Q4 2022 Veracyte Inc Earnings Call
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Good day, and thank you for standing by welcome to the zero site fourth quarter and full year 2022 financial results webcast.
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I would like to handle conference over to your speaker today Ms.
Sheila Goldman with Goldman please begin.
Good afternoon, everyone and thank you for joining us today for a discussion of our fourth quarter full year 2022 financial results.
With me today are Marc Stapley, <unk>, Chief Executive Officer, Rebecca Chambers, our Chief Financial Officer, and Dr. Tina Nova.
Cerus issued a press release earlier this afternoon detailing our fourth quarter and full year 2022 financial results.
This release, along with the business and financial presentation is available in the Investor Relations section of our website.
<unk> Dot com.
Before we begin I would 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 correct.
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 Exchange Commission.
Including verify its most recent Form 10-Q and 10-K.
In addition, this call will include certain non-GAAP financial 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 their website.
I will now turn the call over to Marc Stapley <unk> CEO .
Thanks, Sheila and thanks, everyone for joining us today I am pleased to share that we ended 2022 on an incredibly strong note hitting an important milestone as we delivered all high value test to more than 100000 patients and their physicians during the year, enabling better diagnostic prognostic and treatment decisions.
Pivotal moments in the rates against cancer.
Like to thank the entire verify team for their dedication and hard work and putting patients first.
Our fourth quarter results continued our track record of strong execution in high performance as we delivered record revenue of $80 million in positive cash flow from operations of $10 million.
Further our 2022 ending cash balance was slightly higher than the prior year. A result of our philosophy to balance cash generation with investing in our long term growth drivers we're extremely.
Really proud of our strong financial discipline and profile and the impact we're having on patients lives.
Delivering exceptional diagnostics to enable exceptional cancer care has never been more important the American cancer Society recently released data showing a 7% increase in prostate cancer incident versus the prior year.
Notably the greatest increase was among high grade metastatic cancers.
The design for test is uniquely suited to address these challenges given it is indicated for over 90% of prostate cancer patients currently and we and others are building evidence to demonstrate our test clinical utility utility in metastatic cancer as well.
The attainment of level, one evidence status for our test and the most recent end CCN guidelines for both biopsy in patients further differentiates decipher prostate from other gene expression tests.
This growing body of evidence for decipher prostate led to us delivering over 12000 test results in the fourth quarter, demonstrating further penetration into a market, where we believe the three out of four men with prostate cancer still don't receive a molecular diagnostic test.
Our evidence generation efforts are one of the most important and differentiating components of executing our strategy to address the large untapped market.
In 2022 alone that will over 40 scientific abstracts and publications, demonstrating the prognostic and predictive value of the decipher prostate test.
Further we engaged in 'twenty, three phase II and phase III clinical trial collaborations with some of the worlds most prominent prostate cancer researchers.
Last week data from three trials of the cancer clinical Cooperative group NRG oncology were published in the International Journal of radiation oncology Biology physics, the Red journal, suggesting that the size of the prostate test provide prognostic information to help personalize treatment decision, making.
These findings represent the first validation of any gene expression biomarker on pretreatment prostate biopsy samples from prospective randomized trials.
Our focus on serving Urologists also includes our decipher genomic resource for intelligence discovery of grid database reports, which we share on a research use only basis with physicians, who ordered alongside to decipher prostate genomic classifier.
We recently introduced an enhanced version of grid to provide more granular genomic information about a patient's tumor based on whole transcriptome biomarkers that have been broadly evaluated in the diagnosis prognosis and treatment of prostate cancer.
Our approach to running our whole transcriptome on every patient thoughtful uniquely enables this capability.
Further we believe that our the size of the Greek database is helping to advance the science around prostate cancer molecular subtypes and emerging area of increasing interest for researchers.
Among six decipher focused abstracts presented at the <unk> <unk> cancer Symposium last week, one study's findings suggested that a decisive with drive signature can enable more personalized prostate cancer treatment decisions for patients based on their molecular subtypes.
This study demonstrated for example that after a radical prostatectomy.
<unk> with basal immune tumors derived the greatest metastatic free survival benefit from post operative radiotherapy.
While those with other subtypes did not see the same benefit.
Additionally, in men with metastatic disease, those with luminal proliferating Cumulus had the greatest survival benefit from the addition of Docetaxel to androgen deprivation therapy.
Looking ahead to 2023, we believe that with our exceptional test robust clinical evidence world class sales team and effective marketing programs. We are uniquely positioned to continue driving adoption of our decipher prostate test in a growing market that is still only 25% penetrated.
Moving to Afirma.
Momentum continued to build in the fourth quarter, which resulted in a new record for test and revenue delivered.
We reported over 12, and a half thousand afirma results with growth driven by new accounts, including competitive wins and expanding utilization in our existing accounts.
As we've said previously we expect this momentum to continue into 2023, driving afirma revenue growth in the mid to high single digits.
Similar to decipher, we continue to leverage our strong and growing library of clinical evidence to support the continued adoption of Afirma.
This included the publication of a meta analysis of 13 independent studies in the journal of clinical endocrinology and metabolism.
Showing that the test real World performance was similar to and in some cases, even better than the original clinical validation results.
This study, which covered nearly 2000 patients with indeterminate thyroid nodules further demonstrate the clinical utility of afirma and helping to avoid unnecessary surgery for hundreds of thousands of patients.
As we evolve and enhance our test we believe we will continue to further penetrate this market, especially in areas, where we can provide valuable information around personalizing treatment such as guiding the extensive surgery.
We also continue to focus on enhancing the customer experience, including making the test as easy as possible to order and use.
The previously mentioned in Q3, we introduced an online portal to enhance the ability to order test kits track progress and see patient test results.
Customer adoption has been encouraging and the portals uses enabling us to deliver test results to physicians and ultimately to their patients sooner by streamlining the process.
Yes.
We recently published data demonstrating our ability to derive insights from our expensive thyroid nodule database and whole transcriptome sequencing capabilities.
This study published in frontier and Endocrinology suggests the ability of Afirma testing to help further personalized care for patients with thyroid nodules by informing on Ts HR, a rare gene mutation.
We believe this is just one example of how the unique whole transcriptome data available from our Afirma test enables insights to help further advance the science around thyroid cancer and potentially enhance the information the test provides to clinicians.
Decipher in Afirma adoption of great illustrations of the proven framework, we utilized which starts with identifying a specific clinical unmet need.
Then we develop a test to address that need along with securing the clinical evidence reimbursement and guideline inclusion to drive market penetration.
The successful approach enables us to invest in our long term growth drivers, namely our preceptor nasal swab in lung cancer and the in vitro diagnostic or IBD versions of our tests for global expansion.
During the quarter, we continued to make progress on the Nightingale clinical study designed to demonstrate clinical utility and support reimbursement for a preceptor nasal swab test.
This study remains a key focus in 2023 as we aim to complete enrollment around the end of this year.
Level of interest from trial sites continues to be high and we are adding more sites and patients every month.
We are excited about the potential of the preceptor nasal swab to benefit patients and physicians as a noninvasive test that helps guide clinicians next steps for patients with potentially cancerous lung nodules, while also contributing meaningfully to the company's long term growth.
Our strategy to deliver IBD versions of our tests to physicians and their patients outside of the United States is another key long term growth driver.
As I have previously shared we were aiming to submit our envisaged genomic classifier to European regulators in 2023, and I'm pleased to share that we actually achieved this goal in December ahead of schedule.
I would like to congratulate our IBD team and supporting functions for hitting this impressive first milestone.
While the commercialization efforts will begin post the completion of the regulatory process, we have initiated pre marketing activities in Europe , including training ourselves and market access teams and Kols education.
Our other IBD development projects remain on track for regulatory submission. According to our previously announced schedule decipher prostate in 2024 and perceptive nasal swap in 2025.
Both projects are progressing very well and hitting that key internal milestones.
In addition, the second phase of our transition of our IBD kit manufacturing from nano string to our facility in Marseille is on scheduled to be completed around the end of this year.
One of our other long term growth drivers is our Biopharma business. We were pleased to share three abstracts at the society for immunotherapy of cancer annual meeting highlighting our unique multi ohmic immuno oncology capabilities and offerings.
An example, abstract was focused on data derived from the pioneer project, a large international trial evaluating patient responds to immune checkpoint inhibitors.
This study suggested that use of <unk> bright flex technology could help refine the stratification of patients with advanced non small cell lung cancer, who are more likely to benefit from immune checkpoint inhibitor therapy.
In 2022, we added many new pharma customers.
Expanding our outreach and forging a stronger presence in the U S market.
While we see significant opportunities to help our partners advanced our oncology drug development programs. We also anticipate some near term unfavorable impact on our Biopharma business due to the current macro environment and have incorporated this in our guidance for the year.
Before closing I would like to share some organizational updates.
I am extremely pleased with the strong experienced leadership team that we have assembled which is as passionate as I am about advancing various sides global vision.
I am delighted to share that we have promoted Andy Mcgwire, our general counsel to an expanded role of GC and Chief people Officer.
In this role Andy will not only lead our legal organization, but also our HR team.
Driving our efforts to embed <unk> unique culture, while also attracting and retaining world class talent to ensure our ability to scale the business.
In addition, Rebecca Chambers, our CFO has recently taken on an expanded role.
Now also leads are clear operations teams, helping to drive continued strong execution and consistency across our three clear sites in the U S. As they deliver our tests to physicians and patients.
During 2022 as evidenced in our results Tina Nova has provided incredible leadership to a clear organization and our three businesses of urology endocrinology in Pulmonology and the U S.
Given the progress made in the strength of leadership. She has built in a clear team, including John light as GM of Pulmonology and market access and brand better as GM of our Afirma business. Tina is us continue to support the cypher franchise, while also pursuing other personal interests outside of Aero side.
To enable this John life is now reporting directly to me and is also providing leadership and oversight to the Afirma business supporting brand while Tina focus is entirely on urology also reporting to me.
We are delighted that we will continue to benefit continuous leadership and experience as we grow our business.
Looking forward into 2023 strategic focus areas of very clear number one.
To fuel near and mid term growth by further penetrating the underserved prostate in endocrinology markets.
To invest in our long term growth drivers of nasal swab and IBD products as well as in our business infrastructure to grow and scale.
Three responsibly manage our portfolio with an eye to profitability and cash generation.
We'll continue to look for new opportunities to expand our testing menu beyond current indications.
It is through this clear focus and alignment to verify is positioned to deliver our exceptional test to even more patients I.
I could not be more excited about <unk> future or more grateful to work with our passionate employees and delivering our vision of transforming cancer care for patients all over the world.
With that I will now turn to Rebecca to review, our financial results for the quarter and expectations for 2023.
Thanks, Mark as Mark said, we had a record quarter with $83 million in revenue an increase of 19% over the prior year. We grew total volume to 28000 tests, a 26% increase over the same period in 2021 testing revenue during the quarter was $70 3 million.
An increase of 32% year over year, driven by higher than expected decipher prostate in Afirma volume total testing volume was approximately 25500 tests testing ASP was $2700 as we benefited from approximately one $5 million of better than expected.
Cash receipts due in part to catch up Afirma collections.
Fourth quarter product volume was approximately 2300 tests and product revenue was $3 $2 million up 17% year over year.
<unk> pharmaceutical and other revenue totaled $6 $8 million down 39% year over year, driven by the $4 million milestone received in the fourth quarter of last year.
Moving to gross margin and operating expenses I will highlight non-GAAP results, which exclude the amortization of acquired intangible assets other acquisition related expenses and restructuring costs, but does include a routine stock based compensation.
non-GAAP gross margin was 67% up approximately 50 basis points compared to the prior year testing gross margin was 72% up 300 basis points compared to the prior year benefiting from higher lab volume and long data collection.
Product gross margin was 19% as we continued to be impacted by expenses related to the transfer of the prosigna manufacturing to our Marseille facility and 2023, we expect product margins to be back at historical levels.
Biopharmaceutical and other gross margin was 30% down year over year due to the milestone recognized in the fourth quarter of 2021.
non-GAAP operating expenses, excluding cost of revenue were up 11% year over year at $51 $1 million driven by ramping clinical trial in project expenses as well as higher personnel costs.
Research and development expenses increased $1 5 million to $11 1 million sales and marketing expenses increased by 2 million to $23 2 million and G&A expenses were up $1 4 million to $16 8 million we've.
We recorded a GAAP net loss of $3 8 million, which included $7 million of stock based compensation and $6 6 million of depreciation and amortization overall, we increased our cash position by $9 million compared to the prior quarter. We ended 2022 with $178 nine.
Cash cash equivalents and short term investments higher than the balance of 177 4 million at the end of 2021.
Turning now to our 2023 guidance, we project total revenue of 325 million to $335 million or 10% to 13% growth year over year.
Our guidance reflects testing and product revenue growth in the mid teens <unk>.
Biopharma and other revenue is expected to decline year over year, given the impact of a sizeable biopharma customer pulling back on planned spending the current macro environment and the continued transition of our manufacturing resources from our IBD services business to our in house IBD development.
For the first quarter, we are forecasting a sequential decline in revenue given typical seasonality.
We expect non-GAAP gross margin, excluding the impact of intangible amortization to be in the mid <unk> for 2023, roughly in line with 2022, as we implement operational efficiencies to help offset rising costs.
Moving to our expectations for cash as always our comments, our borrowing potential M&A as well as the known impact of prior acquisition related contingent consideration expenses.
In 2023, we anticipate being able to continue to invest in our long term growth drivers, while maintaining a roughly neutral year end cash balance. We also believe we are fully funded to take the business to profitability.
For Q1, we are forecasting a usage of cash given the usual timing of compensation payments, including bonuses and taxes.
I am excited about the momentum we have heading into 2023, and our continued focus on executing against our strategic vision.
We will now go into the Q&A portion of the call and Dr. Tina Nova will join US operator, please open the lines.
Thank you.
As a reminder to ask a question. Please press star one one on your phone.
Your name to be announced to withdraw your question. Please press star one again standby as we compile the Q&A roster.
One moment please file first question.
Okay.
Our first question will come from Andrew Bruckner of William Blair. Your line is open.
Hi, good afternoon, thanks for taking the questions.
Maybe just starting on guidance Rebecca maybe can you just unpack some of the key assumptions underlying the range here, just trying to sort of better understand the building blocks here between volume assumptions in Asps and.
And I guess just related to that I heard the Q1 commentary on pacing, but anything else that you'd call out here.
Yeah, Thanks, Andrew for the question.
We were pretty explicit about the assumptions from a testing and product basis in the commentary of mid teens for both.
And won't necessarily go into the volume versus ASP assumptions for that broader than saying on the affirm aside we do expect mid to high single digits and that will be a mixture of the two.
Decipher side, we expect asps to be roughly roughly flat on a year over year basis with the.
The growth coming more on the volume side.
Product as mentioned, we said mid teens and then Biopharma another would be your plug to get to the guidance range and so that is a decline on a year over year basis for the reasons cited in the prepared remarks.
Importantly, we are excited about the biopharma business over the longer term and are.
Really being impacted hereby, one bespoke customer as well as expectations on the overall macro environment as well as moving some of our IBD resources around.
Help satisfy our own development needs, which we are excited about over the longer term as well.
And so hopefully that helps answer your question, but obviously with the vast majority of revenue coming from our firm and decipher we have a great outlook for both of those products in 2023.
Very helpful. There and then I guess the second question that I had was really around Nightingale. If I heard you correctly I think you said that should finish enrolment by the end of the year, just sort of knowing that how should we be thinking about timing for a readout of that study and then I guess just relatedly there a launch of the product following data readout. Thanks.
Yes, Thanks, Andrew.
And as we've said before I think the first key milestone is exactly that one that we complete enrollment around the end of this year.
The first real indication here that things are progressing as they should be.
As we're expecting them to on the Nightingale trial now after that of course, we have to take.
Chris looks at the data.
We have to see what that's telling us.
We have some follow up to do of course on patients. Yes, you have to follow them for a period as I've said before standard of care is two years.
But there are some some publications and data out there around one year follow ups.
So we will look at that along the way and see what it tells us.
And then that will that will be the next time, you'll probably hear more from us on that and then that will help guide both reimbursement and then the pre marketing and commercial activities.
Goal is to do a lot of this in parallel and try and get it get us to a point, where we've got a lot of kols support for the product where we're heading towards over time, we want to get to guideline inclusion and things like that the standard formula that we talk a lot about what we've done successfully on other products.
More to come on that in the future Bill as I said first key milestone is completing the Nightingale enrollments.
Okay. Thanks for taking my questions.
Yes.
Thank you.
One moment please for our next question.
Our next question will come from Matthew <unk> of Goldman Sachs. Your line is open.
Hey, guys. This is Dave delahunt on for Matt Congrats on the strong quarter.
<unk> been very successful with M&A in the past as you mentioned it remains.
A key pillar of your strategy Youre generating cash.
Can you talk about.
What youre seeing in the market for bolt ons.
In about valuations for potential targets softening, which could create some opportunities.
Yes, and maybe just kind of take a bit of a step back just talk about how how we grow.
Our business, we've talked a lot about where the organic growth comes from Inorganically. It could be a combination of partnerships and M&A on both.
Both of our areas, we continue to and always have looked at with respect to M&A I would put it into two categories you mentioned one of them.
The first one I'd say is if you think about decipher and that acquisition, which has been incredibly successful for us products that are at that stage of commercialization evidence development is that.
It's the case now.
Generating and contributing to revenue and hopefully cash generation in a fairly reasonable timeframe. Those those will be clearly very interesting to us that there is not a great deal of funnel out there.
And then the second is bolt on technologies, and small acquisitions and things like that and again. Similarly, we've always looked at those kinds of things and continue to do so.
But we're very focused on preserving our cash and only using it for the most.
Clearly.
<unk> needs for the company.
And so no change in our strategy there around M&A.
Got it.
Okay.
So you've successfully built out portfolio to include most of the top cancer indications.
Any other cancer indications.
That.
You would not be interested in expanding into.
That's a good question I wouldn't say I would never say never in terms of indications, but theres a couple of ways that we can expand we've talked about this internally within our current products that leverage our existing sales force would be expanding within the indications that we currently have meta.
Metastatic prostate cancer is a very good example of that bladder is another. Good example of that where we can leverage our existing sales force and then beyond that we obviously need to need to think about that a little differently in other indications, where we currently don't have a presence.
But all those are possibilities.
<unk> and Inorganically as well, but.
I wouldn't say, there's any areas, where specifically within can firm we've been very clear that our focus is in oncology.
It wouldn't be an area that might be of interest to us, but like I say, our core focus right now as a company is those four things I said in the first couple of those will grow our business based on the indications that we're currently in and continue to invest in these long term growth drivers that we talk about those are substantial meaningful and take a lot of.
A lot of resources in our company.
Great. Thanks.
Yes.
Thank you.
One moment please for our next question.
Okay.
Our next question will come from Puneet Suiter of VEB Securities. Your line is open.
Yeah, Hi, Mark.
Thanks So.
First one.
If you could clarify on the Biopharma revenue sort of.
What's the momentum here and what the.
A number of projects that you have.
At some point you had disclosed who does what those partnerships were.
How should we think about this business.
Longer term and just.
Maybe help us help us parse that out a biopharma piece out for 'twenty three.
Yes.
To do that and then Rebecca you may want to add on here, but the the Biopharma business remember is.
Three businesses that we put together.
We have assets products in immuno oncology as well as our.
Vast databases.
<unk> come from a whole transcriptome work in.
In endocrinology and prostate as well.
One of the things that we've been very successful and that business is driving repeat business, which means we're doing a really good job for.
For the customers that we have and notwithstanding macroeconomic or budget decisions from them. We've been very pleased with the level of follow on projects and oftentimes plenty of these projects start as you kind of what I would call small foot in the door projects, where we build that relationship and that show demonstrate our capabilities and expand from there.
Sure.
One of the things we've been focused on more recently is also growing.
Set of customers that we work within one of the things. We've done. This year is we've added a number of new customers. So diversifying.
And reducing the level of concentration that we have.
So thats one of the reasons why you've heard our guide from Rebecca here around this which is in the near term.
We're conservative about.
Cautious about the growth there, but it's very much continues to be a long term growth driver for us we're seeing a lot of success with new customers, we're seeing a lot of success with existing customers.
And so we remain excited about it and just a few things to add there puneet. So I think when you think about the biopharma in the other line recall that spike to Mark's point that the biopharma business, but as well the IBD manufacturing and development business historically over the course of 2022. Those are roughly 50 50 in terms of revenue contribution as we look ahead.
Given our focus on our own IBD development.
That will that relationship will change and there will be more concentrated in the biopharma piece.
And last point would be to say that absolutely. We have been very concentrated from a revenue perspective, but actually our number of customers that we have added over the course of 2022.
It really diversifying the portfolio as is call. It three around three times more than the number of customers that we haven't in the contract contributing the vast majority of our revenue. So I think when it comes down to it we're becoming more and more diversified to Mark's point.
In that revenue line and that's going to help us over time have biopharma. Another revenue that is additive to total corporate growth as opposed to what is happening in 2023.
Just to add one more thing that I thought of as we were talking here Puneet is the there are three primary areas, where we're working with Biopharma and one is.
In terms of identifying clinically relevant biomarkers and thats, probably the area that gets the most hit needs. In these situations to is identifying patients for clinical trials and stratification of the patient population and then three which is much smaller than further out as companion diagnostic development.
And so again, we're relatively diversified in terms of how we work with <unk> with umbrella in terms of how we work with Biopharma partners.
Okay. That's helpful.
I'm not clear.
Provided and I apologize if you provided earlier, but the site for <unk>.
Volume contribution in 2023 guide I think you said asps will be flat and did I hear it correctly that Tina.
Transitioning some or all of her duties in could you outline.
The transition plan here, obviously Tina.
Been instrumental since the acquisition of decipher and for the whole franchise of prostate.
Yes, let me, let me clarify again and repeat some of what I said in the prepared remarks and open up to Tina do you have any comments, but the team has been leading our entire clear business. So that includes pulmonology urology endocrinology in terms of those.
<unk> teams as well as our market access not CLIA lab operations, which includes the labs themselves billing and customer care and so if you think about that that was an incredibly broad scope. If you just look at this site for a loan business that since acquisition on a quarterly run rate basis is essentially doubled in that timeframe and grown <unk>.
<unk> and so one of the things.
Tina and I agreed was especially given the talent and she's brought in and grown and the business. We got into a point, where athene is able to focus on neurology, but also some other things and not have to spend her entire time working on that vast portfolio that I. Just described to you or anything you want to add to that.
As you know Puneet, I love Urology, and I'm really happy to be focusing on it entirely and as Mark said, it's grown so fast and there's so much happening in neurology and so it gives me an opportunity to really spend more time on it which is I think it needs it and I love it but we also have an incredibly strong team.
Now.
That was brought in as I still saw much better about having all of this help then great people like John and Brent and Rebecca taking overlap ops, and we just really needed to expand that.
The good news is we're having such great growth that we're able to do this and it's the right thing to do at this point. So I am excited about at night, you may have seen that the cancer numbers have gone up and in prostate.
It's the one cancer.
Everyone's really focused on for growth and so having more attention on it I think it's going to be helpful. As well to a degree and then Brian you did ask if need be.
Explicit decipher gross number in guidance and the answer there is not explicitly given the concentration of our revenue between Afirma and decipher and the comments made you can very easily back into what we are assuming now.
Okay. Thanks for thanks, Thanks, and thanks for clarifying that.
If I may just ask one question that we've been getting from some investors is the IBD transition up and counter.
Could you update us.
So I think you talked about the timing by the end of this year, but could you update us on any additional payments that you need to make the nano strength.
As part of taking on that manufacturing what sort of investment is required here from from the <unk> point of view.
Yes, So let me let me talk about the process and Rebecca you can share with respect to those payments investments.
Taking a step back if you think about it there were a couple of key milestones we've been tracking here. One is the submission of three products to the notified body. The first being envisaged a second site for prostate in the third nasal swab and as I mentioned in the prepared remarks, we actually submitted and Vizio in December ahead of the schedule, we talked about and now.
Waiting for the regulatory response and process to play out and so that was fantastic and again congratulations to everybody who worked on that.
Second part beyond the assay development submission for IBD or is the transition of manufacturing to say so that we are.
Producing the kits ourselves in our own facility and Thats been done in several parts part one is behind us.
But the actual part of getting to the final manufacturing transition as plants around the end of this year.
Progressing extremely well.
The third part of that is the instrument itself.
TBD on how we proceed with the instrument obviously in the meantime that upswing is producing that instrument for us.
We're making great progress on that as well Rebecca currently yes, a couple of things to add on the specifics.
Sure Puneet from a capex perspective, there will be some capex over the course of 2023 for the transfer, but nothing that will come.
Nothing from a materiality perspective, if you will.
They are relatively minor in nature.
Specific to cash.
And contingent consideration payments and recall just as a reminder, our guidance around cash as excluding the impact of contingent consideration payments and theres actually two to be aware of one is the Haley <unk> contingent consideration, which will hit in the first third and fourth quarter of this year.
And that's around $9 million and there is an incremental in.
An incremental up to $7 million tied to nano strain that may hit also in the back half of 2023.
And that would be for the launch of two products, one of which hopefully we haven't lithia.
We have <unk> approved over that timeframe, albeit that's out of our control and then the second for planning purposes more so than discrete information we have a partnership that has been publicly announced that we.
There is a potential that they will be launching their product commercially on nano stirring as well, which would trigger a second milestone payments for their contingent consideration and so those are the assumptions embedded in the cash guidance as well as what.
Yes, it would be the case in payments to <unk>. If those products are commercially launched in 2023, so close obviously hitting those two payments.
From a signal standpoint, indicating that we are now on the path to a commercial product or commercial products and so those are good payments that we that we would be making at that point.
Got it helpful guys. Thanks.
Okay.
Thank you Mike.
One moment please for our next question.
Our next question will come from Nathan Pellicle.
Stephens Inc.
Your line is open.
Hey, guys congrats on the quarter, maybe just two quick ones here.
First maybe if you could provide some color on it.
And maybe a timeline framework.
With these kids tests now that Didnt Vizio has been submitted I know you just touched on it a little bit but.
How should we think about it from a timeline perspective.
Getting a regulatory decision and maybe seeing some reimbursement or coverage just as we think about <unk> as well as obviously deciphered in the other products as they rollout.
Yes, it's a really great question.
One of the one of the first.
Challenges that we have to get through the regulatory approval submitting as deposits within our control and responding to their queries and comment as to a large degree within our control, but the actual timeline is no.
So it's also hard to predict right now because this entire IBD or process, which replaced the old IBD process is.
Somewhat of an unknown quantity both to them and to us and so these first few products that go through this process, we're going to kind of place the trail a little bit.
So that's the first thing that puts a level of uncertainty around it now in the meantime, as I mentioned earlier in the remarks, we can do some parallel activities in terms of Kols generating kols support and so on but to your to the other part of your question I mean, if you think about it getting the regulatory approval is just.
One important part of the equation really important one while we can do that for the entire European market that doesn't mean, we get reimbursement for the entire European market that is a country by country activity. One that were experienced that because that's exactly what we've done and are doing with prosigna.
Exact same platform. So yes, again, we still have to go country by country and get reimbursement for the test and then of course, you have to drive adoption.
A lot by lot.
That's kind.
Kind of dictate the timeline that we're going to have to go through there.
But again as I mentioned, it's something that we have the team to do and we have the experience to do them and so we'll take that in Australia somewhat.
In terms of the demand remember Nvidia is a rare disease and there is not an incredible.
A number of indications of sorry instances on an annual basis, even in Europe .
The site for prostate on the other hand is a much greater market with what feels like quite a bit of pent up demand for that product.
And so our belief is by the time, we get to cipher launched then at that point, we'd have three products on the menu at least and that really starts to help inflect adoption more so than <unk> alone with Prosigna would if that helps.
Got it yeah, that's helpful and on that point.
For the decipher submission given that Nvidia was submitted ahead of schedule and any incremental color you can give around when decipher would be submitted next year first half back half, how you're thinking about that.
Yes, there's no real read through from getting Nvidia done earlier in respect to the other two products for the simple reason that all three have been progressing in parallel anyway.
And so it doesn't actually accelerate our timeline for decipher no more color then.
We are anticipating to submit this LIFO in 2020 for nasal swab in 2025, obviously the earlier, we can submit to slide for the better.
And so that's a key focus for us.
Got it that's helpful. Thanks.
Yes.
Thank you.
Again, one moment our next question.
Okay.
Our next question will come from Mike Mattson.
Needham <unk> company your line is open.
Thanks, I guess I just have two questions a lot of my questions already asked but just on Opex I know youre, not giving specific guidance, but it looks like consensus is I think around $250 million give or take and implies sort of like 60 $65 million in the quarter roughly.
Does that seem reasonable.
Are you talking on a GAAP or non-GAAP basis, just so I'm answering apples to apples.
Yes, good question <unk>.
We're modeling things on a on a non-GAAP basis.
Yeah.
Okay.
So, yes, I think thats, roughly roughly reasonable plus or minus a bit we have a couple of important drivers that we're investing in for next year, which will lend themselves to.
Up in 'twenty three versus 22, the first of which obviously is nightingale.
Which is an investment we're happy to make given the market size for the nasal swab and the opportunity it presents itself.
We're also obviously investing in the IBD product.
That is not necessarily a large delta year over year outside of the manufacturing transition, which is a slight pickup and then importantly, as we bring through this as.
As we continue to progress in building the foundation for long term growth, we are investing a little bit more on infrastructure to really kind of.
Hi provide cohesiveness, if you will across across the company and really ensure we can can scale for growth and so that will also impact the G&A line a little bit commercial.
Sales and marketing I wouldn't necessarily expect to see.
A ton of incremental investment there outside of.
A handful of heads here or there to support the continued growth of the urology franchise.
Okay got it and then my only other question or just be around.
Let's say for the bladder test.
Any sort of updates there.
Yes.
So.
We are working on extending the decipher franchise further into bladder as you know, it's a smaller market and I think there are some further.
For next year, it's been estimated a little over 62000, new cases flattish answer for 2023, just to give you a percent to 70% of that is in non muscle.
The rest is in muscle invasive our current test is in muscle invasive and is for a small portion of the market as you know, which is just whether to use chemotherapy prior to a second lien.
But we're working very hard gathering more data and working on clinical trials to extend that.
Further into the indication.
Okay got it thank you.
Thank you.
One moment please for our next question.
Our next question will come from the line of Sevan.
Morgan Stanley Your line is open.
Hello. This is Hugo on the call for Tito. Thank you for taking our questions.
Maybe following up on the prior question on in this regulatory submission I know there are many moving pieces, but is it reasonable to assume meaningful contribution for that product could be 24 event and how should we think about pace of adoption given there is already a meaningful install base of encounter systems in Europe .
Yes, I think again as I said earlier to me the real inflection here in terms of our IBD strategy comes from the launch of the test like decipher prostate which has a.
A much larger market and Nvidia does plus.
Plus the path and the journey to get envisage both reimbursement adopted includes guidelines support outside of Europe , and the test hasnt been available outside the U S.
In Europe , and so that's a a pathway that our team is trying to.
<unk> right now.
And so no I don't think you see a major uptick there from getting and Vizio are approved right away. If you look at the U S.
<unk>.
<unk> adoption has been slow again because of the fact that it is a rare condition and theres a lot of work to do to move an entire market that doesn't use a diagnostic test in interstitial lung disease over to begin to use one like this.
So we're going to have to do that outside the U S. As well so I think I think think about it like.
It certainly helps and again, we learn a lot from both launching the test on the product and going country by country and driving reimbursement adoption that again helps us.
With the decipher prostate test and of course also menu I mean, we've talked about this extensively having multiple tests on the platform helps drive adoption, which leads to your other point yes.
Around the installed base, there's a meaningful installed base out there now.
And so that's obviously one of the first things that we do in currently already doing with respect to driving adoption of Prosigna and so we'll leverage that foreign Vizio and then subsequently for decipher.
And at the same time, we're working country by country and by lab too.
To increase the installed base and we're making some good progress there.
Okay that was super helpful and then on the firm.
What drives the growth of high single digit another guy versus mid single digit another guy.
Is this more about how many.
How many new accounts with sign up or more about increased utilization for existing users or new payer wins.
It's actually the first two more southern payer wins in <unk>.
Because the farmer is extremely well covered it is both driving into new accounts and we've talked about this before the long tail of accounts of physicians, who haven't yet adopted afirma or in.
Any other test that does similar things to Afirma.
But it's also within existing accounts driving greater adoption, we've seen both of those dynamics over the last.
Year, and especially we talked about that a little bit today on the last quarter.
<unk> is continuing to push on that Thats, what might drive towards the high end.
<unk>.
I was just going to say, obviously to ensure we get the benefit of a tailwind of ASP for a farmer over the course of 2023.
We've worked through that we've worked through the impacts that we have cited previously over the course of 2020 Q4 ASP for Afirma. So we should naturally have at least the net neutral.
Position going into 'twenty, three, albeit we do expect as I mentioned earlier ASP to be more of a tailwind to affirm event than a headwind and so I think depending on how successful our our billing team is and collections that that can vary from anywhere from a small to large tailwind as well so I think between the.
Impact Mark cited as well as the impact.
There is varying shades of gray here in terms of the goodness that we're seeing in <unk> and whether it's mid or high will be highly dependent on how each of those backstop.
Thank you.
Thank you.
And one moment please for our next question.
Our next question will come from Andrew Cooper Raymond James Your line is open.
Hi, everybody. Thanks for the question a lot's been asked so maybe just one starting on gross margin.
You talked about offsetting some of the horizon call. It feels like others have talked about inflation that we're seeing a little bit more stable now relative to where it was in terms of general cost. So just help us think about.
Some of the moving parts, there, obviously mix and how that may impact.
The gross margin trajectory throughout the year.
Yes happy to you as you think about gross margin and inflationary excuse me inflationary impact.
A good portion of our Cogs at least on the testing line are related to lab supplies and reagents and given its the beginning of the year our contracts.
Technically allow for some sort of reset as you would expect at this time of year, which is why we're feeling it a little bit more.
Today than we would have been six or seven months ago, when it would've been more wage related.
As we look forward over the course of 2023.
And we did do a number of things over the course of 2022, which will see the benefit us.
Help offset some of those.
Reagent cost increases as well as salary increases that we typically see starting at the beginning of the year and so on testing and we do expect to see testing gross margins in those high 60 type ranges not necessarily the 72, we saw in the fourth quarter, but that back more towards a more normalized level of the high <unk> and then obviously.
On the product line, we've already given explicit guidance there so I won't necessarily reiterate it and then on the Biopharma and other line we do expect.
<unk> gross margins to be more in the low 40 ish range and that's more dependent on revenue mix or type of revenue in that in that line in any given period than anything else and so that can fluctuate probably even more meaningfully than any of our other lines for on the growth from a gross margin perspective.
So when you sum all that up.
And any given quarter.
<unk> mid <unk> is a good estimate and I am sure. We will have a little bit of fluctuation of course through the year, but that is going to be highly dependent on the timing of.
Different factors and so nothing trend worthy to note.
Okay. That's helpful. And then just I want to make sure on the Nvidia.
Potential launch when we think about the manufacturing transition timed with that is nano staying there to support and manufacture at the start or is that something where you need to have that transition.
Kind of in place to make that launch happened how do we think about how those two pieces really are times together.
Yes.
They are really not in terms of how you think about it I mean clearly there are some things that we have to think about there in terms of the tactics, but if you think about the manufacturing transition today, we're already doing it for the Prosigna kits alright. So so the first kit that we transition over as Prosigna and then.
Depending on the timing of the launch of Nvidia will determine whether or not it's coming straight out of our manufacturing supply chain or it's coming.
Now I'm, assuming but either way it doesn't make much difference the timing of these things and I think if you think about the regulatory approval from vizio, it's more likely than not that it is going to come out of our own manufacturing supply chain, because it's going to take a while to get the.
The approval.
And then drive adoption as I mentioned earlier.
Great I'll stop there I appreciate the time.
Thank you.
Thank you.
And one moment for our next question.
Our next question will come from sung <unk> Nam.
Tom.
<unk> Bank your line is open.
Alright, thanks for taking the questions and congratulations on the quarter.
So I don't know if this is a moot point at this point, but wondering kind of what the status might be on the the clinician access the patient access at this point.
The different product lines.
And also including for.
The Nike held steady.
If you essentially have full access at this point or if there are any potential kind of handicap you guys are working with in terms of staffing shortages.
Are there other.
Restricted access.
At this point.
Yes, and thanks for asking I mean, as we sit here now in the first quarter of 'twenty three we were really lapping the omicron.
Situation that we've dealt with a year or so ago and so now it shows up in the comps, but in terms of our current business, especially with the testing that we do.
Firmer in the site.
Really don't hear much about access at all.
Staffing shortages to a degree but again in those areas not very much.
Where we do hear about staffing shortages and again this isn't an access problem, it's a staffing problem.
I'd call it a second or third over.
Fact, coming from Covid is with clinical trials, especially in Pulmonology and so I think thats one of the reasons that we've had two.
Really ramp up the number of sites that we're looking at for now you can go which is one of the actions we've had to date.
To drive even greater.
Velocity.
<unk> trial.
So we have mitigated those impacts as much as we can in order to stay on track with our own internal timelines.
Great. That's super helpful. And then what's the latest status on the on the reimbursement side for decipher.
I was wondering if there are any updates there and kind of what's remaining there to do.
From the payer is especially on the private payer side.
Yes.
Feel free to jump in here too, but we recently reported close to $200 million 90 595.
So very significant progress over the last year or so in <unk>.
Commercial payer policy and contracting still more room to go because that's not that's not the same level, we have pro forma for example.
But that's what we have an entire team dedicated on trying to accomplish so anything to add no I think it does take time, if you look at any product out in the market and Youll see that it takes a while to fix it others.
Commercials on for it but the important thing is we're getting one after another and the other thing is with getting level one evidence on our test from MPC and at the end.
In the fourth quarter of last year is certainly should help in 2023.
Great. Thank you so much.
Thank you.
Thank you.
And seeing no further questions in the queue I would now like to turn the conference back to Marc Stapley for closing remarks.
Thank you Chris I appreciate it.
So as you can tell I'm incredibly proud of our entire team for their hard work talent and passion, which enabled us to achieve these great results in 2022.
I'm really pleased with the growth in our core testing business. The progress, we're making with our long term growth drivers both in the U S and internationally and our strong financial profile, which sets us up for another year of exceptional execution I want to congratulate the global verify team for making a difference and over 100000 patient slides in 2022 and for <unk>.
<unk> their focus on transforming cancer care in 2023. Thank you.
Ladies and gentlemen, this concludes our call today.
You for joining US you may now disconnect and have a pleasant day.
The conference will begin shortly to raise and lower Johan during Q&A you can dial one one.
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