Q2 2021 Veracyte Inc Earnings Call
Good afternoon, ladies and gentlemen, thank you for standing by and welcome to the various line.
Second quarter 2000 of 21.5.
Financial results conference call at this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question. During the session you will need the press star 1 on your telephone.
Please be advised that today's conference is being reported if you require any further assistance. Please press star.
Zero I would now like to hand, the conference over to your Speaker Ms. Tracy Morris Variscite, Vice President of corporate Communications and Investor Relations. Please go ahead.
Thank you Shelly good afternoon, everyone and thanks for joining us today for a discussion of our second quarter 2021 financial results.
With me today are mark stuff leave their sites, the Chief Executive Officer, Rebecca Chambers, our Chief Financial Officer, and Bonnie Anderson, our executive chairwoman.
So the issued a press release earlier this afternoon detailing our second quarter financial results. This news release, along with the business and financial presentation are available in the Investor Relations section.
<unk> of our website at their site Dot com.
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 are subject to risks and uncertainties and the company can give no assurance that they will prove to be correct. Further we are not under any.
Obligation to further to provide further updates on our business trends or our performance during the quarter to better understand the risks and uncertainties that could cause actual results to differ we refer you to the documents of parasite filed with the Securities and Exchange Commission, including various sites. Most recent forms 10-Q and 10-K.
I'll now.
Now I'll turn the call over to Marc Stapley various sites the CEO.
Thank you Tracy and thanks, everyone for joining us today.
Before jumping into our strong quarterly results I would like to acknowledge and thank all of our outgoing CEO of incoming executive chairwoman Bonnie Anderson.
Jim.
Bonnie group of aside from just the concept into.
The global genomic diagnostics company with the remarkable track record for bringing highly differentiated and clinically impactful tests to market that improve outcomes of patients all over the world at every step of the journey.
I have enjoyed working closely with Bonnie over the last few months.
Very excited to continue to partner with her on the team to grow Veritas.
Into a global cancer diagnostics leader.
This has been a very encouraging first quarter for me.
Our team delivered outstanding growth as we continue to execute on our compelling strategic vision.
We reported second quarter revenue of $55.1 million.
An increase of 166% overall.
The prior years and 50% sequentially.
Our total genomic volume at approximately 21000 tests was up 215% compared to the same period last year and up 44% sequentially.
This impressive outcome was driven primarily by our urology and Fireeye businesses were.
Maritime commercial execution was bolstered by increased access to our physician customers.
We believe that our accomplishments during Q2 set us up nicely for the second half of 2021 of them beyond.
I would like to share an update on our progress during the quarter to drive commercial growth.
Evidence development pipeline advancement on globally.
Expansion, including the integration of the decipher Enhalo Dx businesses.
These are key areas. The we are focused on as we build 1 global company under the <unk> brand.
Beginning with commercial growth and specifically the afirma on our commercialization efforts of centered on driving this product to become the standard of care of in thyroid cancer.
Diagnosis.
We estimate that the test has helped over 100000 patients avoid unnecessary thyroid surgery since its introduction in 2011.
We continued to see strong afirma testing growth in Q2, with an approximately 120% revenue increase year over year as the business recovered relatively quickly from the pandemic.
<unk> effects and of nearly 10% sequential increase driven by customer growth from patient engagement.
Adoption of the decipher prostate test has been propelled by new Medicare coverage decisions received in late 2020.
These managed care wins led in part to decipher prostate revenue of more than $18 million in the quarter of.
A record for this product line. Additionally.
Additionally, in late Q2, we signed the new contract with a major national Health plan to make the decipher prostate test and in network covered benefit for eligible patients among the plans of approximately 20 million members nationwide.
Our Pulmonology business also gained momentum in Q2, we added the.
The number of new accounts, including several large institutions for the envisaged genomic classifier, which is used to improve diagnosis of interstitial lung disease, including idiopathic pulmonary fibrosis.
It's up to testing continues to recover although more slowly with our physicians still performing fewer lung cancer diagnostic bronchoscopy is from prior.
COVID-19 pandemic.
Our prosigna breast cancer business continues to improve as well we were pleased that Germany recently began reimbursing for price Cigna and are optimistic the other EU countries will similarly adopt coverage policies.
The test reports of intrinsic breast cancer subtypes in the EU, which can.
So the current form treatment decision, making additionally.
Additionally, its ability to be performed locally means laboratory was do not need to send the patient samples of overseas.
While our next strategic growth driver is evidence development, where we also made significant progress across our portfolio of products highlights include the presentation of 5 and visa abstracts at the <unk>.
Further up the Arctic society or a T S.
Annual meeting in May from prominent institution, such as UCLA.
Of these abstracts demonstrated the test performance on clinical utility, while also reflecting the test growing traction among institutional lung disease of ILD fault leaders.
At the Astro meeting researches shed.
America day, 2 on the decides of prostate test further demonstrating the this prognostic information can help physicians tailor the treatment decisions for men with prostate cancer.
These included an oral presentation, describing findings from the ongoing prospective <unk> study results confirm that our test predicts aggressive prostate cancer better than standard clinical risk factors and.
With the same accuracy in African American men as non African American men.
This is an important finding given previous data has shown African American men to be more susceptible to aggressive forms of the disease.
Additionally in July of retrospective analysis of patients in the spot in the study was published in Jama oncology, suggesting that the size of the prostate test.
Test can identify those patients with locally advanced prostate cancer, who are most likely to benefit from our <unk>. Our second generation of androgen receptor signaling inhibitor. In addition to androgen deprivation therapy of IDT.
This is the population which consists of an estimated 165000 men worldwide for whom physicians.
<unk> of previously liked the genomic biomarkers.
The decides of prostate genomic classifier is currently being investigated in 7 of NCI sponsored phase III prospective randomized controlled clinical trials as well as 13 additional prospective trials many of which required the site for prostate testing for the study inclusion.
This prominence in clinical trials is driven by the quality of the to the site for prostate test on the massive amount of genomic data, we collect on every sample and a grid by a repository.
Moving to activities to advance our pipeline of third strategic growth driver. We made good progress in the quarter and remain focused on the launch of key new products.
We are very excited to soon launch of Vascepa, the nasal swab tests to improve the early assessment of lung cancer. As we believe this is the large unserved market.
Today physicians lack of objective tools to confidently guide caf of patients with suspicious lung nodules. We were very pleased to present pivotal multicenter clinical validation.
<unk> data at the Astro meeting in June showing that our noninvasive perceptive nasal swab test will enable doctors to tell their patients with suspicious lung nodules that they are low risk for cancer and can likely avoid for the World Cup with very high certainty that they have not missed the cancer.
At the same time physicians could be confident in guiding patients who of high.
Cancer to further diagnostic procedures, while those classified as intermediate risk will remain a candidate for current standard of care.
We believe this test has the potential to be a game changer in lung cancer early detection, particularly among the approximately 15 million people in the U S who are now eligible for annual screening.
We plan to begin making the perceptive.
The nasal swab test available to a limited number of sites in the fourth quarter, which will enable us to assemble the data needed to secure Medicare and private payer coverage, which we believe will be grown to 12 months to 24 months post launch.
Another key product in our pipeline is the subset of genomic Atlas, which is intended to help physicians make informed treatment decisions.
The risks for the approximately 350000 patients eligible for comprehensive genomic profiling each year.
At the recent Ats and <unk> meetings, we presented data demonstrating that this test accurately detect non lung cancer gene variants using the same small biopsy samples of the used for diagnosis.
This ability can simplify the.
Of the physician's workflow and accelerate time to appropriate treatment compared to all of the genomic profiling test, which use samples of quiet post diagnosis.
We plan to finalize the perceptive genomic Atlas in our CLIA lab by the end of the year with the commercial loans shortly thereafter, and anticipate receiving Medicare and commercial coverage of this test within 6 to 12 months.
<unk> loans.
We will offer up the subs genomic Atlas as part of our comprehensive lung cancer portfolio, which will also include the nasal swab and genomic sequencing classifier.
Our next new product, it's the decipher bladder test the genomic subtyping tool that helps physicians manage treatment decisions for patients with bladder cancer.
We recently received.
Final Medicare coverage policies through the multi ex program, including from Meridian Health care solutions, which administers Medicare payments for all clear lab.
This decision ensures decipher bladder as a covered benefit for the nation's more than 62 million Medicare beneficiaries.
In the United States more than 80000 individuals of diagnose.
Diagnosed with bladder cancer annually, approximately 44000 of which will have the type of disease indicated and these policies.
The test is available to order and we plan to methodically drive the commercial loans during the third quarter now the Medicare reimbursement is fully in place.
We're also working on the <unk> genomic classifier enabled.
Counter instrument for use in international markets.
We unveiled data of the Ats meeting showing the clinical performance of the classifier currently running on a clear lab on the RNA sequencing platform is maintained when the test is adapted for the encounter analysis system.
Given our pending Halo Dx acquisition, we are revisiting our rig counts on launch priorities.
Focusing first on the manufacturing transition while in parallel we begin to advance all of the future products such as the perception of nasal swab and decipher prostate test in the same way that we have advanced Nvidia.
As you know, we believe that our Halo Dx acquisition on our key management hires have solidified the foundation for scaling our business globally.
On the Eng with Halo Dx, we expect the gain the IBD test development and manufacturing operations in Europe, giving us the end to end control of our IBD product business.
Further with the addition of the immuno school of colon cancer test, we will expand our scientific expertise into the emerging immuno oncology field as well as our reach into 8 of the top 10, Kansas as defined by.
The incidents.
He is leading the acquisition of the team has been diligently working on the integration planning, which is progressing well we look forward to soon welcoming the talented halo of Dx team to the <unk> family.
We also made key hires to further strengthen our executive leadership team and positioned the company to scale globally.
Rebecca.
The U S has joined US this month, the CFO, Rob brain and the CBO and builds on the CIO.
With these key of appointments augmenting the existing talented executive leadership team and the addition of the experienced leaders from Halo Dx, we of prime to advance our exciting global strategic vision.
We are building a leading global diagnostics.
The company the transform care at every step of the patient's journey from the early detection of cancer and other diseases to diagnosis and treatment.
With our strong second quarter results, we are well on our way.
I'll now turn the call over to Rebecca to provide a detailed overview of our results.
Thanks, Mark as Mark mentioned, we are very pleased with our second.
The chain <unk>, we generated $55.1 million in total revenue an increase of 166% over the prior year quarter testing revenue equaled $58 million with average testing asps of approximately $2700 per test.
The fully flat sequentially product revenue contributed $2.7 million.
Quarter biopharmaceutical partnership revenue equaled $1.6 million the.
These results were primarily due to strong commercial execution from our thyroid and urology businesses.
Moving to genomic testing volume, we reported nearly 21000 tests across our portfolio in the second quarter on.
Pharma and the Zia and perceptive first.
First of all the GSC approach 12000 tests in total an increase of 123% compared to the second quarter of 2020, and 12% sequentially. While the cypher contributed approximately 7000 tests of the quarter.
For the taking the product volume was approximately 1900 tests or 50% growth year over year.
And the 12% sequential decline as we experienced typical seasonality given Q1 stocking orders.
Gross margin equaled, 68% an increase of approximately 200 basis points sequentially, primarily due to a lower cost per test driven by fixed cost absorption tied to higher testing volume.
Operating expenses, excluding the cost of revenue.
Decreased 25 million sequentially equal $45.1 million.
R&D expenses grew $900000 sequentially to $6.2 million driven primarily by the full quarter impact of the decipher R&D organization.
Sales and marketing expenses grew $3.4 million to approximately $20 million.
Again, driven primarily by the full quarter impact of decipher.
G&A expenses were $15.5 million, including approximately $3.4 million of Hayley, Oh, Dx and decipher acquisition related expenses.
We recorded a net loss of $9 million. Additionally, the company.
<unk> generated $2 million of cash from operating activities and we ended the quarter with $328 million of cash and cash equivalents on hand.
Turning now to our 2021 guidance, we are increasing our revenue expectations to $200 million to $208 million representing 69%.
Company, 76% growth over the prior year.
This guidance reflects our strong Q2 results as well as our expectation for continued momentum and on the decipher and affirm of businesses.
Additionally, we expect to experience typical summer seasonality and as a result of our forecasting third quarter revenue.
That is flat to slightly higher sequentially.
In all we are very pleased with the quarter and remain confident in our position and ability to execute on our plans as we build on our success through 2021of beyond. Thank you for your time I will now turn the call over to Bonnie to say a few words. Thank.
Thank you Rebecca and welcome to parasite is great.
I have you here.
I'd like to take a moment to thank the various St team for their incredible focus that led to tremendous accomplishments in Q2 I am so proud of the team and could not be more pleased now to have mark at the helm of various site under his leadership with our existing team and the new leaders we brought to Vera.
Our site I can't imagine the company being better positioned to deliver on the global vision that we put in place of number of years ago that vision comes together with the final strategic puzzle piece, the Helio D ex acquisition and I'm pleased to be working with that amazing team to complete the acquisition.
And plan the integration I look forward to working with Mark in a thoughtful and deliberate transition of the company's leadership to achieve of sites full potential as a global cancer diagnostics leader and with that I'll turn the call back to Tracy.
Thank you Bonnie we will now go into the Q&A section of the call operator. Please.
Your line.
Thank you as a reminder to ask the question you will need the press star 1 on your telephone to withdraw your question. Please press the pound Keith please standby, while we compile the Q&A roster. Our first question will come from Brian Weinstein with William Blair. Please go ahead.
The open those thanks for taking the question in the welcome to all of the new people in the Bonnie just to hear your voice as well.
So I guess just stand out here obviously.
Is decipher in the quarter Keith you highlighted some of the things that were going on there, but can you just give us a little.
Hey, guys wore on Joe on on the growth drivers during the sales force additions. Obviously, you you talked about some of the reimbursement stuff, but anything else that you can kind of point of view and then within that decipher business. As you think about your full year guidance. How much of that is made up of of decipher how should we be thinking about that ramping through the year.
Yeah.
Little bit Brian So decipher.
Clearly see has some good momentum.
Kind of go back to the decision we made to acquire the business. It was the perfect time to do that the coverage decisions. The team was able to get late last year and then the expanded indications and then the continual publications.
Thanks, Bill on the strong clinical data the day, they MFS really leads to good momentum in that business that I think helps drive it on a go forward basis, which is why we acquired it.
More specifically about the momentum right now clearly the decipher has recovered very well from the early hit from the pandemic.
Based on a lot of that work is done in physicians' offices, which of community base.
And you know those procedures of continuing to take place those consults are happening and so we're getting access clearly 2 of those offices. So that is helping to create a little bit of a tailwind for that business, but other than the it's a phenomenal tests with with.
Mentum and I think all of those factors leading to the strong performance that we've seen so far this year.
In terms of what's in the guidance as Rebecca said the the 2 key elements of of what's driving our increase in our guidance is really you know all of the afirma on our prostate decipher prostate businesses and just 1 thing to add to that.
Ryan I would I would expect the decipher business. The followed the same seasonality trends that that we're projecting for the entire portfolio of products. So you know call it roughly flat to slightly up sequentially in the third quarter and then.
Some of some growth from there in the fourth.
And then maybe 1 more thing to add Brian I mean, it's not it's it covers the.
With good most of it really covers our entire business. The 1 thing that we've thought about here a lot of as you know what's going on with the Covid situation on the Delta Varian.
And you know we were assuming generally the.
It continues as it is right now but of course of that housing of significant impact of the it affects everybody's business in the future.
Yeah, and I was going to.
You know kind of kind of asset.
Around that so obviously yesterday the exact had some comments about our access to the clinician offices, not being kind of a factor on how they're thinking about the the back half of the year. How are you factoring in access to your sales reps are having across your different call points.
And can you give us any idea on.
What the access of kind of my call point looks like today.
I think it makes sense to really go business by business, because they're all of some situations, where there is an impact, but it's but it's somewhere at all so you know if you like we just talked about the decipher business the prostate business that's.
Been very resilient the firm of business thyroid who's also been extremely resilient recovered quite quickly and we're getting good access again, a lot of community based physician work there.
But I'd say on the breast side are starting to come back quite nicely, but where we're still seeing of significantly.
It is on the long side and that's not really surprising given really 2 factors 1 of it is a lot of hospital based procedures, obviously with the bronchoscopy is and secondly, the physicians involved in the physicians who were also very involved in the Covid suitcases and dealing with patients plus you know I think 1 of the other factors.
In terms of hospitals opening back up on patients returning themselves.
All of them on more reticent to do that especially as we see what's going on right. Now. So our guidance has assumed the that business continues to be impacted by COVID-19, but the the other businesses continue outside of law as I said, if the delta Varian causes changes in it.
Is it more generally then that could affect the parts of our business of the resilient right now.
Okay, Great I have lots of other questions, but we'll certainly that's on.
Others jump in and then we'll get you on the follow up call later Tonight. Thank you guys.
Thanks, Brian.
Thank you. Our next question will come from Puneet filled up with SC.
Keith Murray. Please go ahead.
Hey, Greg.
Hi, Mark.
First question just on timing.
It all together with the number of testing.
You know just ciphers growing afirma is recovering and so just you know.
Putting it altogether is it safe to say the prior to.
So it depends.
It was growing approximately 30 slightly over 30% of the top line grower.
Profile of but we ought to of thing or maybe even better.
Going further out.
And just sort of of 2022 and beyond.
Weighted to you know look at the profile of both.
For.
The Burma and number of other growth drivers that you have.
Well 1 thing I'll also on Rebecca can kind of add on but 1 thing I would say is you know obviously, we're not out of the pandemic, yet plus I haven't been there very long and Rebecca or even less time and 1 of things that we haven't done yet is continue to build upon the long term plan, what I would say is.
We're not changing the strategy, we love the strategy and that's what we're executing on so that's not changed but like I say, we're not out of the pandemic and we haven't really had too much time to to build on that yet Rebecca of you have anything to add no I think you covered it well.
Okay, and then on the nasal swab.
We understand the sort of the trajectory that you're expecting here.
And obviously an important.
Assay in the marketplace of just trying to understand whether it should be look at the Afirma as an example that we're on.
Trajectory that can potentially grow 2 of them, but just given the market opportunity should it grow faster.
And are you assuming any.
Scale trials here in order to drive adoption, both U S and globally.
Sorry, I missed a part of the you said should it grow faster than what Ed will of all of the same trajectory of that Afirma follow back up on that.
Lunch.
Question on them of course, Afirma was launched many years ago and has been.
Vessel has significant coverage at this point and penetration, but what I would say on the nasal swab of by the way Firstly, it's an incredible test and we're really excited about it it opens up a significant market, but more importantly.
It really helps physicians and it really helps patients there's a lot of uncertainty today.
The various of cancer patients and this really does help with the classification.
The launch of this test is very deliberate and methodical we're going to launch it in a limited number of sites and the.
That will help us gather the evidence that we need to drive reimbursement as you would expect.
The that can take a while it could take 12 to 20.
Full of lungs post launch to get reimbursement. So the way I think about the nasal swab is this is Neil.
We're building a portfolio of hearing layering all of these different businesses on top of each other the hub.
Our of different stages of the lifecycle like Afirma, that's part of the bonds.
Sorry for the smell taking off and then all of the see the nasal swab.
Several years on a multiple.
4 months into the future. So I would think of it like that it's the revenue drive of much later than some of these other businesses that will continue to drive over the next couple of years.
Got it.
If I could just squeeze in 1 more in terms of the gross margin outlook.
And on.
Just wanted to make sure of what Youre baking in for the Euro and.
Multiple units from.
And counter of kids come into the picture with the <unk> manufacturing.
And ultimately a matter of factoring of the instrument itself.
Where do you think of those gross margins could be and then more importantly.
Could you just lay out for us at the time.
Line for the encounter kits and.
The instrument manufacturing as well.
Thank you yeah.
I'd be happy to keep the need so so on the back half of this year. Obviously, we had some very solid gross margin performance in the second quarter.
At a very high level not a we didn't give formal guidance of the sun, but I would I would expect gross margins in the mid to high sixties.
For the back half of this year given the mix of business that we're currently projecting on.
Going forward, specifically with encounter I, obviously, the benefit of Helio day access is that it will as we transfer manufacturing over to that facility and in the future that will benefit the gross margin profile.
Keith the encounter placements in cats.
That being said it is.
Mark just referenced we're not ready to give long term guidance or even color at this point in time with regard to the trajectory of gross margins beyond <unk>.
Beyond where we are in the second half of this year on the timeline for getting all of that accomplished.
Of Oh, I'll defer to Mark.
But I think as as we highlighted in the script. It's tough 1 is completing the acquisition and that will be done this quarter and.
Think of where we're being as proactive as as is allowed for from an integration standpoint, and that's also going very well so we.
<unk> are on our way to meeting the timelines that Mark will share shortly but at this point in time that that's all still still a news that work will be excited to share with you at the appropriate point in time, yes. Thanks, Rebecca let me add to that so I'm very happy with the progress that's been made on the Halo of Dx integration 1 of those key work streams as you can imagine as the manufacturing transition.
We are on as Rebecca said.
Really gives us some of control all of our supply chain and gives us opportunities on gross margin in the future of course, you know those opportunities come to light when you launch the low the menu and you place a lot of instruments on you're driving a lot of testing. So that's going to be the key the manufacturing transition is something we want to.
Transition as quickly as possible on on Bonnie's, leading that.
And Bonnie I don't know if you want to say a few words about that at the moment, but it's something the is really important to US is the priority and then getting that menu built by by completing the development work and then the commercialization work of tests on that platform is that.
I'll, just say that in the early work of integration.
The move of scientific about is learning that we can protect the company with the team that's got tremendous experience doing that.
They're lined up around the task of the timelines and execution plan and I think we'll have a lot of success getting it done ex COVID-19.
That's great. Okay. Thanks, guys.
Good day.
Thank you. Our next question will come from sung <unk> Nam with BP Yankee. Please go ahead.
Hi, Thanks for taking the questions and congratulations on the quarter.
Question on 1 on decipher, we'd love to get your insight in terms of the competitive dynamics, there, obviously very strong growth there.
In the quarter on it.
Also on the year to day, just kind of curious if you were taking share of competitively or is it too early to tell.
Yeah, I mean, I think if I focus on really how we look at the site for prostate test in.
Its benefits and advantages 1 point is it's a really strong test.
In terms of its performance and that is supported by a lot of the clinical data that's been a masked the fact that I think I mentioned in the script. The number of trials of the decipher is in addition to the fact that the many of those trials that you require the decipher tests to be run really demonstrate the performance of that test in.
And it gets it in the mindshare of.
The key opinion leaders and physicians. So we're very excited about the way that's growing I think it's fair to say you know our goal is to penetrate as much of the market as a lot of the market that's left on penetrated.
And along that journey that May mean that some physicians move over to that that test in.
And that would be great, but our goal is to put this in the hands of more clinicians and ultimately.
In the health records and the decisions of more patients.
Great. That's Super helpful. And then my follow up is just the kind of around your pulmonology franchise in the especially the new product launches slated.
Of this year given the limited channel access just kind of curious in terms of how should we think about are there risks you know in terms of your launch plans all of the active plans and you know whether or not you might have contingency.
Plants in place.
So I think there's a few pulmonology tests that are coming out.
Including the nasal swab and the genomic out listen on the way to think about that is of course COVID-19 itself over the last year and a half has affected all of our ability to to get clinical samples to some degree but as you saw the up to a degree that it stopped us from being able to publish the data when we needed to and have those those tests ready to launch very soon.
Currently the trend on the nasal swab, we're going to launch in the limited number of sites and I think it's fair to say we have sites that are excited to join us already and so that I.
I don't see that as being a major barrier to getting the that launched on time, which is on plan and then the same on.
As I mentioned I'll make Atlas of the work that we needed to do to get already the launching of our CLIA lab is almost done.
I don't want anyone of them just kind of has any.
Thank you. Our next question will come from Matt <unk> with Goldman Sachs. Please go ahead.
Hey, guys. This is Dave delahunt on for Matt Welcome Rebecca Congrats on the fantastic quarter.
See you guys are having a strong pass the baton.
Thank you very much.
Yeah. So you presented a great data on percent debt ASKO really exciting could you.
You tell us a bit more about the.
The limited number of sites that you'll make it available to around how many subjects are you looking to reach to get enough data to.
Submit the CNS.
And longer term how are you thinking about.
Getting into.
<unk> guidelines at some point.
Yeah, So I'll start by saying the you know the specific number of participants that we need of some of the planning that we're still working on in terms of the number of sites. It's really more about the you know, it's probably 50 to 100 and that's what we've set the Florida on the probably the smaller end of that and.
We're looking at the diverse set of sites across the board here of what we want to make sure with this rollout is that you know.
All of cross section of physicians of offices are able to run run the test of.
And the bronchoscopy suite or outside.
And and ensure the you know the whole end to end process.
The works really really well on that is the best way to ensure ultimately reimbursement of the success of the test. This is 1 of the things that I think I've said before all of the there's always impressed me on really impresses me now on here of our of side about the company is the.
On the muscles that we've built around reimbursement and how to do these clinical utility.
Utility studies and launch of product.
Strong and so we know how to do that so there's people in our organization. The other way smaller than the me on that who have done an amazing job and that's what they're going to do with the nasal swab.
Great.
And so you guys have been really successful.
Corporate.
Development could you tell us more about how youre thinking about build versus buy right now and what youre seeing in the market currently.
Yeah, I think the that's what it is to talk about that is look with trying to our strategy is to grow our business in 3 dimensions, geographically, which will really kick starting into a very high day.
You know the ex acquisition.
Across the care continuum way of thing products like the nasal swab really do help advanced stopped by by moving into earlier detection.
And then across indications and now with Halo Dx will have 8 of the top 10 indications.
As far as that strategy is concerned every 1 of those dimensions.
Is moving forward at a rapid pace and execution on that is our key focus now in terms of going forward build versus buy.
We will consider opportunities I wouldn't say, we're actively going out looking to do more but we will consider opportunities and if they achieve 1 of those 3 objectives geographic advanced of our menu.
All.
What the heck continuum, then than it might be something that's worth considering but not on the media priority yeah on it as Mark mentioned right now where we're very much focused on on the integrations at hand them more so than anything else.
Great Congrats on the quarter.
Thank you.
All the kind of thank you. Our next question will come from Thomas Flaten with Lake Street Capital. Please go ahead.
Afternoon, guys. Thanks for taking the questions.
1 on how we should be thinking about.
Cash flow you know there was some of it right at the end of the 19 I think there was a lot of excitement around going cash flow positive on the operating.
And there's been some up and downs. Since then how should we think about that going forward or do you guys feel pretty comfortable you're in a position to drive positive operating cash flow going forward or any thoughts on that.
Yeah. Thanks, Thanks for thanks for the question and obviously, we were very pleased with this quarter.
I think what as you look at the back half of the year.
The only that is when the the company has had the ability to generate cash flow from ops and the and a positive way and we would expect this year to be no different on.
On a go forward basis, I think we need to go through the 2022 planning and beyond.
But I think our intention is to have it.
The financial discipline to achieve that.
Obviously barring any 1 time, 1 time investments here or there. So so that is our intention probably not willing to sign up for it fully today, given where we're still kind of digging through the the strat plan, but our intention is to continue the torch of financial discipline and an absolutely have an eye towards cash generation.
Over the longer term.
And then.
Reflecting back on on the fee.
The nasal swab with the launch here pretty soon and going back to the original kind of key objectives..1 of the J&J deal was signed a few years back was to get precept on of the market or the the GSC and then.
To get the nasal swab on the market how do we how should we think about the J&J collaborate.
And going forward.
Yeah, I think really a couple of things Firstly, we're building a long portfolio hair products.
Mentioned 2 of them as well as the genomic Atlas.
We put those together plus of course, our busy of portfolio in lung as well, we put all of that together, we have a very strong low.
Plenty of across the care continuum of lot of that has come from.
The company, we acquired in the work we've done with J&J and that collaboration has gone extremely well the lung business is clearly important to them is as it is to us an opportunities to collaborate further like.
Like we already are on the future.
<unk> portable trials is something that we're really going to focus on with them.
The excellent congrats on the quarter guys. Thanks for taking the questions.
Thank you.
Thank you. Thank you our next question will come from.
With Morgan Stanley. Please go ahead.
Hey, guys good evening.
Rebecca.
You should kind of be working with you again after all these years.
Nice momentum for <unk>.
Mark maybe I'll start with you on on the volume recovery are good.
A good strength in the quarter can you parse out for us the degree to which it was catch up related to folks who had just pushed out visiting the.
The good Tien.
And how do you see that sort of trending forward.
I would say in general it's fair.
Hard to do that specifically as.
As you can probably imagine.
But I would say you know there's a few indicators I mean, 1 is if you look at the there was some data recently around the number of <unk>.
The physician cancers that are expected in the United States. This year and I think it was 248000, which is something like a 30% year over year of growth.
And that is has been attributed in some papers in some part.
Journals to the effects of Covid on people not being able to have access on all going to the physician.
Ross Day think there's there could be an element of that I believe there's an element of that around pulmonology too.
These are the.
Incidences of lung cancer on clearly on going away and there.
There are probably a backlog of of visits the the need to happen and will happen at some point so hard to give you.
Or any kind of quantitative specific data on it but anecdotally it feels like there's some element of that.
But once we stabilize.
The post Covid at some point.
Then it just settles to the normal growth and at that point, it's really more about us driving our testing to those physician offices.
But if there's any macro things that are outside of our control.
Got it fair enough and then I have a couple of questions on on these the riskier.
You spoke about 12 to 24 month timeline to get reimbursed.
Is there anything you can do to accelerate that time frame and in terms of just further data releases on the.
The assay in terms of things like you know correlating performance with nodule size and length of smoking history et cetera.
That's something I believe Juliet spoken about you know when when the data dropped and I'm just curious as to whether you have of timeline to share with us today around when that will happen.
Going into the back half of the CRM and early next year.
Yeah.
Yeah on the on the.
Second part of your question first I mean, we've mentioned before that we've looked at you know other attributes for example, like nodule size and so on the stage of cancer and we've obviously been gathering data on that and that will come out of the appropriate time when.
When that is finalized.
Yeah.
On on that where most of the first part again.
Right.
Anything you can accelerate with regard to 12 to 24 months.
Well yeah.
Yes.
Obviously, the 12 to 18 months of what I'd like to do is be at the short end of that but there's so much of the processes outside of our control. So what we're really focused on is what we control.
Perhaps get those done and get them done right get them done in the most optimal way move as quickly as we kind of on that and we won't be shy about putting whatever resources, we need to do on that because this is an important product to get out there and then we're in the hands of of the reimbursement process like I said earlier, we've got the muscles to work.
We'll let that but there's so much of it that's outside of our control.
Fair enough and 1 final math question for Rebecca.
I think you mentioned Rebecca that debt.
<unk> is expected to be flat to slightly up sequentially.
And so if I do the math of the midpoint of the outlook, you're essentially calling for a flat.
To down sort of fourth quarter and I'm, just curious as to why the conservatism what are the offsets that you're trying to sort of budget for here.
And as a related follow up is there anything embedded in the guide for either the bladder test.
Or perhaps the halo dx close or not yet.
Yeah. So let me take the last.
Part of that first the answer to both of those is effectively now.
You don't have to worry about that and the puts and takes.
But effectively on teach US you know I think we are seeing the momentum and the decipher and the Afirma businesses. I cited we did give the range as we have the 200 to 208 really to try.
Some sort of.
I'm sort of range in there with regard to Covid outcomes, obviously, we can't we can't perfectly control what what Covid is going to look like in the second half and I know my thing even if it's awful that's within the guidance range, but our thought is given where we are given what the outlook looks like for Covid. We.
Wanted to make sure at least the little bit of that quote unquote COVID-19 impact was baked into that guidance range. So that we didn't have you know we didn't have folks wondering what what the business is going to look like.
Assuming assuming the delta very get slightly worse now of the Delta variant gets way worse, that's obviously going to be of different scenario, but you know I think what you're looking.
Try and player is the midpoint to 2 of high end of that is reflective of the momentum of the business.
As well as some you know some kind of error bars, if you will for Covid.
Got it fair enough. Thank you so much.
My pleasure.
Thank you. Our next question will come from Mike Mattson.
At here neither of them.
Please go ahead.
Yeah. Good afternoon. Thanks for taking my questions just a couple of financial questions. So.
You're looking at your Opex of around $45 million in the quarter.
Should we expect it to kind of stay at that level through the remainder of the year and then you know on.
R&D.
He was around 11% of sales little lower than where we've been modeling in the sales and marketing of like 36% of sales roughly.
Yeah. Thanks, Thanks for the question, Mike So with the with the impact of around $3.4 million of acquisition related costs in the second.
<unk> quarter for Helio and decipher if you take out that impact you could expect that to be roughly roughly equivalent to what we'll be spending in the back half, obviously with and abstracts that will have incremental expenses tied to helio and we're not ready to quantify what those will be today, obviously, we don't have halo anywhere in the the piano and our.
The guidance for the reasons that the acquisition has not yet done and timing is such an important contributor to what that ends up being so so with the caveat. The you know if you strip out acquisition from Q2 and in and don't include it in the back half you know plus or minus a bit I think that's roughly fair.
Okay, Alright, Thanks, and then just as far as M&A growth.
I heard Bonnie say something along the lines of affiliate the oxo.
The final puzzle piece, so I picked out to me in the we shouldn't expect any at least larger deals near term nearer term.
I think yes, but I think the way to think about it is that that's correct from the the final strategic puzzle.
I mean, the strategy that was put in place. The we're executing on really started in 2017, we've moved it through over the last multiple years it'll be completed in 2 years when the manufacturing transition. So that vision that was 6 years in the making is completed with the Halo Dx transition.
We've got a lot to deal.
Bill with them, where we're doing that really well and I'm very impressed of the performance this quarter, which clearly shows that we're able to continue to focus and deliver on the things that we've committed to deliver in spite of all the things that we've got to do.
And in some cases, partly because it will be things that we've taken on the debt a very very positive. So our priority is not to go out looking for a major acquisition.
The piece of this time as I said earlier in the call. If there are opportunities that come our way we of course would what we.
We would consider them, but we've got plenty to deliver on with the strategy.
Okay got it thank you.
Yeah.
Thank you and our next question comes from Sandy Draper with 2 of Securities. Please go ahead.
Physicians the sandy.
Hey, how are you thanks, very much and a lot of my questions have been asked and answered.
Vs. Congrats on the strong quarter.
Welcome to the eyes.
All of the new team.
It is probably for Rebecca Wen.
When I think about when I look at sort of revenue per test, it's been generally pretty stable.
Approximately.
$2700, plus or minus a little debt.
With the growth and decipher and the prostate and getting reimbursement there of the offset bringing on encounter.
Other puts and takes is there anything meaningful that we should be thinking about debt is going to either drive up because of better reimbursement.
As you get it or down because you're going to be pushing out testing youre not likely to be on the Dell for yet.
Notable we should be thinking out over the next 12 to 20, well probably 12 months of yourself.
Yeah, Great Great question Sandy on it at this point in time I don't think there is anything that meaningful 1 way or the other obviously, depending on the mix of the.
The portfolio in any given quarter, you're gonna of puts and takes depending on you know commercial payer rates, you're gonna of puts and takes that as we sit here now specifically for the back half on the night.
I don't see anything that that would.
It would change that trend in the first half of next year, it's gonna be plus or minus of bet.
Okay, Great that was the only question. Thanks.
Do you.
Thank you I'm showing no further questions in the queue. At this time I would now like to turn the call back over to Chief Executive Officer, Mr. Mark safely for any closing remarks.
Thank you before closing I would like to add my thanks to the verify team for an outstanding quarter.
I have been extremely impressed with the progress made in the very.
Very short period and in the team that has been assembled Bonnie has built an incredible culture of our site..1 that is steeped in the innovation scientific rigor collaboration and accomplishment. These core values resonate deeply with me as we advance our vision on scaled the business globally across indications and the patient care continuum I am committed to upholding the I look forward to updating.
Our progress on our full strategic growth drivers on our next quarterly update thank you.
Ladies and gentlemen, this concludes our call today. Thank you for joining US you may now disconnect.
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Hitting you on them.