Q3 2024 Veracyte Inc Earnings Call
The End
The End
Speaker Change: To withdraw your question. Please press star one one again please.
Speaker Change: Please be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today Shayla Gorman senior director of Investor Relations Sheila you have the floor.
Shayla Gorman: Good afternoon, everyone and thank you for joining us today for a discussion of our third quarter 2024 financial results with me today are Marc Stapley parasites, Chief Executive Officer, and Rebecca Chambers, our Chief Financial Officer.
Speaker Change: They're safe issued a press release earlier this afternoon detailing our third quarter 2024 financial result.
Speaker Change: That's really in our business and financial presentation are available in the Investor Relations section of our website at first state Dot com.
Speaker Change: Before we begin I'd like to remind you that various statements. We make during this call will include forward looking statements as defined under applicable Securities law.
Speaker Change: Looking statements are subject to risks and uncertainties and the company can give no assurance they will prove to be correct. Additionally, we are not under any obligation to provide further updates on our business trends of 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 verisign filed with the securities and exchange.
Speaker Change: James Commission, including parasites. Most recent Form 10-Q and 10-K. In addition, this call will include certain non-GAAP financial measures.
Speaker Change: Filiation of these matters to the most directly comparable GAAP financial measures are included in today's earnings release accessible from the IR section of their sites website I will now turn the call over to Marc Stapley nurse I C E O.
Marc Stapley: Thank you Sheila and thanks, everyone for joining us today.
Marc Stapley: Q3 marked another record quarter for bio site I couldnt be more proud of our team and of our hard work on behalf of the patients we serve.
Marc Stapley: Q3 revenue totaled $115 9 million growing 29% year over year.
Speaker Change: This was fueled by testing revenue, which grew an incredibly robust 34% compared to the prior year period, driven by strong volume and ASP improvements both of which continued to outpace our expectations.
Speaker Change: Q3 represents our ninth consecutive quarter of 25% or greater testing revenue growth demonstrating clearly the durability of our testing portfolio.
Speaker Change: Throughout this year, we have shared all confidence that this cycle will continue to deliver outsized revenue growth over the next number of years.
Speaker Change: Bridging to our long term strategic growth drivers.
Speaker Change: The trends we observed this quarter reinforced that we are on a solid trajectory.
Speaker Change: Okay.
Speaker Change: Starting with the cipher.
Speaker Change: We delivered a record 21250 test during the third quarter.
Speaker Change: 36% year over year.
Speaker Change: With growth across all end CCN localized risk categories.
Speaker Change: With the updated <unk> guidelines in place are incredibly productive urology sales force consisting of around 50 reps.
Speaker Change: Having adoption through awareness and education on the test utility market, leading clinical evidence.
Speaker Change: Besides this clinical validity and utility has already been demonstrated in approximately 85 clinical studies on over 120 additional publications are focused on data from decipher grid a research use only platform.
Speaker Change: In the third quarter alone there were 14 publications abstracts and presentations utilizing the cycle prostate or data from grid.
Speaker Change: Generating clinical evidence for the cycle remains a top priority for us to drive further guideline inclusion.
Speaker Change: <unk> reimbursement and increased test differentiation in this underpenetrated market.
Speaker Change: To that end in early October new data was presented at Astro 2020 for the annual meeting of the American Society for radiation oncology from the <unk> trial.
Speaker Change: Data from this prospective clinical trial showed that the decipher prostate genomic classifier accurately predicts aggressive prostate cancer among African American men with early stage disease.
Speaker Change: This population is over 70% more likely to be diagnosed with prostate cancer.
Speaker Change: More than twice as likely to die of the disease compared to non African American men. According to the American cancer Society.
Speaker Change: Despite this few prospective study specifically sort to examine the disease at the genomic level in such patients.
Speaker Change: The vandam findings confirm the use of the genomic testing with population could potentially enable better treatment decisions and outcomes, helping to reduce outcome disparity is something which our industry needs to embrace.
Speaker Change: Enrolling diverse patient cannot clinical trials is key to this effort, we proactively try and ensure the inclusion of often underrepresented populations, which is something we are passionate about.
Speaker Change: We look forward to sharing more on our philosophy and approach in our ESG report, which we plan to publish later this year.
Speaker Change: Another important study was recently presented at the ESMO 2020 for Congress in Barcelona, where new data from Stampede, a phase III randomized multicenter multi arm clinical trials supported by cancer Research U K with Chad.
Speaker Change: This study was focused on the metastatic population and incidents group that has risen by about 5% each year since 2014.
Speaker Change: These have shown that adding the chemotherapy docetaxel to standard of care androgen deprivation therapy can improve outcomes for some patients with metastatic prostate cancer.
Speaker Change: However, the benefit varies from patient to patient.
Speaker Change: Docetaxel can negatively impact quality of life for many patients.
Speaker Change: Today physicians can use tumor volume as a blunt tool to identify who will likely benefit from the drug.
Speaker Change: Stampede, finding demonstrated quite profoundly the decipher may be a more precise tool to distinguish patients who received the greatest benefit from docetaxel and those who vote.
Speaker Change: This could help patients avoid unnecessary toxicity, while helping to determine the best treatment path for those who will benefit most.
Speaker Change: This is the first major study highlighting the significant utility of decipher as the only predictive gene expression biomarker for metastatic patients that could positively impact care and quality of life for men living with advanced disease.
Speaker Change: With the recently finalized LCD covering decided with use in the metastatic setting. We believe we have the only prognostic gene expression test able to address the entire prostate market, including metastatic patients.
Speaker Change: We are currently underway with the next step of enabling Medicare reimbursement for this additional indication by following the technical assessment process, which we expect will be finalized in late 2024 or early 2025.
Speaker Change: With sales trading plan for Q1, we are excited about metastatic as a potential growth driver for 2025 and beyond as we expect to see revenue for this indication start to ramp in the back half of next year.
Speaker Change: With the expansion of decipher into this broader patient population as well as significant Greenfield opportunity ahead for our test and localized to the we expect to see continued meaningful growth for the foreseeable future driven by both market penetration and share expansion.
Speaker Change: Moving to Afirma.
Speaker Change: Volume growth continues to be impressively strong.
Speaker Change: During Q3, we delivered close to 15100 tests up 12% from the prior year period.
Speaker Change: Our endocrinology Salesforce of close to 50 reps has done a tremendous job of driving the durable adoption of Afirma.
Speaker Change: By sharing the differentiated level of evidence for the performance of the test alongside the ease of use for physicians, we've made strides in both share and penetration into the long tail of physicians, who did not use our molecular diagnostic previously.
Speaker Change: Also this quarter the expanded LCD for Afirma went into effect, adding.
Speaker Change: Having reimbursement from Medicare and Medicare advantage patients with.
Speaker Change: Thyroid nodules or those that are suspicious for cancer.
Speaker Change: This is an immensely helpful outcome for this patient population and further supports our continued leadership in the field.
Speaker Change: While the impact to revenue this quarter was minimal given the end of July effective date, we expect this to be a module asps tailwind in 2025.
Speaker Change: Taking into account the momentum we've driven in 2024 as well as the expanded indication we expect to firm that to continue to demonstrate strong growth of high single digits next year.
Speaker Change: With unwavering demand for <unk> as well as positively shifting market dynamics, our confidence in delivering robust revenue growth over the course of the near and midterm has never been stronger and we couldnt be happier with our execution of the first two of our five strategic imperatives.
Speaker Change: They need to expand the size of this market size penetration leadership position.
Speaker Change: And to deliver continued strong afirma growth.
Speaker Change: These will we believe purchase through our exciting additional three long term growth drivers.
Speaker Change: One to launch IBD products for patients globally.
Speaker Change: Two to serve more of the patient journey through our expansion into minimal residual disease testing or Marty.
Speaker Change: And three to solve new cancer challenges.
Speaker Change: Such as with our novel set the nasal swab test for patients identified with a lung nodule.
Speaker Change: Okay.
Speaker Change: Critically to balance our investment in innovation as detailed by these five strategic imperatives. We also regularly assess the prioritization of projects to ensure the appropriate level of investment while also delivering a differentiated financial profile.
Speaker Change: As a result of this we made the difficult decision to pause offering in busy a clear test at the end of this year.
Speaker Change: Well, we always aim for patients for us the low penetration of the testing this uncommon disease category and the lifecycle management. It would require including continued clinical evidence development led us to conclude that we need to focus on our other imperatives for now.
Speaker Change: Turning to the innovative long term growth drivers I will share an update on our effort to serve more of the patient journey through MRV and recurrence testing.
Speaker Change: We are progressing well towards our launch of an <unk> test in muscle invasive bladder cancer or <unk> in the first half of 2026, including efforts to secure reimbursement through Medicare and readying, our laboratory and operational processes.
Speaker Change: We continue to be very encouraged about the clinical utility of MRV firm IDC using a whole genome approach.
Speaker Change: AH study recently published in European Urology showed that the WGS based analysis.
Speaker Change: DNA allows for ultra sensitive <unk>.
Speaker Change: <unk> DNA detection in patients with <unk>.
Speaker Change: Importantly, the study demonstrated a mean lead time of over four months between detection of clinical recurrence based on the test compared to radiographic imaging.
Speaker Change: Such critical time saving type of potential to accelerate time to treatment and improve the current clinical management of patients.
Speaker Change: We're excited about the opportunities ahead for <unk>.
Speaker Change: As we have said while patients with <unk> represent our initial intended use population given our sales channel and the reimbursement pathway. This is not a single product test it as a platform.
Speaker Change: We plan to expand into other indications and you can assume that would include the ones, where we already have a presence.
Speaker Change: In closing Q3 was another exceptional quarter and there is a long runway of opportunity in front of us.
Speaker Change: We are primed to continue to deliver robust revenue growth in our core business and we have a number of key catalyst ahead that will expand our care across the patient journey.
Speaker Change: My sincere thanks to the various teams for their relentless focus on our mission to serve patients.
Speaker Change: It is their hard work and sets us apart as we continue to transform cancer care for patients around the world.
Speaker Change: With that I will now turn to Rebecca to review our financial results for the third quarter and our updated outlook for the remainder of 2024.
Rebecca Chambers: Thanks, Mark Q3 was another excellent quarter with $115 $9 million of revenue an increase of 29% over the prior year period. We grew total volume to approximately 39000 tests, a 20% increase over the same period in 2023.
Speaker Change: Testing revenue during the quarter was $109 $5 million, an increase of 34% year over year, driven by the cipher and affirm our revenue growth of 48% and 19% respectively.
Speaker Change: Total testing volume was approximately 36800 test testing ASP was approximately $2975.
Speaker Change: Which included approximately $3 $5 million of prior period collection.
Speaker Change: Adjusting for the impact in the quarter testing AFP would've been approximately $2875 up 7% compared to the prior year period.
Speaker Change: As Mark mentioned, we expect to continue to generate strong testing revenue growth in 2025, while absorbing an approximately $6 million headwind given our <unk> portfolio planning decision.
Speaker Change: Turning to product third quarter volume was approximately 2200 tests and revenue was $3 $2 million down 21% year over year as we continue to work through supply challenges.
Speaker Change: Given we are currently managing demand, our Q4 and 2025 product expectations are muted biopharma and other revenue was $3 $1 million down 23% year over year.
Speaker Change: Moving to gross margin and operating expenses I will highlight our non-GAAP results.
Speaker Change: non-GAAP gross margin was 71% up approximately 130 basis points compared to the prior year period testing gross margin was 74% up approximately 10 basis points compared to the prior year period.
Speaker Change: <unk> margin was 44% up from 39% in the prior year period biopharmaceutical and other gross margin was 30% down year over year due to lower fixed cost absorption.
Speaker Change: non-GAAP operating expenses were up.
Speaker Change: Up 11% year over year at $57 6 million.
Speaker Change: Research and development expense increased by $3 9 million to $16 1 million given personnel additions from our <unk> acquisition and increased costs related to our development projects sales and marketing expenses declined by <unk> eight.
Speaker Change: 8 million to $28 million given the <unk> sales force reduction performed earlier this year, partially offset by hiring across Afirma and decipher.
Speaker Change: G&A expenses were up $2 8 million to $20 7 million driven by infrastructure investments and other personnel costs.
Speaker Change: Moving to profitability metrics, we continued to demonstrate strong results. We recorded GAAP net income of $15 2 million and delivered adjusted EBITDA.
Speaker Change: $27 3 million or 24% of revenue.
Speaker Change: We generated $38 million of cash in the quarter, driven primarily by $30 million of cash from operations and ended Q3 with $274 $1 million of cash and cash equivalents looking.
Speaker Change: Looking forward, we are excited to raise our 2024 total revenue guidance to 442 million to $445 million from our prior guidance of 432 million to $438 million. This reflects an improvement in our testing business outlook with revenue growth expectations of approximately 28%.
Speaker Change: As compared to the prior guidance of approximately 25% and our original guidance entering this year of 13% to 15%.
Speaker Change: We are also raising cash guidance and now expect to end 2024 with between 280 million to $285 million in cash cash equivalents and short term investments taking into account approximately $10 million to $15 million in milestone payments and capital expenditures forecasted in the fourth quarter.
Speaker Change: Finally, with the profitability we've achieved year to date, we now expect full year 2024, adjusted EBITDA margin to be slightly more than 20%.
Speaker Change: This year has been nothing short of fantastic across our financial metrics. We have delivered incredibly strong testing revenue growth profitability and cash generation I look forward to carrying this momentum into 2025 as we work towards our vision of helping cancer patients globally.
Speaker Change: I'll now turn to the Q&A portion of the call.
Speaker Change: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: Please standby, while I compile the Q&A roster.
Speaker Change: Okay.
Speaker Change: Our first question comes from <unk> <unk> with Guggenheim Securities. So you will go ahead with your question.
Speaker Change: Hey, guys. Thank you for taking my question.
Speaker Change: First the high level question mutually Mark you joined their site as CEO two years ago. It has been a doctor your total growth.
Speaker Change: During this period you have transformed the leadership team and together with that team. We have succeeded in being emblematic of the diagnostics to era.
Speaker Change: Driving revenue growth and solid science, moving towards FCS and margin expansion.
Speaker Change: You think about 2025 and beyond what comes next is it more of the same which of course will be good or are there other legs to the stool that remains to be on vans and then I have a follow up.
Speaker Change: Great. Thanks, Steve I appreciate the question on your summary of.
Speaker Change: The last three years, we started with obviously a strong foundation.
Speaker Change: Put three companies together, we did a lot of portfolio analysis and restructuring during that time and have continued to do so as you saw us announce in the current quarter and as you quite rightly mentioned, we rebuilt the leadership team and.
Speaker Change: Many of the layers below that although we still have a lot of those.
Speaker Change: Legacy teams with multiple companies.
Speaker Change: And so we've really focused a lot on talent and scaling.
Speaker Change: In that time, we've scaled for example decide for lab to be able to handle three times as many if not more volume, which has been necessary and we haven't missed a beat in terms of turnaround time and things like that so.
Speaker Change: Credit our team for that.
Speaker Change: We brought on exceptional leaders, who know what they're doing.
Speaker Change: To add to the talent, we already had who also knew what they were doing.
Speaker Change: We've come a long way since then I'm pretty proud of.
Speaker Change: Revenue continued revenue growth the our ability to deliver on our own expectations the expectations we set.
Speaker Change: And then really importantly, our opportunity to.
Speaker Change: So deliver.
Speaker Change: To deliver a financial profile with the adjusted EBITDA that we've been talking about them that we shared on our call today. So so that's all very good as I look for and therefore looking backwards as I look forward into 2025 and beyond.
Speaker Change: A lot of the same and we stay very much focused on the portfolio of products.
Speaker Change: Products that are successfully generating the revenue growth and profitability that we are driving today will continue to invest in those three important strategic initiatives that we talk about the deliver long term growth.
Speaker Change: In the future we acquired a company during that three year timeframe situ iron and that forms one of those major initiatives that Marty.
Speaker Change: And yes, we're going to continue to.
Speaker Change: Deliver on the same financial profile that we have.
Speaker Change: <unk> been talking about all this time, so we're still I still consider it with partway in our long term journey here, we're not done.
Speaker Change: There's still a lot to do in the company and but we're set up to achieve it.
Speaker Change: Perfect.
Speaker Change: Second on the type of volume that seems to be continuing the trend of strong growth. This year on the heels of the <unk> guideline.
Speaker Change: Upgrade could you help us understand the underlying adoption growth drivers here is it mostly new physicians adopting audited existing physician towards increasing order volumes our board.
Speaker Change: Yes, let me thanks, Great question, let me start by.
Speaker Change: Dealing with the various categories of growth that we're seeing when you look at the NCC and risk levels, we are seeing relatively consistent growth across low intermediate and high risk. So the biopsy based part of the business is driving that growth.
Speaker Change: And we're happy to be able to see that and it's the end CCN guidelines really the addressable those risk categories.
Speaker Change: And prognosis and in those categories Thats really.
Speaker Change: Causing physicians to existing physicians to double down on decipher the use of decipher across their entire patient population, which we're seeing more as well as new physicians.
Speaker Change: Coming on to <unk>.
Speaker Change: Adopt decipher because it is the only test molecular diagnostic test with the level of <unk> RNA based test suite level won't be going forward of course, we also have the metastatic indication.
Speaker Change: Which adds another 30000 patients soon as I mentioned in the prepared remarks, where we're working on the tech assessment for that in the reimbursement and the launch that will start to ramp in the end of 2025.
Speaker Change: So that yes at that point, we get to what ultimately has been our goal.
Speaker Change: Three patients with prostate cancer should potentially get a molecular diagnostic and decide for us the.
Speaker Change: Our market, leading test that they should really they should really be benefiting from.
Speaker Change: Perfect. Thank you so much guys.
Speaker Change: Yes. Thank you.
Speaker Change: I should just mentioned one other driver which was.
Speaker Change: As we've talked about before getting commercial payors.
Speaker Change: Decide for them and we had I think it was Q2, we mentioned it maybe it was as early as Q1 that we had a significant one added lowest new covered lives. So we're continuing on that path.
Speaker Change: Yes that was as of middle of the first quarter announced on the first quarter call in Q2, thanks to all of the above yes. Thanks, sorry next question.
Speaker Change: Our next question comes from Andrew Brachman with William Blair. Andrew Go ahead with your question.
Andrew Brachman: Good afternoon, thanks for taking the questions maybe I'll start here just on testing volume in <unk>.
Andrew Brachman: And in particular, how youre thinking about growth there for 2025.
Speaker Change: They are still a couple of months left in the year, but super high level I know law of large numbers is probably at play here, but any other drivers or headwind or tailwind that we should be considering on either decipher or afirma next year. Thanks.
Speaker Change: Yeah, So Andrew Thanks for that I'll, let Rebecca jumped in here too, but we're not obviously, we're not ready to give numbers for 2025, yet we're still working through our budget and our plan I gave some color today on afirma.
Speaker Change: Kind of indicating high single digit growth there.
Speaker Change: Which is more of a revenue point than a volume point I didn't get into the level of detail for that.
Speaker Change: The first of five we'll start to drive more next year in a firmer but of course, you do have the law of large numbers there.
Speaker Change: Despite the side, it's yeah, it's back to that metastatic and then continued growth.
Speaker Change: Penetrating the market coming into this year was only 35% penetrated.
Speaker Change: Now in 2025, we're going to be able to serve the entire market, including metastatic.
Speaker Change: As I mentioned will help in the back half of next year, we should continue to drive more penetration into that market.
Speaker Change: Sure.
Speaker Change: Especially given the prolific.
Speaker Change: Evidence that we have.
Speaker Change: For decipher with hundreds of studies involving the test and as you saw I mentioned stampede and any of you who paid attention to to the stuff. We talked about at ESMO decides is moving down the care continuum and so prediction prediction of.
Speaker Change: Chemotherapy benefit.
Speaker Change: Patients will benefit in which patients won't benefit so lots of exciting things to come for decipher and that's why we continue to remain quite excited about testing growth for not just 25%, but beyond the bridging us to the long term drivers absolutely just a couple of things to add there Andrew and speaking again more on a revenue than a volume basis.
Speaker Change: We are seeing these market sizes, Unfortunately grow from an incidence perspective.
Speaker Change: So we are seeing kind of a low to mid single digit growth rate for both the afirma and decipher market. Additionally, on a total revenue basis I called out the $6 million headwind for Nvidia. So thats worth considering and then also in our in our prepared remarks, we spoke about product revenue being muted for next year.
Speaker Change: So take that into account and also think about that.
Speaker Change: The Biopharma business being one that we have not incrementally invested in and so.
Speaker Change: That could also be plus or minus a bit next year, we aren't necessarily guiding to that today, but something to it's not something that we're at today.
Speaker Change: We're investing in.
Speaker Change: When you sum all that up given the dynamics that Marc shared for Afirma and decipher again, we are very confident in our ability of those two tests to bridge us.
Speaker Change: Our long term growth drivers in 'twenty, five and beyond and we feel very confident about our position entering next year and we're quite excited for it.
Speaker Change: Terrific.
Speaker Change: On another financial question, just one on the profitability and cash right I mean.
Speaker Change: You've raised your cash projections finish.
Speaker Change: Finishing ended the year cash projections by about $50 million since the start of the year I think it was just five months ago are you throughout that 25% adjusted EBITDA margin target.
Speaker Change: 24%, so what's a reasonable way to think about further leverage in this model going forward and I guess related to that how do you sort of intend to deploy cash year over time. Thanks.
Speaker Change: Well the model is and you're seeing it is it is clearly Leverages bowl in the specialty diagnostics channel, where I've mentioned, we've got 50 sales reps roughly in beside from 15, a femoral we've added a handful of sales reps during the year because the effectiveness of our sales team is just second to none I mean, they really are best in class team in both cat.
Speaker Change: And they're doing an amazing job.
Speaker Change: So as we grow we will continue to see some leverage there on the sales and marketing side, you know I don't want to guide to ultimately what the margin will be I've always said I think a specialty business like ours should be able to generate sustainable 25% on an annual basis, you will see quarterly fluctuations in that because spending is not linear.
Speaker Change: Here.
Speaker Change: And also what the dialogues that we choose to turn.
Speaker Change: So some optionality that right we've got three really important.
Speaker Change: Projects that I talked about the make up slightly more than half of our $60 million run rate of R&D, a year and we will continue to invest in those at an appropriate level in order to be able to launch products on a timely basis and generate potently generate the evidence that we need to support those products. We've always said a verified that.
Speaker Change: Developing the product is just the beginning of the journey, creating the evidence to support it and drive adoption and ultimately guidelines and of course reimbursement is as.
Speaker Change: As important if not more important than the assay itself and so we will turn those dials as we need to in order to make sure that we continue to deliver on our growth expectations, yes.
Speaker Change: A comment or two to add into that very thorough comment mark had but Andrew Youre correct that we have.
Speaker Change: When we were at your conference earlier in the year and we put out the 25% target we were just coming off of 15% quarter.
Speaker Change: Thanks to a number of different levers that.
Speaker Change: It came through over the course of 2024, we're now looking and guiding to 700 basis points.
Speaker Change: Adjusted EBITDA expansion here in 2024.
Speaker Change: Which is just quite an astounding fee and we're quite excited about it that being said for the reasons that Marc shared we are thinking about this on a from a.
Speaker Change: Balanced perspective going forward.
Speaker Change: Absolutely are committed to increasing our difference further differentiating our financial profile, but thats going to come.
Speaker Change: Function it won't be necessarily a step function change like we saw through 2024, it will be more incremental as we think through the balance between investing for long term growth and delivering profitability.
Speaker Change: Additionally, we also had a decent have had a decent benefit of prior period cash collections.
Speaker Change: This year, which obviously will continuously benefit ESPN on an ongoing basis, but those do flow down in any given period at 100%. So just think about that as well on a go forward basis. Thanks, Rebecca and to your question on deployment no change in our philosophy around deployment.
Speaker Change: There aren't a lot of.
Speaker Change: Really attractive opportunities to deploy cash in our space to grow our business in a way that wouldn't require a significant investment in evidence development over multiple years, and we have a lot of that going on ourselves and in fact, we've actually paused some projects that would require us to do that.
Speaker Change: Because it's the right thing to do not just financially, but more importantly from a resourcing and a focus standpoint execution is important.
Speaker Change: We execute well because we're very focused on the whole company is very focused on what we're trying to accomplish so we would be clearly very diligent and thinking about how to deploy capital, but more importantly, how to deploy our teams resources management attention and focus and the other assets that we have in the company.
Speaker Change: Great color. Thanks, so much.
Speaker Change: You're welcome.
Speaker Change: Our next question comes from Lou <unk> of UBS.
Speaker Change: Please go ahead with your question.
Lou: Alright. Thank you so much for taking my questions.
Speaker Change: I guess like the first line wanted to going back to decipher. So you mentioned the metastatic going to benefit in the second half.
Speaker Change: Any way that you can kind of quantify the benefit to it and then do you, saying that they're going to be have some light ESP posher initially just because it takes time.
Speaker Change: Kind of our negotiated with the commercial players.
Speaker Change: Yes, great question I'll, let Rebecca handle ESP pump it in terms of the amount of static benefit you should think of it is about 10% of the total market. So about in the U S 300000 incidences of year of which about 30000, New incident instance.
Speaker Change: <unk>.
Speaker Change: Incidences of metastatic right. So don't think of it in terms of the prevalent population, but the the new incidents so 30000.
Speaker Change: We'll launch the test think of it as two thirds Medicare related and so that's why the tech assessment and the process, we're going through there is so important.
Speaker Change: And then Youre absolutely right, there will be a ramp up of commercial payers.
Speaker Change: But I don't think it creates ASP pressure initially because we will be we will.
Speaker Change: Ramping the volume of the test as well so the test will grow I think test will grow as we bring on commercial payers in the same way you have seen on the localized setting our test has grown as we've added more commercial has I don't know thats exactly right.
Speaker Change: Okay.
Speaker Change: I agree with you for the Medicare.
Speaker Change: Medicare patients or Medicare advantage patients, we absolutely should be getting the same asps as we do on the biopsy and RP side and then for commercial.
Speaker Change: We will be building with the same code. So we expect to get some reimbursement there, but it will take.
Speaker Change: Some period of time to get that under contract for many of the bird.
Speaker Change: But not all some payers we do have a blanket statement in there that new incremental testing does get paid so I think it's going to be just like it always is right youre going to grind higher on your ASP over time, just like we've shown our ability to do so with Afirma and decipher and I don't see a metastatic to be any different.
Speaker Change: Okay I appreciate that.
Speaker Change: My second question on the product Barberini, It sounds like there was an 18% sequential decline.
Speaker Change: You mentioned the supply chain issues do you think it's getting worse in the quarter.
Speaker Change: Or is it a psych taking longer to solve the issue just wanted to get a little bit more color on that thank you.
Speaker Change: Yes, it is but some of it is intentional as Rebecca mentioned, we're managing demand right. We don't want to see our customers impacted and patient impact and so part of what we're doing to mitigate supply chain risk managing the demand and so that's why Rebecca set the expectation of a muted go forward growth next year I actually think about next year.
Speaker Change: More of a transition year for the product business, we are developing in parallel multiple tests, including the psi from PCR and Prosigna around Ngls and submitted for Cigna encountering we're also developing nasal swab.
Speaker Change: We're going to be managing through the supply chain challenges and then driving reimbursement country by country for our tests when we're ready to launch.
Speaker Change: 2025 don't think of it as the <unk>.
Speaker Change: Product line as a revenue driver next year in fact on the contrary I would think of it as Rebecca said muted.
Speaker Change: And hold back expectations. There, we've got a lot to do and we want to make sure we hit the markets right and launched.
Speaker Change: The right test at the right time with the right kind of strengthen infrastructure behind it.
Speaker Change: Yeah.
Speaker Change: Appreciate that.
Speaker Change: Our next question comes from Josh <unk> with Morgan Stanley. Please go ahead with your question.
Speaker Change: Hello. This is Hugo on the call for today, Thank you for taking our questions.
Speaker Change: You previously talked about running an awareness campaign on barco reimbursement for metastatic prostate cancer. Given this will be a new population for you and even more broadly for prostate classifiers.
Speaker Change: Which market building do you think youll need to first of all you need to do to adopt.
Speaker Change: Adoption of the Si for use in that setting.
Speaker Change: There is definitely some but really the benefit here is it's the same largely the same customer base. The urology tests in particular, where we're engaging with for the most part.
Speaker Change: And it starts with training our sales force, which will be doing early next year.
Speaker Change: And then the sales force will be out there in a measured way.
Speaker Change: <unk> to their customers about in the metastatic setting when to use the test how to use the test how to interpret the TR.
Speaker Change: Test report so on.
Speaker Change: And so it's more of the same and I don't think Theres anything we will do we'll do some.
Speaker Change: New product market development, but a lot of it is just continuing what we already do so the localized setting so and from a spend perspective I want to think about that is that a change in inflection of the curve of sales and marketing spend for next year.
Speaker Change: Just to get that out there as well.
Speaker Change: That was super helpful. Thank you and then I think you also talked about but that still five representing 5% to 10% of your total Afirma test volume.
Speaker Change: Is that volume, you're you're already running mostly associated with commercial or you're also running Medicare volumes, Oh, well I'm trying to understand whether we could see volume uplift.
Speaker Change: In addition to ESP as a result, the OCD.
Speaker Change: Yes.
Speaker Change: That's a.
Speaker Change: Good question I think I would think about them as obviously.
Speaker Change: Related not perfectly correlated but related and the reason why I say that is.
Speaker Change: I think when it comes down to it we do run.
Speaker Change: We do report out some pieces at Bethesda filed for.
Speaker Change: FERC commercial payers obviously.
Speaker Change: On the in general it does follow the same mix and.
Speaker Change: And so I think when it comes down to it.
Speaker Change: We have the benefit potentially on the volume side.
Speaker Change: For.
Speaker Change: Five and obviously also on the ASC side again, it's around the edges, though so I don't think of it as I don't want to it's an important opportunity to expand our market population that being said it is a very small proportion of the population and therefore I don't want.
Speaker Change: Going to be kind of a.
Speaker Change: What it does is it drives more and more physicians to recognize that using decipher throughout the patient care continuum.
Speaker Change: No matter what level of risk, they're dealing with with that patient is as beneficial for the patient and it's beneficial for them.
Speaker Change: Some more information the Stampede trial demonstrated to date using tumor volume is one way to try and figure out what patients to put on there.
Speaker Change: Tactful, but this gives you a higher resolution opportunity to figure out which patients are truly going to benefit them, which are so the more studies to incorporate those kinds of outcomes and results.
Speaker Change: Thank the better adoption in the better inclusion in guidelines.
Speaker Change: You want to comment on the usefulness or utility of Stampede in the U S. Setting Oh, yes that was missed that part of your question. Thanks Rebecca.
Speaker Change: Absolutely I think of decipher as a global.
Speaker Change: It It studies really are very global in nature and some of the U S. Studies, we've had pies from Europe involved and this is one of the reasons why we're so excited about the IBD test because so many key opinion leaders and physicians outside the U S are already aware of decipher they've been involved in studies and the <unk>.
Speaker Change: Same way I do think the U S. We will look at the.
Speaker Change: Charles it's been run out of the UK in other European locations.
Speaker Change: It was being somewhat compelling now whether we need to run.
Speaker Change: Smaller studies in the U S as well as to be determined we also want to make sure that we're dealing with all populations, including underrepresented diverse populations too.
Speaker Change: So to the extent we have to supplement studies with additional clinical trials, we will do that in that part of the R&D spend I talked about there isn't those three big strategic drivers.
Speaker Change: Meaningful few million more than a few million dollars proportion of that is continuing sustaining clinical studies.
Speaker Change: Drive decipher the same a little bit on a firmer as well.
Speaker Change: Got it that's super helpful and just a quick follow up you guys had mentioned hurricanes. Some of your peers have mentioned that as kind of an impact in the quarter. Just curious if there were any and.
Speaker Change: And if not.
Speaker Change: Do you it could there be some impact some delayed impact from your standpoint from any of that any disruptions. If you will.
Speaker Change: In terms of patient visits and things like that happening.
Speaker Change: At the end of <unk> and early <unk>.
Speaker Change: Yeah.
Speaker Change: I mean, I think the short answer is no. We when you look at the weekly graph. So of shipments you see a small dent in the areas, where the hurricanes were impacting of course.
Speaker Change: Our hearts and thoughts go out to everybody, where the patients physicians and others who were impacted by those.
Speaker Change: Natural events, but.
Speaker Change:
Speaker Change: What we saw was a small dent, but I'd say, we've largely recovered from that and what would you say Rebecca the effect is less than a day's worth so yeah, I would say in any given quarter a day or two in the lab can fall on one side of of the quarter or the other and I kind of put this in that category.
Speaker Change: Angie data about a less of a day of volume that we saw earlier this month and nothing really in the third quarter given the areas impacted right.
Speaker Change: Great. Thank you so much.
Speaker Change: Standby for our next question.
Speaker Change: Our next question comes from Thomas <unk> with Nephron Research Thomas go ahead with your question.
Speaker Change: Okay.
Thomas: Hey, guys.
Thomas: I guess, just a couple of cleanup questions here.
Thomas: First one I guess just the Knight gain study just I think the last update was.
Thomas: <unk>.
Thomas: Potential completion of enrollment at the end of this year early next year, just any thoughts there on updated timing.
Speaker Change: Yes, it's almost we actually stopped guiding to when we would finish the study the one thing I've learned over the three years I've been doing this we're better at forecasting revenue than we are forecasting clinical studies because so much of it is outside of our control and then when you add the extra complexity of a lung based study which seem to be impacted more than others.
Speaker Change: Our experience.
Speaker Change: Became.
Speaker Change: We were chasing something that we couldnt pin down close enough. So we stopped guiding to it we're continuing to enroll we have close to 100 sites that are enrolling at a reasonable Clifton will update you again next when we've completed enrollment.
Speaker Change: Okay.
Speaker Change: Then just one other question just.
Speaker Change: $10 billion to $15 billion milestone payment in Q4, Eric.
Speaker Change: Eric to cash just.
Speaker Change: Just kind of a I guess a biopharma agreement.
Speaker Change: You hit.
Speaker Change: <unk> there are any other context.
Speaker Change: Yes happy to provide some context to that Thomas it's actually.
Speaker Change: More on the expense side than it is on the revenue side on the expense side we are.
Speaker Change: We have a potential milestone payment that we have a high probability as youll see in the Q tomorrow are paying in the fourth quarter, that's around $5 million and we also have around a similar amount of capex.
Speaker Change: That we expect to spend in the fourth quarter for development projects that are kicking off here at the beginning of 'twenty five and then the remainder is some working capital that we expect to have in the fourth quarter. So I would say, it's those three buckets.
Speaker Change: Okay. Thank you very much I appreciate it.
Speaker Change: Thank you.
Speaker Change: Standby for our next question.
Speaker Change: Our next question comes from Mike Matson with Needham Mike Go ahead with your question.
Mike Matson: Yes. Thanks.
Mike Matson: So.
Speaker Change: <unk> had some pretty good pricing. This year I was wondering if you could just talk about what's been driving that and to what degree that would be sustainable into next year.
Speaker Change: Sure happy having two Mike So I would say the pricing has been a journey over the last couple of years.
Speaker Change: As we have looked at.
Speaker Change: The original going back to 2021, the code change from Afirma to.
Speaker Change: From GEC the GSC, if you recall in 2002, we had a bit of a headwind there and over the course of 'twenty three and 'twenty four we've cleaned a lot of that up.
Speaker Change: And benefited from prior period collections tied to doing so so I think that's been one driver, but I think the bigger driver is just the effectiveness of our managed care team and our billing team.
Speaker Change: We have effectively put in place a team here that are they're rock stars and they are effectively getting.
Speaker Change: You know a number of contracts and coverage.
Speaker Change: Lined up for both Afirma and decipher.
Speaker Change: Anytime we think we're kind of reaching the kind of flattening of the curve if you will.
Speaker Change: They put something else out and so I think as we think about where we're at now we've made a ton of progress and at some point in time that that portion of the curve, we will have to flatten.
Speaker Change: And as we look into next year, you know I don't know if we're ready to say, it's going to flatten Felipe has prior period collections have been.
Speaker Change: Such a big portion of the outperformance of the story, both on a cash and on a margin perspective this year.
Speaker Change: But it's something that something that we're keeping a close eye on and eventually unless.
Speaker Change: We'll get to a rate where we've had.
Speaker Change: Points become more incremental than less.
Speaker Change: Step function changes like we've had over the last year or two so again I'd like to say a huge thanks to those two teams they worked incredibly well together and they do.
Speaker Change: <unk> work and and obviously a big piece of that this year has been the large commercial payer that we got for decipher in the first quarter that Mark mentioned earlier, so I'll dwell there and the goal is to keep on keeping on with regard to the great progress those teams are making.
Speaker Change: Okay, Great and then just.
Speaker Change: On the AMR meter so.
Speaker Change: I understand your reluctance to us.
Speaker Change: Aercap.
Speaker Change: The trial for the nasal swab, but in this case.
Speaker Change: I don't think Theres a trial so.
Speaker Change: Can you just talk about when you expect to really watch that start generating meaningful revenue.
Speaker Change: Yes, so thanks for that no it's not a full.
Speaker Change: Trial and clinical utility study.
Speaker Change: The Tech assessment process. It's the work that we have to do in our labs to get it ready for launch.
Speaker Change: We have to run some samples obviously to validate and everything else associated with that and so you know we've talked about that being in the first half of 2026, and then it'll ramp from there, but as I've mentioned in the.
Speaker Change: Opening remarks that I made the RMR D test initially launched in the bladder indication makes sense for us because of both our channel and that what I. Just described is that kind of a faster path to reimbursement, but that's not where we're going to end with MRP MRP is it's a platform and we're going to obviously launch in other indications as well.
Speaker Change: The fact that its whole genome is very differentiated and we believe the right long term.
Speaker Change: Structure fits very well with parasites approach to always running getting more data by running our whole transcriptome more whole genome.
Speaker Change: And I mentioned some data that was published in European Urology with respect to that test and the benefit of that test in identifying.
Speaker Change: Residual disease earlier than the standard of care imaging might buy a meaningful amount.
Speaker Change: So we're looking forward to actually being able to launch that test in many other indications over multiple years, but we'll start with bladder that'll be our proof of concept to think about it that way.
Speaker Change: Okay got it thanks.
Speaker Change: Our next question comes from Cooney Sudan with Leerink partners.
Speaker Change: Please go ahead with your question.
Cooney Sudan: Yes, hi, guys.
Speaker Change: Thanks for the questions here so.
Speaker Change: First one on the site for I don't know.
Speaker Change: This was covered in the question earlier, what is the growth rate, you're expecting for decipher sort of going forward into 'twenty five.
Speaker Change: I mean, you have <unk> level one b.
Speaker Change: And I'm, just wondering sort of the tailwind to that the metastatic side, what could contribute to the volume growth. So I'm just trying to understand.
Speaker Change: What's the right way to think about the growth rate in this business now.
Speaker Change: Elevated volume level.
Speaker Change: Well I think you've mentioned.
Speaker Change: <unk> the key thing for the <unk>.
Speaker Change: <unk> I would only add the more we get commercial payors.
Speaker Change: Well the NCC guidelines, you mentioned, the metastatic indication, which I was clear in my remarks really.
Speaker Change: Think of that is starting to ramp in the back half of next year.
Speaker Change: And then beyond.
Speaker Change: So if.
Speaker Change: If you think about coming into this year decipher has really grown a lot better than we anticipated I would put the NCC guidelines and commercial payors down.
Speaker Change: The primary reasons why that revenue growth has been so strong.
Speaker Change: We're not ready to give a guide for next year, yet because we're still working through that.
Speaker Change: But we did say when you look at the site for an Afirma together, we feel very bullish about our testing growth going forward without giving that number I did give some guide for afirma in the high single digits for next year, but not ready to do so on the <unk> side just yet.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: That's helpful and then.
Speaker Change: Recently, one of your peer saw commercial pressures from a large payer.
Speaker Change: And pharmacodynamics, obviously, that's a different test them classifier tests that you have for cancer.
Speaker Change: But can you just maybe elaborate on what youre seeing in the marketplace in terms of.
Speaker Change: From commercial payers and what portion of your volume today is for our farmland decipher are sort of contracted.