Q1 2022 Veracyte Inc Earnings Call
[music].
Good afternoon, ladies and gentlemen, and welcome to parasites first quarter 2022 financial results Conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation there'll be a question and answer session to ask a question. During this session you will need to press Star then one on your touch some telephone.
If anyone should require assistance during the conference. Please press Star then zero to reach an operator.
As a reminder, today's conference call is being recorded.
I'd now like to turn the conference over to Sheila Gorman parasites director of Investor Relations you may begin.
Yeah.
Good afternoon, everyone and thanks for joining us today for a discussion of our first quarter 2022 financial results with me today are Marc Stapley, various aid Chief Executive Officer, Rebecca Chambers, our Chief Financial Officer Dr.
Tina Nova President of our U S CLIA business and Dr. Giulia, Kennedy Global Chief Scientific Officer, and Chief Medical Officer.
Verisign issued a press release earlier this afternoon detailing our first quarter 2022 financial results. This news release, along with our business and financial presentation is available in the Investor Relations section of our website at parasite dotcom.
Before we begin I'd like to remind you that 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 they will prove to be tracked further we are not under any obligation.
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 that verify it files with the Securities and Exchange Commission, including various sites. Most recent forms 10-Q and 10-K. In addition, this call will include certain non-GAAP .
Measures reconciliation of these measures to the most directly comparable GAAP financial measures are included in today's earnings release accessible from the IR section of parasites website I will now turn the call over to Marc Stapley ferrous I see yes.
Thanks, Sheila and thanks, everyone for joining us today.
I am delighted to share an update on our strong first quarter results, which included revenue of $67 $8 million, an increase of 85% year over year.
We announced a new organization in January and it is clear that this new structure is already enabling our team to execute and deliver impressive results.
First site success is built upon our ability to answer important clinical questions that enable physicians to make better informed care decisions, helping patients avoid unnecessary surgeries or other interventions and accelerating time to appropriate treatment.
All tests address eight of the 10, leading Kansas by U S incidents as well as interstitial lung disease or ILD and have benefited over 350000 patients to date.
I recently had the privilege of speaking with one of these patients Mr. Keith Boyle, Keith isn't in idiopathic pulmonary fibrosis patient in southern California, whose story demonstrates the challenges in diagnosing the ILD, including IPF and the important value our Nvidia tests provides.
IPF is one of the most serious types of ILD. It is often very difficult to diagnose with high resolution <unk> imaging alone.
This can lead to delayed diagnosis and treatment.
In 2017, Mr Ball had a persistent cough, which led him to a medical clinic, marking the beginning of his diagnostic journey.
After an initial incorrect diagnosis of pneumonia, Keith sold five pulmonologists and underwent additional tests the misdiagnosis overspend of 18 long months.
Finally, his new Pulmonologist at UCLA and early user of a busier offered him all test Keith was aware of and Vizio and had been eagerly awaiting its launch. So this is welcome news.
In visa confirmed in IPF diagnosis, given Keith and his family the clarity. They so desperately needed I ask Keith widest clarity was so important he was extremely clear in his response and not only validated his use of anti fibrotic treatment treatment that can be damaging and some other pulmonary conditions, but it also enabled him to join a lung transplant list.
A list that he is still to this day, hoping that at some point he will benefit from this important surgery.
Keith is doing well at the moment and is enjoying extensive travel with his wife, Laura we wish them, both well and thank him for allowing us to share key stories.
With patients like Mr. Ball in mind, we were encouraged to see that and updated clinical practice guideline highlights the role of our envisage it'll make classify in the diagnosis of IPF and other ILD.
Additionally, a review article in separate commentary on the visa classify appear online and a T S.
All three articles published an official publication of the American Thoracic Society and reinforced the intended clinical body of all test, which is to enable physicians to make a confident diagnosis of IPF without the need for invasive surgery.
Having a confident IPF diagnosis can help patients like Keith ball obtained the treatment they need in a timely manner.
We look forward to continuing to engage with the Pulmonology community to advance understanding of the rollout test can play in patient care and to further reinforce the evidence supporting the test ability to positively impact patient outcomes.
Turning now to our first quarter results, we continue to execute well against our near and long term corporate imperatives.
I'll decipher prostate test again outperformed our expectations as we continued to gain significant traction in a competitive market, but we estimate there's only about 20% penetrated.
We believe our continued growth has benefited from key publications, particularly as clinical utility data from a randomized phase III trial, which was presented at the recent <unk> use symposium and confirmed the key role for the test as a prognostic that can help physicians and patients make personalize treatment decisions in the intermediate risk setting.
We are looking forward to the <unk> meeting in Chicago next month, where additional clinical utility data will be shared characterizing the decipher prostate test usage in association with treatment decisions for men with prostate cancer in both the post biopsy and post surgery.
The findings are based on data from the decipher prostate test, which were linked to the National Cancer Institute surveillance epidemiology and end results or see a program.
Additionally, at the upcoming American Urology Association meeting all Kols partners will share data that provide new insights into the genomic underpinnings of prostate and bladder cancers. These.
These data are derived from analysis of our extensive and growing decipher grid database, which contains genomic profiling information from over 100000 clinical samples used in the development and commercial use of our decipher prostate and decipher bladder tests.
Turning to Afirma, our most established in our highest volume diagnostic test we were pleased with our test growth of almost 10% during the quarter and our ability to impact more patients.
We also added over 50, new accounts in Q1 further penetrating the long tail of endocrinologists, who had not previously utilized afirma.
Our ongoing investments in our <unk> flagship product will ensure that we were able to continue to engage even more physicians.
Moving to our lung portfolio. In addition to the new ILD guidelines. We are encouraged by early signs of recovery for our visa tests, which saw a 27% increase in volume compared to the first quarter of 2021.
In lung cancer, our team has done a tremendous job to prepare the perceptive genomic Atlas tests for launch.
Having carefully evaluated the optimal utilization of this test to address the unmet clinical needs for lung cancer patients. We had time to result in precious tissue sample of key factors.
And to optimize reimbursement we have made the decision to explore novel channel opportunities for PGA that leverages unique sample type tissue from diagnostic bronchoscopy directly into a preservative.
This channel opportunity will take a number of quarters to evaluate so we hope to share more about this at a later date.
On the IBD side. We are also we are looking forward to the ESMO breast cancer meeting this week in bullet.
Researchers will present consensus findings from procure trial, demonstrating European breast cancer experts beliefs regarding the role of gene expression profiling tests, including Prosigna to inform treatment decisions among women with early stage breast cancer.
We also delivered very strong quarterly growth in Biopharma in tandem with further solidifying offerings for Biopharma partners, which are intended to leverage our robust multi omics on immuno oncology capabilities, along with our extensive clinical data.
At the American Association for cancer Research or ACR meeting last month, we introduced our new verified Biopharma Atlas, which we believe is uniquely positioned to help advance the next generation of precision medicine in oncology.
This novel metastatic pancreas that database is designed to be populated by leveraging our best in class assay to provide insights to help inform drug development efforts for participating companies.
This template offering is modeled on bespoke programs that are already in place with major Biopharma partners.
Of note, we are particularly excited by some of the novel immuno oncology insights that we are uncovering through our biopharma and academic partnerships and look forward to revealing more than several abstracts being presented at <unk> and through other exciting publications that we anticipate in the coming months.
Moving to our longer term growth drivers, we remain very optimistic about the opposite the nasal swab test for patients who are facing a potential lung cancer diagnosis.
As the largest cause of death amongst all cancers by fall lung cancer is a disease of particularly affect smokers, a former smokers and one that can often be successfully treated when cold early while a highly sensitive imaging approach low docetae under an existing screening recommendation is very effective at identifying patients with potentially.
Cancerous lung nodules physicians need a more objective accurate tool to determine next steps for those patients. This is when nasal swab comes in.
Already clinically validated all tests could be used to assess patient risk noninvasively alongside the <unk> imaging standard of care to help avoid unnecessary procedures for low risk patients, while accelerating time to treatment for high risk patients.
We believe that nasal swab could help drive earlier identification of lung cancer amongst the 15 million people in the U S alone who are eligible for annual screening and the $1 6 million annually, who present with an incidental lung module.
We believe that the LDC T screening paradigm is here to stay given its high sensitivity proven reduction in mortality rates inclusion in U S. P. S. T F guidelines and relatively low cost to the healthcare system.
We encourage further screening for patients who qualify under guidelines beyond the very low 6% that we believe are currently being screened.
With diagnostic tools like help us up the nasal swab, we anticipate the more and more physicians and the patients will achieve greater confidence in annual screening.
We look forward to the presentation of new data at the American Thoracic Society meeting this month, which evaluate the ability of the perception of nasal swab test to accurately assess lung cancer risk among current and former smokers with lung nodules, regardless of best smoking burden history.
Meanwhile, I'm pleased with the progress we are making with enrolling sites broad clinical utility study and with our headway to data on our path to reimbursement.
We are also making solid progress in our efforts to expand our IBD testing menu on the encounter analysis system to fuel our global expansion for years to come.
Our IBD development and R&D teams are working closely together to launch our <unk> test as an IBD on the encounter instruments in 2023.
Followed by our decipher prostate in perceptive nasal swab tests in each of the subsequent years respectively.
As we build this menu on the encounter we will be creating opportunities for labs in many countries to make these tests available to their patients. Meanwhile, our commercial and market access teams are working hard to pave the way for reimbursement of these tests country by country and our scientific teams continue to build the body of evidence needed to support both reimbursement and adoption.
Leveraging the work that has already done for the U S market via our centralized CLIA lab model.
This is a perfect illustration of the flywheel effect that is enabled by our novel clear at IBD based strategy.
Finally, we are advancing the manufacturing transition of our IBD kit, beginning with Prosigna to our facilities and must say we are tracking ahead of our year end goal of handling our own inventory management and global customer fulfillment.
By the end of next year, we expect to be fully manufacturing the kits in France, enabling us to benefit from the end to end management of the supply chain for these kids.
In summary, Q1 was a great quarter marked by strong execution by our team. We're excited about our progress on where we are heading with that I will turn the call over to Rebecca to review, our financial results for the quarter and expectations for 2022.
Thanks, Mark as Mark mentioned, our strong first quarter performance exceeded our expectations with total revenue of $67 8 million, an increase of 85% over the prior year.
We grew total volume to over 23200 tests, a 61% increase over the same period in 2021, and a 4% increase compared to the fourth quarter of last year.
We delivered over 8800, decipher urology tests, which exceeded our expectation leading in part to testing revenue of $56 million.
An increase of 69% versus the prior year quarter.
Testing ASD was approximately $2650 per test up slightly sequentially.
Testing volume was approximately 21000 tests, including close to 11000, Afirma test of almost 10% year over year as Mark mentioned.
And the billing code for Afirma in 2021, we have had some delays in collections that impacted ASP in the quarter.
First quarter product volume was approximately 2200 tests, resulting in revenue of $3 million down slightly compared to Q1 2021 as volume growth was more than offset by a decline in the euro.
Biopharmaceutical and other revenue equaled $8 $8 million as growth in our immuno oncology offering was bolstered by the timing of Biopharma milestones and contract IBD activities. This timing impact as well as better than forecasted urology cash collection added approximately.
<unk> $2 million of revenue to our first quarter results.
Moving to gross margin and operating expenses I will highlight non-GAAP results, which exclude the amortization of acquired intangible assets and other acquisition related expenses, but do include routine stock based compensation, we've chosen to call out select non-GAAP measures to provide useful supplemental information.
About the financial performance of our business and enable comparison of financial results between periods where sir.
Certain items may vary independent of business performance.
Courage you to review the GAAP reconciliation of these non-GAAP measures, which can be found in today's release available on our website.
non-GAAP gross margin was 65% a decrease of 100 basis points sequentially, driven primarily by the fourth quarter $4 million J&J nasal swap milestone.
Excluding this impact gross margin was 100 basis points higher sequentially.
Testing gross margin was 69% approximately flat sequentially and product gross margin was 47%.
Sequentially, driven by lower startup costs for the manufacturing transfer of our IBD kit compared to the prior quarter.
Biopharmaceutical and other gross margin was 49% exceeding expectations, given the timing of milestone and IBD development revenue and lower sequentially due to revenue from the milestone recorded in the prior quarter.
non-GAAP operating expenses, excluding the cost of revenue increased $2 9 million sequentially to $49 1 million, primarily driven by higher compensation related expenses associated with annual merit increases and the timing of payroll taxes, accordingly sales and marketing expenses.
<unk> grew $1 4 million to approximately $22 5 million and G&A expenses were up $2 6 million to $18 million.
Research and development expenses declined by $1 1 million to $8 5 million driven by the timing of clinical trial and project spend.
non-GAAP cost of revenue and operating expenses included $5 6 million of stock based compensation.
We recorded a GAAP net loss of $14 5 million net cash used in operating activities was $8 9 million and we ended the quarter with approximately $164 million of cash and cash equivalents.
Turning to our 2022 guidance, we now expect revenue of $265 million to $275 million.
Or 21% to 25% growth versus the prior year.
This range compared to our previous guidance of $260 million to $275 million.
It reflects our strong performance in the first quarter for the remainder of the year. We are projecting slightly higher Q2 revenue followed by a sequential decline in Q3, given summer holidays, before finishing 2022 with quarter over quarter Q4 growth.
In closing we are very pleased with our performance. So far this year, we continue to have confidence in our financial position and remain focused on execution in 2022 and beyond I will now turn the call back to Sheila.
Thank you Rebecca will now go into the Q&A section of the call and Tina Nova President of <unk> U S business and Giulia Kennedy.
<unk>, Chief Scientific Officer, and Chief Medical Officer will join US operator, please open the lines.
As a reminder.
To ask a question. Please press Star then one if your question has been answered and you'd like to remove yourself from the queue press the pound key.
Our first question comes from Brian Weinstein with William Blair. Your line is open.
Hey, guys. Thanks for taking the question excuse me good afternoon.
Yeah, I would just look it up and maybe keynote where somebody could just jump into some of the.
Performance on the sign for me to get a little bit more info.
Information about what's what's continuing to drive that growth better than your expectations is it.
Some sort of a utilization metric that that's better or is it deeper penetration.
In China.
And inside of new accounts, just any insights on the cycle would be great and then the second question is.
Good to see a firm up around 10% that seems like that's also a little bit better than maybe you guys were thinking about there.
I think we were thinking kind of a mid maybe mid to high single digits.
If things went well for kind of a growth rate for the year. So the 10% a little bit of bumps that about that can you just talk about kind of how we should be thinking about afirma trends through the year as well. Thanks.
Sure sure.
Sure Brian . Thank you so much yeah, we're very excited about that performance up to cipher and its just continue to it to improve and grow and as you said increased penetration into the market and for this last quarter. The sales team productivity was at an all time high and we've continued to bring sales reps.
And as you know and do a lot of very very extensive training and we're really making headwinds out in the field.
Other thing is that we continue to build a lot of clinical evidence, which really makes it very nice for our sales team to go to physicians time and time again.
And sure that the new data from the study is that we.
Have generated data from and that really makes a big difference they really like that and as Mark mentioned, we have an abstract coming now to ask us in and just as a reminder, the <unk>.
Market is still only 20% penetrated so we still have a lot of room to grow in the future, which makes it a very exciting product.
On the Afirma side Youre right. It was really great to see that that 10%.
Again more training going on and just deeper penetration once again and also starting to see a lift being able to get into more hospitals.
January was tougher and it got easier in February and almost back to normal by the end of March and Afirma was affected by Covid just on access more than anything else. So.
We're almost back to normal there. So it's great to see that increase in Afirma I'm, Brian . So one clarification. Just so we saw a 10% volume growth, which I think is great and all the team is doing a really nice job there.
New physicians and continuing to go after the long tail there.
We did see some headwind on the ASP side that Rebecca mentioned in her comments and you know so.
So we're going to continue to focus on that so when you net it will allow.
The revenue growth I'd say was roughly in line with our expectations, maybe maybe a little bit lower but.
It doesn't really change our perspective for the rest of the year now and I think the trend that you saw this quarter plus or minus a bit is what we're expecting for the rest of the year. So on a volume basis I would I would say an expectation in the high single digits, maybe not all the way to 10, but we are expecting volume in the high single digits, but that to be biased down slightly because of some.
The ASP items that were improving on.
On a revenue basis, so that more in the mid to high as you as you mentioned.
Okay.
Our next question comes from Mac Sykes with Goldman Sachs. Your line is open.
Hey, guys. This is Dave How're you doing.
Are there any additional color.
<unk>.
For a clearer idea of the contribution from Helio and safer.
Factored into the solid beat and raise yet.
Yeah, I'd be happy too so.
Its safer to think about the organic and inorganic drivers of this business as being one.
To give the disclosure that you require that you requested but before we get there.
We are managing the business from a portfolio perspective, and make resource decisions across the portfolio Accordingly.
We have a portfolio of business that he has different products each of them are in their respective portions of the lifecycle and when you stack those effectively what happens is in any given quarter, you have pluses and minuses across the board and that's exactly why.
The company was what's foreshadowing and did buy the decipher and Haley <unk> assets and effectively gain the growth that they are offering here. So when it comes down to US decipher contributed the vast majority not the vast majority, but the majority of growth on a year.
Year over year basis, just over $20 million.
You can actually see the full year number is in the queue.
Sorry, not the player number the total quarterly numbers in the Q and Halo was just over $7 $5 million. So so you can parse out the bits and pieces there, but this was very purposeful on our point in the acquisitions.
And is the strategy of the company and will aid us do that and in and we are pleased with their contribution in the quarter and our expectations for them going forward, yes, maybe thanks, Vikram, maybe something to add on on the lifecycle comment I mean as you know we talked about this before that Afirma is.
Mature we believe the market is over 50% penetrated by by tests like Afirma run. So it's towards the latter pub is still growing as you just heard part of its lifecycle.
Decipher is a product that's an inflection point of its lifecycle and really starting to go up that S curve and take some some great share and then we have the pulmonology portfolio in the.
IBD product portfolio that are much earlier stages of their lifecycle. So we got pretty good coverage of the portfolio business across the various stages here.
We're continuing to invest in all those different products to them.
Maximized.
Growth opportunities and return from it.
Great that's helpful. Thanks.
And.
Really good to hear.
The continued evidence generation for the percept, a nasal swab could.
Could you give us any additional color on the new data to be presented at Ats.
Well, we can't give any more detail than we've already provided because obviously is going to be presented but I don't know Julia if you want to spend any time on the.
The evidence development that we're doing in our philosophy and approach there and then what we've been able to provide so far the teaser on Ats and on how the studies go.
Sure sure. So for the first such a nasal swab I can't say that you know the test has been clinically validated and we continue to look at the data.
And Ah provide more and more detailed information about how the test can be used in various populations and specifically some of the work that we're going to be presenting at a T. S is going to speak to how the nasal swab perform.
Worms in people with varying smoking burden.
So I think that's an important factor in developing confidence and the test and.
We look forward to sharing that with you at the a T S.
Thanks Julien.
Our next question comes from Nathan <unk> with Stephens. Your line is open.
Hey, guys I'm on the percept, a nasal swab as we progress through 2022 and into 2023 and potentially get.
Get closer to that broader commercial launch what are some of the incremental investments that still need to be made ahead of that launch whether it's <unk>.
Expanding your footprint.
Lab staff sales reps equipment any color on how to think about that would be helpful.
Yes, thanks for that.
Maybe I'll take a step back and just kind of talk about the long term opportunity here you know I mentioned it in the remarks, but nasal.
A nasal swab is really a first of its kind test in terms of it really is one of the you know it is a noninvasive test for people who are facing a potential lung cancer diagnosis. There are 15 million people, who should be screened in the U S alone.
For for lung cancer and.
Using a well proven.
Very effective method.
And then there's about $1 6 million a year of incidental findings and so that's the target market for this test.
As Julia mentioned this test has been validated.
For people, who have a lung nodule, who all smokers, a former smokers and so that's the target market here in terms of the things that we need to do we're going to spend the time over the next couple of years building the continuing to build the clinical utility evidence that is needed getting kols support.
Working our way towards guidelines and further evidenced development all those things tried and tested well proven path to getting a test.
Reimbursed, which clearly is the end goal here.
Appropriately so.
This test will make an incredible difference in the lives of many patients.
And it will it provide something extremely valuable to the physicians who are dealing with these.
Patients themselves. So we want to do this and it's exactly the right and thoughtful way and so that's what we're doing in terms of actually operationalize. It I mean as you know because we have a broad pulmonology portfolio. We have the sales team already and we will add salespeople as we need to that Thats pretty.
Straightforward as following the Formula we're already deploying and have deployed in a firmer and decipher.
Bob is primed and ready to go and again it Leverages a lot of the work that we've done for many many years.
And so really that's that's that's what we've got to focus on over the next.
Period to get to get the test out to as many patients as possible, which is the ultimate goal.
Got it got it. Thank you maybe one more for me here.
On decipher prostate I'm not sure if if.
You have this level of granularity, but is there any color you can provide on the.
The proportion of growth from this test that's coming from maybe <unk>.
Expanding the market converting doctors from traditional methods utilizing.
A genomic test versus taking share from competitor tests out there.
Yeah, I mean, it's.
It's interest the data is actually hard to get after in terms of share, but we believe the decipher is prostate is doing a very good job of gaining.
Gaining share, but also importantly, increasing the overall market Theres no question. The market itself is growing in terms of the number of docs, who runs of urologists, who are using molecular diagnostics and we think the majority of using.
A significant share of them are using decipher.
It's 20% penetrated as we said so if you think about as I mentioned earlier from a which is just one of the most successful molecular diagnostics launched has gotten significant penetration in that overall market is around 50% by us out of an analog theres no reason that we shouldnt expect prostate to get there.
Right.
So that's what we're working on so yeah, I think I think it's a little bit of both to be honest.
Got it thanks for that Mark that's it for me thanks, guys.
Thank you.
Our next question comes from <unk> with Morgan Stanley . Your line is open.
Hey, guys good evening and thanks for the time here.
Maybe to kick things off you know as we think about your lung portfolio.
Can you just share with US you know how how should we think about the relative contributions from in <unk> versus <unk> on the one hand, you now have these updated clinical practice guidelines, but there's relatively limited therapeutic options for IPF, but on the other hand.
Lung cancer screening adherence remains relatively low so as you think about the medium term here any any color you can share on the relative sizes of <unk> versus <unk> and then of course eventually nasal risk.
Yes. It has at this point the relative contribution from both of them in terms of revenue was relatively small because two reasons one the at the early stage and two for the last couple of years. They were both severely impacted by Covid given.
Physicians that we're targeting and the procedures.
Yeah as I mentioned in the remarks medium Vizio grew really nicely. This quarter. So I'd say you know in visitor is starting to show good traction and then getting getting those guidelines out with so much extensive discussion around even busier and so.
Such a significant number of.
Of the respondents achieve recommending the use of enthusiasm.
I think that's a really encouraging sign for that product. So I think you know Nvidia is going to be a decent grower as time goes on and you know it's a little early to say post COVID-19 in terms of preceptor, GSC, how thats going to perform and of course nasal swab, but I mean, if you think about it that's by far the largest market.
We're tackling with our Pulmonology portfolio in and that's where we're putting the bulk of our investment in order to grow this.
Entire lung portfolio.
Got it fair enough and then Mark I mean, just given the broader market backdrop here and the geopolitical uncertainty.
Rob you know even concerns of a recession I mean are you revisiting any of your expansion plans with a focus on perhaps sort of near term revenue generating opportunities versus perhaps something which is important but potentially not going to move the needle for you for <unk>.
Let's say like two one off let's say plus yours.
And answered a similar question on the margin side as well as you think about optimizing your for the near term.
Yeah, Let me answer the first part and then Rebecca can answer the part of the path around margin, but it's as I say.
I think coming in obviously I came here in the middle of last year and worked very hard with the team to put together. The 2022 plan of course, we went out multiple years, because we have so many.
Large vectors of growth here for the business that are multi year. So we already made a lot of those decisions around what we would invest in them, what we wouldn't and allocate.
Allocated our resources Accordingly, I'd say the current macroeconomic environment doesn't make us revisit any of those at this point in and of itself because of the work we've already done.
I would say you know the by far the majority of our investment is going on those longer term vectors of growth right now.
But we're also not starving the marquee products investment, which is what you would ask us expect us not to do.
And so those long term opportunities for growth I think our goal I believe our goal is to move as quickly as we can to bring those products to market, whether it's nasal swab all the IBD products outside the U S make them available to patients we know what it's going to take to get there. So.
Really you know short of something catastrophic I don't see us revisiting.
Those are those plans to do that.
Meanwhile, we're making sure the Afirma decipher.
The rest of our products are continuing to get the appropriate level of investment.
And then on the margin side, John not a dissimilar answer so.
Outside of <unk>.
Wages, we haven't necessarily seen a large impact on our cost of goods and obviously, we do have opportunities to increase efficiency of the lab, which we are actively undertaking as well as increased efficiency of our collections process, which I commented on the script. So so those two things.
Benefit margin accordingly, and we're setting ourselves up for for really having a nice profile on a go forward basis based on the activities. We are working on in hand.
Another important factor is that we also are decently very well capitalized. So you know we did burn a very small amount of cash in the quarter.
But when it comes down to it we're managing this business to be plus or minus prosser.
<unk> minus breakeven and we will burn a little bit of cash. This year is as we go through some of the contingent consideration of the Helio acquisition and when it comes down to it we are very well capitalized we have the cash we need in hand to invest in this business and to run this business to profitability and we're excited to see where our.
Products deliver for patients and shareholders.
Got it very helpful. Thanks, guys I appreciate the time.
Thank you.
Our next question comes from Paul Knight with Keybanc. Your line is open.
You commented earlier on the <unk>.
Increasing volume post January .
February March how was that trending and should we kind of assume some sequential testing volume growth here in two Q3 Q.
Okay.
So Paul maybe I can take that.
So we did in my portion of the script, we did comment that we do expect to see sequential growth in the second quarter, and then to see a step back in the third quarter as we as we experienced typical summer holidays and it would be associated seasonality.
The area where of our business, where we see the most impact from Covid is in the Pulmonology.
Pulmonology franchise and when it comes down to it whether that's.
Growing gangbusters are impacted by Covid, it's really within the scope of our guidance range.
Afirma, we saw access improved throughout the first quarter, but effectively we're access for our reps with a challenge and perhaps January by the end of the quarter. We made it up so I would think about a foremost growth being more more driven by typical seasonality then really related to COVID-19 at this point in time.
Yes.
And then <unk>.
Would you guide us to in terms of the organic growth on test volume at the safer.
Yeah, you know I think we've given a lot of disclosure on the decipher franchise and the components of our portfolio, we're not going to get in the habit of guiding each each <unk>.
Product line by product line decipher is contributing very nicely to the total company overall growth rate and I would say is as additive to it but I wouldn't want to go beyond that okay.
Okay. Thanks.
Okay.
Yeah.
Our next question comes from Mike Matson with Needham <unk> Company. Your line is open.
Hi, guys. This is Joseph on for Mike.
One question about the manufacturing transition.
Obviously, a year or I guess more than a year out from that but is there any biopharma services or IBD development services that you guys will be ramping up or is there.
Are these tied down right now during the transition at all.
Or I guess is this purely manufacturing for the test kit and then I guess, maybe just building off of that for Biopharma services.
Can you maybe talk a little bit more about the.
The interest from pharma and your immuno oncology offerings, you guys had mentioned that a little bit in the prepared remarks.
Is there anything else with immuno grandmother be expanding into different countries or adding new services that you guys are looking at.
Yes.
Yeah.
Great question, a couple of things I would actually pass apart break apart the manufacturing transition from the Biopharma services offerings, they're really.
In many respects very separate does start with the manufacturing transition first that is the.
The work that we're doing to be able to make our own kits for the encana system at all.
Facility in Marseille, France in and that's the work that's going.
Going very well, we're doing it in several stages.
So you ultimately will own the whole end to end supply chain, but we have full continuity of supply during that time with our strong partnership with <unk>. So.
Whatever we need to service that IBD business, which pinpoint is primarily Prosigna next year will be Nvidia, we're able to we're able to get that on the other hand.
Talking about the Biopharma business, what's really great about Biopharma now as we've put the biopharma organizations of three companies together into one global organization and so yes, absolutely where we're driving hard internationally in the U S outside the U S and other parts of the world and offering our services.
Two biopharma partners, who.
Who are getting we're getting a lot of traction with those partners at this point, we announced as I mentioned, the Allison you brought that up and I know that's one of the that's one of the areas of I think strong interest that we're seeing in Biopharma I mean, using our proprietary assays, we're able to populate. These these databases with you know multi.
Cancer data metastatic initially.
And that's of Great interest to Biopharma partners as they're looking at the clinical trial development that companion drug development.
Looking at clinically relevant biomarkers trying to identify patients et cetera, so lots of great work going on in our Biopharma business.
We'll talk more about that.
In the in the future.
And one of the things I think one of the great things that comes out of those relationships and she is publications you know we're excited about some of the things that are going on there nothing we can really.
At this point too much but I think look for look for some really interesting potential opportunities in the future.
Okay, great. Thank you.
And then.
One more.
Obviously, you guys just announced the.
Inclusion of them busy and into those.
<unk> guidelines.
Maybe looking towards future the next year or so is there.
Any of your tests that you're.
You're hoping expecting for clinical guideline inclusion you know whether it would be.
Clubs guideline or I guess, maybe the bigger one the NCC guidelines.
I know decipher is already in there I believe afirma as also mentioned they are included in the guidelines so.
Yes, maybe any test in the future that could dramatically improve awareness or adoption.
Yeah, I mean, let me start with a kind of a macro point and then Tina maybe you want to talk about the approach with decipher, which I think is really a good illustration of the power of this but typically what we're trying to do with the evidence development.
You invest in it too.
Gang Kols support educate physicians and end up in guidelines as well and that Formula has worked very well for us in the past so whether it's nasal swab in the future which of course, we think should be in guidelines and we'd like to get it there or continuing growth in the number of respondents who recommend nvidia.
Or are continuing on our other products and of course, you know we're going to want to do this outside the U S as well and we do do this outside the U S as well with IP products, but Deanna do you want to talk a little bit about that.
The success, so far and what you got more room to go as follows.
I don't think we ever stop thinking about guidelines and.
I think they're very important and continuing to work on trials and to produce more and more clinical evidence to strengthen those guidelines. That's something that we continually think about and you know we're decipher is took several times to get to that point. We started out just with RP and then started getting more and more.
Strengthen and biopsy and that will continue we will continue to do that over time, and I think that fits in really well with what we just observed with envisage guidelines and they just they all have to start some place and I think that the.
The discussion that was highlighted.
That was actually quite good and it's just really focused on the key clinical value of our tests and that gives us something to go to the physicians and talk about and they are very very interested in those kind of discussions and there's nothing better than then talking to them about guidelines and you know and as you know has that start.
And we will continue to do everything we can to strengthen that over time, just like the same approach we used with decipher.
Tim.
Yeah, absolutely it makes sense all right well, thanks for taking our questions.
Thank you. Thank you.
Our last question comes from Suda with SBB Securities. Your line is open.
Hey, guys alright, thanks for the questions. So maybe first one I don't know if this was covered already but in terms of labor.
Labor costs were obviously seeing that labor inflation happening and number of labs, but just wondering I wanted to make sure.
I cover that video first.
Thing Youre seeing and is that reflecting into the margin.
Expectations for this year.
Yeah. Thanks for the question Puneet, Yes, we are seeing that to some extent just like everyone else is in the industry I.
I would say that we are managing it. However, we obviously just delivered great gross margins in the quarter and our outlook for.
For the full year is is in the low to mid <unk> on a blended basis, depending on revenue mix in any given period. So while we are expecting to continue to see that at its current state its not necessarily really biasing our margin expectations. At this point in time, we are offsetting it with efficiencies in the lab as well as really honing.
In our in our collections and ensuring we're optimizing optimizing those components of our business.
Manageable.
It's there.
Okay. Okay. Thanks.
That's helpful. In terms of I'm sure you've provided you provided some details on on nasal swab, but I just wanted to.
Understand I mean, we have seen different datasets on nasal swab from its inception.
Maybe just help US understand you know how should we think about the upcoming data set versus sort of what you have presented in sort of forming from.
In terms of the performance of the data or how meaningful it could be just help us understand where we stand in terms of the data here.
Yeah on that one I mean, Julia talked a little bit about this earlier on but.
I Wouldnt that data set isn't going to replace the great data that's already been presented.
Recently, it's another cut of the data that looks at smoking burden.
So.
We will continue to do that like produce cuts of the data we have done in the past.
That's why we launched a second set of data that shows the performance of the test. When you you took into account people with prior cancers and so on so.
We're continuing to look at that but in terms of the overall performance of the test I mean remember this is a test that is.
It's highly sensitive and highly specific it's good for rolling and rolling out.
As I mentioned in the script and the way we see it.
Being utilized in the market as you know for any patient who has had a lung nodule found by a L DCT, which as I mentioned earlier is very sensitive of finding a lung nodules.
We'll be able to use this test and I think it is the sensitivity and specificity make it very attractive for that.
Situation.
Because you know we're going to want to build confidence.
In the diagnosis. So the classifier enables us to do that by by the way the team built it and the incredible work that they did.
And so I think that's the right way to think about it and so I don't anticipate necessarily new data the changes that perspective.
Okay. That's helpful.
And then decipher continues to obviously do well, but maybe this question is more about a fair amount I think you guys had pointed out a number of times that this is now a very maturing product. So maybe just can you sort of elaborate how should we be thinking about the growth rate on on afirma longer term given the.
Sort of the magnitude of this.
It contributes to your revenue thank you.
Yes, thanks Neil.
<unk>.
Did our best to address that question, a little bit earlier on where we shared that in the quarter pharma grew close to 10% from a volume perspective, albeit slightly less on a revenue perspective for the reasons that I stated in the script and as we look forward throughout the course of 2022, I think the mid to high single digit.
But that was thrown out there is not unreasonable.
There's obviously later and it's the last place that lifecycle and we are excited about the contribution that the product does provide to the overall portfolio of our of our product from a growth perspective.
That being said, we're all we're all are in the stages of having it be one of the most successful diagnostics out there and therefore, obviously the curve does start to flatten at some point in <unk> and we are we are there I think the good news with Afirma, though is it is it also an incredibly profitable product.
And to that end it at as long as well as decipher really do help fund some of the great innovation work that that Julie and her team and the broader R&D organizations are really offering.
To the to the overall portfolio and offering to Tina and her team to commercialize. So so so well. So I think every every product has its place and we love Afirma for that.
And its overall financial profile.
The new site.
Okay got it and just last one if I can squeeze it in for Tina.
To see the performance here and the momentum behind it.
Decipher, but just anything that we need to know in terms of data or anything that we'd be ought to be watching out at <unk>. Thank you.
So yeah as Mark mentioned, we definitely will be presenting at <unk> and we certainly try to do everything we can to be at every major meeting and to have a presentation.
Obviously I can't go into the details of that but we will be showing data.
That really demonstrates that decipher increases utilization in the area of active surveillance and that is.
An area that has been hard to to show over the year. So we're very excited about the study that we're doing in combination with Doctor Spratt from case, western and with the NCI CR program.
Okay, great guys. Thank you.
Thanks, Tony.
This concludes the question and answer session I would like to turn the call back over to Marc Stapley for any closing remarks.
Great. Thank you very much Michelle appreciate it in closing I'd really like to express my appreciation for my leadership team.
And for all of our employees throughout the company.
We introduced a brand new organizational structure in January and through the collective teams hard work dedication and collaboration we're already seeing the benefits and that's reflected in our strong Q1 execution.
The clear focus of our team and bright lines of accountability are ensuring that we're optimizing on near term opportunities while delivering on those really important long term strategic imperatives, we talked about today.
We're also investing in our corporate culture, we completed some important work during the quarter to define the culture, we want to enable.
Two to enable us to drive our performance and achieve our ambitious goal.
Coming of global diagnostics leader employees at all levels and across all of the geographies have infused have enthusiastically embraced this opportunity to help shape, our company's culture and our future. It's exciting to see the collective passion driven by their desire to continue to see patients like keep ball and their families. All over the world benefit from <unk> Suisse.
Of diagnostic tests.
I couldnt be proud of our team we're more excited about weather aside is headed and I look forward to updating you on our progress in our next earnings call. Thank you.
Thank you. This concludes the conference call you may now disconnect.
Okay.
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Yeah.
Yes.
Yes.
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