhere in the world.
Yes.
You bet. Thank you.
Your last question comes from the line of Paul Knight from Keybanc. Your line is now open.
Hey, guys.
And last question, but I promise it will be pretty good.
The.
[laughter].
You know the calendar of historically was good at taking less volatile moves.
Delivering good resilience or use the increased sensitivity and specificity the with the in calendar of at this juncture.
It's a fantastic designed instrument and I think that.
The the elements that make it a really really great design to do what we're doing for using it as a distributor platform for building menu for global markets is the the sophistication of the technology being able to measure of protein DNA RNA being able to put 800 features of genomic content.
Turn into it given the task that capability is is a rich yeah. The complexity is built into the cartridge design and the instrument itself is very simple and that combination made it really ideal for us. So loved the platform are we love.
Being able to be in a position now to build out menu and achieve what our vision was a just a couple of short years ago and it's now underway.
Yeah, and then is there any change in the cadence in the schedule.
Yeah.
LTV.
CMS meetings and their coverage decisions.
Based on Covid era and structural changes.
Sure.
We've maintained a pretty good at pretty good process.
You know, it's pretty clear now what day to they want what to put into your technical assessment I mean, we've been through the site now numerous times so.
So we're gonna be lining up with the new products coming to market trying to accelerate getting the submission of the publications that are needed and then getting those publications out. So the day can be submitted as part of the technical dossier and multi ex and that's a real priority and in fact, we have some corporate goal.
<unk> built around that effort, because it's not just getting the product to market and getting getting the evidence published so that it can be used to accelerate Medicare coverage and then on the back of Medicare coverage is when we can expand volume growth and get the revenue resulting from that.
Thank you.
Alright, thank you.
You don't have any more questions at this time for centuries.
You can go of having close the call.
Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now all disconnect.
Yeah.
[music].
Okay.