Q3 2025 Veracyte Inc Earnings Call
Speaker #2: Good day and thank you for standing by . Welcome to the VERACYTE, INC. . Third quarter 2020 Financial Results conference call . At this time , all participants are in a listen only mode .
Speaker #2: After the speaker's presentation , there will be a question and answer session . To ask a question during the session , you will need to press star one one on your telephone .
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Speaker #2: 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 .
Speaker #3: Good afternoon , everyone , and thank you for joining us today for our discussion of our third quarter 2020 financial results . With me today are Marc Stapley VERACYTE, INC. Chief Executive Officer and Rebecca Chambers , our chief Financial Officer , Doctor John Light , our Chief Commercial officer and Doctor Phil Febbo , our Chief Medical and scientific officer , will join us for Q&A .
Speaker #3: Ferrocite issued a press release earlier this afternoon detailing our third quarter 2020 financial results . This release , and a copy of the presentation .
Speaker #3: We will review during the call today are available in the investors section of our website at VERACYTE, INC. . Com . Before we begin , I'd like to remind you that statements we make during this call will include forward looking statements as defined under applicable securities laws .
Speaker #3: Forward 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 or our performance during the quarter .
Speaker #3: To better understand the risks and uncertainties that could cause actual results to differ , we refer you to the documents that Veracyte files with the Securities and Exchange Commission , including the most recent forms 10-q and 10-K .
Speaker #3: 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 investors section of their website .
Speaker #3: I will now turn the call over to Marc Stapley VERACYTE, INC. , CEO .
Speaker #4: Thank you , Sheila , and thank you to everyone for joining us today . I'm pleased to share details of our third quarter performance , as well as provide updates on our key growth drivers .
Speaker #4: We This strong performance resulted in total revenue growing 14% year over year to approximately $132 million . Even after the expected dilutive impact of removing the biopharma and other revenue tied to SaaS .
Speaker #4: delivered another outstanding quarter , our core testing business achieved 18% revenue growth year over year after adjusting for Nvidia driven by volume growth of 26% in decipher and 13% in Affirma .
Speaker #4: In addition to our robust revenue performance , our adjusted EBITDA margin reached a record 30% , representing a 650 basis point improvement from the prior year and far exceeding our expectations .
Speaker #4: As you know , we had we had set a goal of consistently achieving a 25% adjusted EBITDA margin on an annual basis , and it now appears that we will reach that milestone .
Speaker #4: This year , more than a year ahead of our internal plans . This best in class profitability profile is a significant accomplishment , which we attribute to our disciplined portfolio focus .
Speaker #4: It enables us to continue to invest in our robust pipeline to serve as many patients as possible . The foundation we have built at Veracyte will enable sustained , near and long term growth through a focused set of strategic drivers .
Speaker #4: I'm excited to share progress across several of these initiatives today , starting with decipher . We delivered approximately 26,700 tests in Q3 , marking the 14th consecutive quarter of over 25% year over year volume growth , with the highest number of quarterly ordering providers and the highest number of orders per physician .
Speaker #4: Deciphers clinical utility is increasingly recognized by physicians for patients across all risk categories . This year , we have especially highlighted the clinical evidence for advanced disease , including high risk , localized and metastatic patients where deciphers predictive power has been shown to improve outcomes .
Speaker #4: With decipher now available for metastatic patients , physicians can better assess the benefit of intensifying treatment with androgen receptor pathway inhibitors or chemotherapy .
Speaker #4: For example, recent analysis from the Stampede trial published in Cell showed a high Decipher score predicts docetaxel benefit in metastatic patients and abiraterone efficacy for those with metastatic and high-risk localized disease.
Speaker #4: During the quarter , our volume of tests in this high risk , localized group grew more than 30% , demonstrating new traction in this category .
Speaker #4: We believe there remains significant opportunity to expand deciphers use in this segment consistent with our established formula for evidence generation as the key to broader adoption .
Speaker #4: We continue to support extensive research in prostate cancer . For example , at Astro in September , research collaborators presented the first validation data from the balance trial , demonstrating the Pam50 molecular signature predicts hormone therapy benefit in men with recurrent prostate cancer .
Speaker #4: Using data from our research , use only decipher grid . This signature , well known in the breast cancer oncologist community in the backbone of our precision test , has now been shown to be .
Speaker #4: Able to stratify prostate cancer patients based on subtype , providing confidence in hormone therapy benefit for those with the luminal B subtype . In addition to demonstrating the power of grid and driving new important research in prostate cancer , this trial also builds on research presented earlier this year from the Sport Trial , which showed the biochemical recurrence of BCR post-surgery patients with a high decipher score received greater benefit from the addition of pelvic node radiotherapy and short term ADT .
Speaker #4: These BCR patients represent a potential incremental opportunity for decipher , as we believe the majority never received a decipher test when they were initially diagnosed with prostate cancer and would now be appropriate candidates for testing post-surgery .
Speaker #4: The complex treatment decisions faced by physicians and their patients dealing with advanced disease requires robust , actionable information . As research empowered by grid establishes clinical utility for new signatures .
Speaker #4: We are working to add such additional molecular features to the decipher report to enhance clinical insights . Signatures like Porto's and PTEN will be available in the optional molecular Features report when it launches next year , Porto's predicts which patients with prostate cancer are likely to benefit from differing dose dosages of salvage and definitive radiation therapy .
Speaker #4: PTEN, used alongside the Decipher score, showed promise in determining whether metastatic patients would benefit from chemotherapy in the STAMPEDE study.
Speaker #4: These additions will further extend decipher application across indications , treatment decisions , and various healthcare specialists . These studies represent only a selection of the extensive ongoing research related to decipher this quarter , we saw 23 new abstracts and publications on decipher , prostate , and grid , bringing the total to 240 publications , notably at Astro 2025 .
Speaker #4: Of the nine , decipher focused abstracts , two compared the results of the decipher test to the on market Dfci solution and found marginal correlation .
Speaker #4: Investigators concluded the two tests are measuring different biological processes , something we have asserted for a while based on prior studies . Further , there was meaningful discordance between the two tests across risk categories , with a bias to low and therefore potential undertreatment from Dpp-i .
Speaker #4: These findings support our view that digital pathology may complement molecular analysis by providing additional data points based on a more comprehensive analysis of tumor histology , but further research is needed to determine optimal use and to protect patients to support this , we made our digital pathology services and associated II models available to research collaborators .
Speaker #4: Earlier this year and have now implemented slide scanning as a standard production workflow . We've made tremendous progress in the third quarter and have now scanned over 115,000 slides from over 80,000 de-identified patients , with outcomes data and expect this database to grow meaningfully as we continue building our digital image repository .
Speaker #4: Looking forward , the expanding clinical evidence supporting Decipher gives us confidence in its long term growth prospects with data consistently demonstrating its clinical utility and impact on patient management , Decipher is increasingly becoming the standard of care in prostate cancer .
Speaker #4: We see a long runway ahead , further bolstered by ongoing prospective studies to drive broader physician adoption , resulting in durable double digit growth for years to come .
Speaker #4: Turning to Afirma, we were incredibly pleased with the 13% volume growth in Q3. This outstanding performance was driven by a steady pipeline of new account wins and yet another quarter of increased utilization per account.
Speaker #4: We also had a strong showing at the 2025 American Thyroid Association meeting , where we supported the presentation of 12 afirma related abstracts , including four independent studies utilizing data from Afirma grid , our operational efficiency program for Afirma is progressing nicely as we have transitioned over one third of samples onto our new V2 transcriptome in the lab , and having received New York State approval , are on track to complete the transition of all incoming Afirma samples to the new workflow by year end .
Speaker #4: While the data is early , we are pleased to see a side benefit in that the lower RNA input required by the new workflow has enabled even more patients to get a test result .
Speaker #4: Moving to our commitment to serve more of the patient journey through MRD and recurrence testing , we are excited about the opportunity for our whole genome based MRD platform .
Speaker #4: Multiple studies are already completed in muscle invasive bladder cancer or mibc colorectal cancer . Cancer or CRC . Lung and other cancers with a robust pipeline , including ten studies in testing and or analysis .
Speaker #4: 13 in contracting and ten in the active planning stage . This includes additional studies in Mibc as well as in breast , lung , CRC , kidney Immune Therapy , Treatment response , and others .
Speaker #4: The enthusiastic engagement by collaborators at leading institutions , along with the early results we are seeing , reinforce our bullish expectations of our ability to capture a meaningful share of the pan cancer market with our differentiated approach , which we have branded as true MRD .
Speaker #4: We are now receiving samples for the first phase of the Neo Blast trial with growing enthusiasm over the efficacy of combination therapies like Enfortumab , Vedotin and pembrolizumab , or EV pembro .
Speaker #4: There is keen interest in moving towards therapy . De-intensification the neo blast trial has the potential to help inform which patients can be intensified following standard of care , neoadjuvant therapy mibc patients are being tested with standard staging , MRI and Tumid .
Speaker #4: If they achieve a complete clinical response under undetectable by MRD , they will be randomized to definitive local therapy or bladder sparing active surveillance .
Speaker #4: We are excited to advance this trial and further the understanding of when a physician can safely intensify treatment for these patients. Our commercial success in MRD will begin with our proof of concept in Nmibc.
Speaker #4: In the first half of 2026 , which we plan to launch with reimbursement , we expect to leverage our decipher channel , which we believe reaches approximately 70% of MIB patients who are seen in the urology and radiation oncology setting .
Speaker #4: Beyond Nmibc , we plan to deliver indication expansion annually in order to serve more patients across more indications . Moving now to precision , we are on track to launch precision as an LDT for the US breast cancer market in the middle of 2026 .
Speaker #4: Given the tremendous opportunity we see ahead , the clinical outcomes data from the ten year Optima prelim study presented in May suggested procedure had higher prognostic accuracy in high risk patients compared to the test initially used to assign patients to treatment groups .
Speaker #4: We're excited to see the readout of the full OPTIMA trial, which is the first prospective study to specifically address precision, the ability to identify clinically high-risk patients who do not benefit from chemotherapy, and can safely avoid the toxicities associated with treatment.
Speaker #4: New studies also continue to highlight the use of precision for guiding pre-operative therapy . An impact study led by Dana-Farber Cancer Institute investigators and recently published in ESMO , demonstrated a change in therapy in 35% of patients based on precision results .
Speaker #4: At Esma last month , investigators reported preliminary results of the study , in which patients with clinically high risk ER positive breast cancer were treated with preoperative endocrine therapy , plus ribociclib , a Cdk4 six inhibitor .
Speaker #4: Prosymna was used to identify patients who achieved a low risk molecular profile . Post-therapy , allowing a mission of adjuvant chemotherapy . Additional follow up is required for definitive results , but this study and other preoperative studies underway demonstrate how precision enables precision medicine .
Speaker #4: As you can see , we have continued to advance our robust pipeline , having launched decipher Metastatic in June , completed our Nightingale lung cancer trial .
Speaker #4: Enrollment of 2400 patients in August , and deployed our V2 transcriptome assay . We are making good progress on our MRD procedure and IVD products .
Speaker #4: With so many new products and capabilities in these two years alone , I couldn't be prouder of the Veracyte team who are working tirelessly on behalf of our patients .
Speaker #4: Looking ahead , we will be accelerating our investments into our critical projects while maintaining the best in class financial profile we've consistently achieved the strong momentum we have seen this year .
Speaker #4: Together with the impact we expect to make with our upcoming product launches , gives us confidence that we will continue to deliver comfortably durable , long term , double digit growth as we relentlessly pursue our mission of improving cancer care for patients all over the world .
Speaker #4: With that , I will now turn to Rebecca to review our financial results for the third quarter . As well as our updated outlook for 2025 .
Speaker #5: Thanks , Mark . Q3 was another exceptional quarter with $131.9 million in revenue , an increase of 14% over the prior year period .
Speaker #5: We grew total volume to approximately 45,900 tests and 18% increase over the same period in 2024 , testing revenue during the quarter was $127.8 million , an increase of 17% year over year , driven by Decipher and Affirma revenue growth of 26% and 7% , respectively .
Speaker #5: Total testing volume was approximately 43,700 tests , an increase of 19% over the prior year period , and included 17,000 affirmative testing . ASP was $2,925 , a decrease of 2% compared to the prior year .
Speaker #5: Primarily driven by the impact of higher prior period collections. In Q3 2024, as well as the Afirma Laboratory Benefit Manager impact.
Speaker #5: Previously discussed . Adjusting for the impact of approximately $2.5 million of prior period collections in the quarter , testing ASP would have been approximately $2,875 , flat to the prior year period .
Speaker #5: Third quarter product volume was approximately 2200 . Tests and product revenue was $3.3 million , up 4% year over year . Biopharmaceutical and other revenue was $800,000 , a decrease compared to the $3.1 million in the third quarter of 2020 .
Speaker #5: Four . Given the parasite SaaS restructuring and liquidation proceedings , moving to gross margin and operating expenses , I will discuss our non-GAAP results .
Speaker #5: non-GAAP gross margin was 73% , up approximately 150 basis points compared to the prior year period . Testing gross margin of 74% exceeded our expectations , driven by improved lab efficiencies , and was roughly flat to the prior year .
Speaker #5: Product margin was approximately 800 basis points higher than the prior year at 52%. We still expect product gross margin to decline in Q4 with our transition to a contract manufacturing model.
Speaker #5: Biopharmaceutical and other gross margin of 36% was down year over year due to the restructuring proceedings of Sasse . non-GAAP operating expenses were up 2% year over year to $58.6 million , compared to the prior year .
Speaker #5: Research and development expenses decreased by $2 million to $14 million , driven primarily by the deconsolidation of Veracyte . Sasse sales and marketing expenses increased by $1.5 million to $22.4 million .
Speaker #5: Given higher personnel costs supporting decipher and Affirma . G&A expenses were up $1.5 million to $22.3 million , primarily due to project related expenses within our support functions .
Speaker #5: Moving to profitability and cash metrics, we recorded GAAP net income of $19.1 million, including a $6.7 million loss upon deconsolidation of Veracyte.
Speaker #5: SaaS . This is one time in nature and puts the France accounting impact behind us . Adjusted EBITDA was $39.7 million , or 30.1% of revenue , well above our expectations given the benefit of prior period collections , lab efficiencies and the timing of some project investments , which are now forecasted to occur in the fourth quarter and into 2026 .
Speaker #5: We generated $44.8 million of cash from operations and ended the quarter with $366 million of cash and cash equivalents . Turning now to our 2025 outlook .
Speaker #5: We are raising our 2025 total revenue guidance to 506 million to $510 million from our prior guidance of 496 million to $504 million , due to our strong year to date performance , we are raising testing revenue guidance to $484 million to $487 million from our prior guidance of 477 million to $483 million .
Speaker #5: This reflects a raised decipher outlook and continued afirma volume strength as a result , testing revenue growth is now estimated to be 16% as compared to the prior guidance of 14 to 15% .
Speaker #5: We are also raising adjusted EBITDA margin guidance for the year to exceed 25% from our previous guidance of 23.5% , which was already meaningfully higher than our original 21.6% .
Speaker #5: 2025 guide . This reflects our year to date profitability outperformance and expectations for accelerated in the fourth quarter . In support of our strategic growth drivers , we expect adjusted EBITDA margin to be approximately 25% in the fourth quarter and in future years , barring any specific incremental investments , we decide to make , which we would of course , communicate as appropriate .
Speaker #5: In closing , I am thrilled with our progress over the course of 2025 . As Mark shared , we delivered on our product goals this year , including the launch of decipher for metastatic patients and the transition of Afirma to the V2 transcriptome with strong momentum heading into year end .
Speaker #5: I'm excited to close out a successful 2025 and have confidence in our trajectory for 26 and beyond . We'll now go into the Q&A portion of the call .
Speaker #5: Operator please open the lines .
Speaker #2: As a reminder to ask a question , you would need to press star one one on your telephone and wait for your name to be announced .
Speaker #2: To withdraw your question , please press star one one again . Also , we are only allowing one question and a and a follow up .
Speaker #2: Please stand by while we compile the Q&A roster . Our first question comes from Doug Schenkel at Wolfe Research .
Speaker #6: Hey , good afternoon , everybody , and thank you for taking my questions . So I want to ask , I think , I guess two for Marc .
Speaker #6: And then I'm guess if I can take the liberty to ask a financial question of Rebecca . So on Mark digital pathology , there were several presentations that you talked about in your prepared remarks at the Asco Annual meeting showing , you know , we correlation between multimodal AI scores and decipher , as you talked about it suggests , these assays are complementary .
Speaker #6: Just on that topic , I'm curious , how do clinicians manage discordant results . Do you see this as being a concern for decipher .
Speaker #6: Or is this something that you think actually leads folks to maybe , you know , you know , kind of prioritize , decipher over some of the emerging competitors ?
Speaker #6: And then maybe while we're on the topic , could you just talk a little bit about your own internal digital pathology efforts and kind of what the timelines are there ?
Speaker #7: Yeah , happy to Doug . And then we can get to your financial question . And actually I'll answer I'll answer these questions and I'll turn a little bit to John on the commercial aspects .
Speaker #7: And Phil on the DPA internal digital program . But , you know , I think the way to think about this is if you think about new technologies , including genomics , at ten or a dozen years ago , there's a lot of excitement .
Speaker #7: And , you know , new tests come out . And I think what's really important is to go out an appropriate pace , develop the clinical evidence , and make sure that evidence supports the utility .
Speaker #7: And most importantly , that patients aren't getting harmed by the wrong decisions . And the physicians aren't getting confused . This kind of formula we took with decipher and letting the research community help drive the research behind decipher , which is what we believe has resulted in it being so popular .
Speaker #7: I think we're at that stage now with AI based models . Its exciting technology . It's new , but enough evidence hasn't been generated yet .
Speaker #7: And then and so you do get discordant results . And there isn't anything to tell the physician what to do in that case .
Speaker #7: And so what they do is pretty logical . They focus on the gold standard , which frankly , is decipher . So if you get decipher high and you have a DPA , dpa based low result , you certainly wouldn't want to undertreat that patient .
Speaker #7: And so you would focus on the decipher result . Treat accordingly . But the DPA , the new technology loses credibility . And I think that's a bad thing for the industry as a whole .
Speaker #7: So , you know , our approach of making sure that we are really focused on developing the evidence and learning the research community do that is what we think will ultimately drive success for for technology that should have its place .
Speaker #7: If done the right way, let me turn it over to John on the commercial side. What we're hearing from physicians.
Speaker #8: Yeah , thanks , Mark , and thanks , Doug . It's a good question . It's difficult for us to firmly lean into this concept of complementarity while we are seeing significant rates of discordance , and while it leads to physicians ultimately then being confused as to how to interpret the results and how to proceed with patient , and so on , the commercial side , we're spending a lot of time revisiting the wealth of evidence substantiating the clinical validation and utility of the versus that of emerging technologies , and ultimately physicians .
Speaker #8: And based on the results of a survey that we've run , they heavily lean on the evidence that's currently substantiating decipher , and they see it as the current standard of care .
Speaker #8: Moving forward . We would hope that complementarity becomes more defined around how are insights to be developed in the best platform that ultimately associates a result with a clinical outcome , and that will inform the right patient management decision to do that .
Speaker #8: As Mark mentioned , we're working very closely with our current network of the collaborators , key opinion leaders . Ultimately , we will curate and develop new signatures that will land on grid .
Speaker #8: Ultimately , those will make their way into the equivalent of a molecular features report , such as we're doing now with the current grid and that's what true complementarity in my mind looks like .
Speaker #8: It's it's the the rounding of clinical decisions , aggregated and curated by an actionable report .
Speaker #7: And then maybe Phil , anything to add to that point of the internal development program ?
Speaker #9: Yeah .
Speaker #8: Happy to .
Speaker #9: Doug and thanks for the question . So , you know , being the custodian of over 200,000 Transcriptomes and incorporating pathology scanning of wholesale whole slide images into our research program , we are in a very we have probably the best and most comprehensive data set where we can dig into that interface that John was talking about and figure out how to take the best of both the transcriptome , which is represented the decipher commercially , and the merging excitement around Dpp-i .
Speaker #9: You know , that is in full steam . We're digging in with collaborators , as we've done with Transcriptomes through the grid . We're working with external .
Speaker #9: Some of the top investigators to drive that research forward , and as well as both developing a model under as a Dpp-i model , as well as understanding the interface and the biology .
Speaker #9: That's measured there . We also , you know , have looked at that and see that it can help some of the prognostic , but , you know , we're also really understanding that through the grid work we've done , we see a lot of opportunity as as Mark mentioned on the molecular features that are coming out of the grid and the different signatures .
Speaker #9: And we excited about the Lumbee Non-b distinction that we saw presented at Astro . We're excited about the PTEN activity that stampede activities , and we're seeing a number of the signatures that are predictive for therapeutic benefit and and so , you know , we are in an excellent place to look at the interface between the two .
Speaker #9: Right
Speaker #9: now , we're driving forward with the molecular features because they're predictive and we're in the best position of anybody to bring digital pathology into into the clinic in a complementary and in a rigorous way .
Speaker #7: Thanks . Okay . And Doug , you had a sorry . Hopefully we answered that question . And you had a question on financial .
Speaker #6: Yeah . No , that was fantastic . And I appreciate all the detail . And in an effort to be respectful to myself side , piers , I'm going to try to make the follow up a much quicker one .
Speaker #6: I think for Rebecca , you know , you're you're a year ahead of plan on margin targets , which is fantastic . You know , there are areas you've talked about planning to invest in next year , like I think building up the press channel is one example .
Speaker #6: How are you contemplating balancing the margin trajectory and the upside that you're generating with maybe the opportunity to opportunistically maybe pull forward some investment in a period of strength to to drive future growth ?
Speaker #6: Would be curious to just get your thinking . And obviously that helps us as we're contemplating the updates .
Speaker #2: Yeah , absolutely .
Speaker #5: Thanks , Doug , for the question . And you're right , we're we're in a very privileged position that we've gotten to based on really solid portfolio management and planning and quite .
Speaker #10: Regimented . You know , regimented project prioritization . And I don't expect that to change . We have also a number of different initiatives that we're undertaking as we did our strategic plan this year , we actually thought that the number of opportunities we had to invest in was almost embarrassing .
Speaker #10: It was a wealth of riches , and we remain in an incredibly fortunate position in terms of being able to help patients across the cancer care continuum with those investments .
Speaker #10: And so we are accelerating them . To your point , the Q4 guide implies we hire a number of heads that we're working on hiring .
Speaker #10: We spend , you know , some money on clinical trials that we're hoping to spend and and also , we start to , you know , scour the landscape for the best breast sales leader .
Speaker #10: And so all of those things will happen into in 2025 are implied in the approximately 25% Q4 , as we have talked about previously , looking ahead , we really do plan on managing to that approximate 25% adjusted EBITDA target going forward .
Speaker #10: We have a number of tailwinds on the gross margin side next year that we will benefit from , including the full year of the V2 transcriptome , and we have obviously the benefit of no longer having the burden of the French entity .
Speaker #10: Those will be those kind of good guys will be offset by incremental spend on the breast channel , incremental spend on MRD and incremental spend on on the precision to launch in general and in the development to get there .
Speaker #10: So I think think about that . 25% is our goal in any given year . And , you know , we're going to do our best to manage the PNL to that .
Speaker #10: And we will be bringing forward spend into 2025 to accomplish this . .
Speaker #7: Great . Thanks , Rebecca .
Speaker #6: Thank you again .
Speaker #2: Our next question comes from Puneet Sudha at Leerink Partners .
Speaker #4: Yeah . Hi , guys .
Speaker #11: Thanks for questions . Here . I'll try to wrap both of my questions in one . Hopefully not too long on the prostate side .
Speaker #11: You're well above 25% volume growth for decipher . My question is , given the penetration that you have today , how should we think about the 2026 growth ?
Speaker #11: Can you still grow more than 20% in volumes here for decipher in 26 ? And then on the MRD side , I would love , you know , perspective from Phil and the folks in the room as well .
Speaker #11: You know , I appreciate your getting closer to the launch here on MRD , but we have seen data so far from competitors where we have moved from observational trial to non prospective data sets that are published in J.M.
Speaker #11: You know , I appreciate your getting closer to the launch here on MRD , but we have seen data so far from competitors where we have moved from observational trial to non prospective data sets that are getting position and more importantly , you know , what's the market strategy here ?
Speaker #11: , we saw the teaser data with Imvigor 011 and Mibc trial , and there are other data sets that are coming from , you know , CRC , lung , other competitors entering the market .
Speaker #11: How do you differentiate and how do you go to an oncologist and say , you know , here is a test that you ought to employ in your practice , just given the competitive landscape .
Speaker #11: Thanks so much .
Speaker #7: Yeah . Thanks . On the first question , let me take that real quick . You know , and I'll actually cover this as a , as a company as a whole , including a firm and decipher if you kind of this question of durable long term growth has been a question that we've , we've dealt with for quite a while , understandably .
Speaker #7: And if you actually take a look back and look at , you know , a firm has grown year over year for the last 13 quarters , decipher has grown over 25% in volume for 14 quarters in a row .
Speaker #7: And if you think about where they both were coming into the year , when we looked at the market numbers , you know , a firm was about we had about 30 a third of the Tam and decipher .
Speaker #7: We had about 25% of the Tam . So in both cases , there's significant growth opportunity ahead , which is why we've said , you know , we feel we feel that , you know , the the market market share opportunity in the tailwinds we have .
Speaker #7: And frankly , the lack of headwinds given everything we've done around evidence and NCCN guidelines and so on , is what's going to help us get comfortably , get double digit growth , you know , durably for the foreseeable future .
Speaker #7: And that includes 2026 . So so that that that isn't a concern of mine when you actually take those two core ones alone and you get double digit comfortable double digit growth , and you add to that MRD and in the nearer term and international and nasal swab , in the longer term , you can see we've got it pretty well mapped out since you brought up MRD on that one .
Speaker #7: I mean , we've had data published for our MRD test , including in bladder for quite a while . And as I mentioned today , we've got a lot of publications that are in the works .
Speaker #7: We've talked about umbrella before . We've talked about Neo Blast today , I'll let Phil talk about his penetration and excitement around some of the clinical studies .
Speaker #7: Very , very briefly . But but essentially , you know , we we are very much doing our bit to make sure that we're part of the evidence generation journey here .
Speaker #9: Yeah . Puneet , thanks for the the question . And you know , I really feel quite confident that between the performance of our tests , the strength of our clinical evidence portfolio and our commercial channel , we're going to be a leading competitor in muscle invasive bladder cancer with our MRD test .
Speaker #9: It's incredibly exciting to see the prospective trials come out like in vigor . 011 . It was incredible to see the Niagara trial to talk about in the neoadjuvant setting .
Speaker #9: These are foundational trials that are really demonstrating that MRD status is a new disease state , and a state that we can take full advantage as a medical oncologist .
Speaker #9: I'm extremely excited to be able to manage patients more precisely and earlier with a compendium of therapies that are more effective . We will have to demonstrate with confidence the performance of our tests .
Speaker #9: And I have confidence in our portfolio . What I've seen already , as Mark said , we've already published . We're already in prospective trials , and , you know , to cross back to a question that Rebecca had our clinical trial portfolio , will we do have opportunities to use some of that , leverage some of that margin on our clinical trial portfolio .
Speaker #9: And we are doing so VERACYTE, INC. came to Variscite because of the , you know , consistent history of investing in evidence . And this is no exception .
Speaker #10: And just one last thing to add to Mark's response on 2026 , Puneet , just to sum it all up , we are as we're sitting here in our budget planning season , you know , our early look at 2026 revenue is is above the street to just be to be blunt about it .
Speaker #10: So you know we're obviously not guiding today . We'll guide either . You know , early in the first quarter at a competitor's conference or shortly thereafter on our Q4 call .
Speaker #10: But , you know , given the trends we're seeing year to date , quarter to date in Q4 , we're we're extremely excited about 2026 and beyond .
Speaker #10: And that even is taken into account , you know , the around $10 million headwind from biopharma and other revenue that we won't have next year .
Speaker #10: So , you know , I think as we're sitting here , you know , we're we're the playbook is working , right . What we've invested in is demonstrating the evidence , which is demonstrating the utility , which is demonstrating the guidelines and and coverage and , and growth and penetration .
Speaker #7: Thanks , Rebecca . Thanks for the question . Thanks .
Speaker #2: Our next question comes from Kyle Mixon at Canaccord .
Speaker #12: Great . Thanks , guys . Questions . Congrats on the awesome quarter . Maybe Rebecca , on your point there . When you look at the street estimates for 26 , I mean when you when you look at like what decipher is expected to do what we think Affirma can do .
Speaker #12: Where are people underappreciated ? Are people underappreciated ? Affirma for example , I'm just curious what you think about that . And then maybe for for genre , for Phil , the molecular features for decipher .
Speaker #12: Just can you talk about how much of an unmet need those signatures are ? And if there's a pipeline beyond Porthos and PTEN ?
Speaker #12: Thanks .
Speaker #10: Yeah . I'll take the first one . Effectively , the range is pretty wide on each Kyle , so I don't want to make a statement that's general in nature and have it be expounded or extrapolated into something that is , you know , wide in nature .
Speaker #10: So I would say in general , you know , we're above the average , but I don't want to I don't want to go beyond that , given I don't have the ranges in my mind for each .
Speaker #10: So I think the statement can just be applied to the average for both .
Speaker #7: And then we'll let them talk about the commercial opportunity for molecular features and why it's important .
Speaker #8: Yeah . So molecular features are response to the evidence . That's emerging as these , you know , collaborative groups use decipher more and more as a selection enrichment randomization tool .
Speaker #8: And the evidence from Stampede from Porthos from balance . We're designed to meet a need in the market , which necessarily is , you know , treatment of management of high risk and metastatic patients is becoming more and more heterogeneous .
Speaker #8: There are clearly differences in response to a variety of these therapeutics . And so the need for a biomarker is exceptionally high . The you can look at the results of those studies to see the benefit of using decipher in those studies .
Speaker #8: And we're meeting that need by providing these signatures . Now in a consolidated report with these predictive biomarkers .
Speaker #7: And Kyle , think of this as a repeatable formula . You know , and it's enabled by the whole transcriptome approach . And , you know , you'll see us at these signatures when the clinical utility evidence is there and there's an unmet need in our customer base .
Speaker #7: Okay . Thanks .
Speaker #2: Our next question comes from Lu Li at UBS .
Speaker #13: Wait , thank you for taking my questions . And congrats on the quarter . First question , I wanted to dig into a little bit on the 2025 guide .
Speaker #13: It does seem like the Q4 would seem to be roughly flat as a Q3 . Any days . In part , or maybe just like holiday season , please correct me if I'm wrong on this one .
Speaker #10: No , it's a great question . So recall we had 2.5 million of prior period collections in the quarter in Q3 , and that isn't necessarily implied in the guide .
Speaker #10: So that would be one thing . The other thing is the way the holidays do fall is a little bit more challenging than prior years , but those are the two things I would take into consideration .
Speaker #10: The third thing I would say is we did have a little bit of French revenue in Q3 that won't repeat in Q4 .
Speaker #13: God , I appreciate that . And then I wanted to dig into the the brass investment in 2026 possible that you can size how big of the channel that you're planning to build .
Speaker #13: And then it also the kind of like the spend related to the post-it note launch . And then a second also related to kind of the margin question on a firmer V2 .
Speaker #13: I think it's not fully transitioned yet . I wonder how much of the cost benefit that we've already seen in the quarter . And then how much left that we can potentially see the margin benefit in 2026 .
Speaker #13: Thank you .
Speaker #7: Thank you for the question . I'll ask John to talk about the commercial scale up strategy for next year .
Speaker #8: Yeah , thanks for the question . I mean , we're we're excited about we're excited about in anticipation of the release of the Optima trial results at Asco of 2026 .
Speaker #8: And we're excited about the potential launch to do that . We will have to build a sales channel specifically focused on breast cancer oncologists .
Speaker #8: We will do that in a very measured way . It's always been our approach to not get over our skis from a spend standpoint .
Speaker #8: And to build a sales team as we see the demand emerging , the plan here is fairly prescriptive . All you got to do is look at how we launched and have led the field in decipher with prostate cancer to understand how we will approach the market in breast cancer , we will lean into the grid .
Speaker #8: We will lean into collaborations with key opinion leaders . We will lean in with buy in from market leaders on the HCP side and drive the demand from the top down and build the sales team accordingly .
Speaker #10: Yep . And in terms of the gross margin in the quarter and the V2 transcriptome , so think about the gross margin dynamic on testing as quarter .
Speaker #10: I'm sorry , a month of goodness from the V2 transcriptome for a third of the volume . Obviously , as we transition throughout Q4 , that will by the end of Q4 , that will go to 100% .
Speaker #10: But I would really think about that only being at 100% for 26 . We also had the benefit of $2.5 million of prior period collections in the quarter .
Speaker #10: And then we did have a decently sized write off associated with V1 transcriptome reagents . And so those two , those all kind of netted out with regard to the testing gross margin trends on a sequential basis , if that helps .
Speaker #10: We're not going to quantify the V2 transcriptome benefit because effectively it's one of our levers for fueling the investments across the rest of the portfolio and don't want folks to get ahead of themselves on profitability .
Speaker #10: We will be managing our PNL to that 25% and 26 and beyond , and that gives us ample room . Given the programs we have in hand to invest for continued revenue growth , while also delivering a best in class financial profile .
Speaker #10: Thank you .
Speaker #2: Our next question comes from Sabu Nambi at Guggenheim .
Speaker #14: Hey guys . Thank you for taking my question . There have been a lot of updates throughout the year when it comes to competitive landscape .
Speaker #14: For decipher . In your view , in what ways have things played out as you expected and what has surprised you the most ?
Speaker #7: Yeah , great question . Thanks for that . There have been a lot and they will continue to be competitive updates , I think , and I think , you know , similar to what we talked about for MRD , there's a rising tide here and we were able to benefit from drafting on others who who paved the way , you know , for molecular diagnostics in prostate cancer .
Speaker #7: And , you know , through evidence development and having a strong test and ultimately , NCCN guidelines , we've been able to benefit from that .
Speaker #7: It's played out maybe better than we thought . Frankly . You know , I think decipher has taken more share than I would have guessed it would coming into the year .
Speaker #7: And , you know , the NCCN guidelines are a kind of an unknown quantity . It's hard to quantify the benefit you're going to get from from those .
Speaker #7: And then obviously there's been a fair bit of noise around Dpp-ii . And we addressed that question extensively at the beginning . And that's that's turned out to be a lot of noise and not a lot of substance in terms of the market share and the growth rate that we're seeing in decipher .
Speaker #14: Thank you for that . And then do you still expect to have a commercial LTT midway through 2026 ? And if yes , could you provide some color on the time leading up to then .
Speaker #14: Like what should we expect to see LTT performance data and so on and so forth . I think the Optimus data .
Speaker #7: Yeah , we do expect to have the commercial personality halfway through 2026 . You know , you're not going to see a ton of data from us there because you know we're obviously you've seen the optimum prelim data .
Speaker #7: We're waiting for the final Optima data . That's the key evidence behind that test . And then actually generating that test in our lab is a pretty straightforward process for us with a , you know , a tech assessment , a validation bridging New York State approval , all those things which which , you know , are fairly normal processes for us to follow .
Speaker #14: Perfect . Thank you guys .
Speaker #7: Thanks .
Speaker #2: Our next question comes from Mason Carrico at Stephens .
Speaker #15: Hey guys . Good afternoon . This is Ben on for Mason here on MRD . Would you be able to provide some color on the overlap of urologists that are treating prostate cancer .
Speaker #15: And are decipher targets and are also those treating muscle invasive bladder cancer that are going to be targets for your MRD assay . What's the overlap here ?
Speaker #15: And really just what is that Venn diagram look like of those two urologists ?
Speaker #8: I mean , it's an exceptionally high overlap . Thanks for the question . We expect to be able to serve upwards of 70% of the Sam based on the channels that we currently control .
Speaker #8: These are primarily going to be a combination of urologists and oncologists . We feel confident we can serve the market .
Speaker #15: Okay , great . Thank you . And then appreciate the color that you gave on deciphers growth and high risk patients this quarter .
Speaker #15: Are you able to go a little deeper there and maybe comment on how ordering patterns have trended in localized patients after urologists have adopted the metastatic offering ?
Speaker #15: Is this a fairly immediate impact to orders that you're seeing ?
Speaker #7: Maybe , maybe I'll take that just in terms of , you know , stratifying the the decipher market that we're going after . Obviously , we added 30,000 patients when we launched metastatic .
Speaker #7: So now we have the full Tam addressable by decipher . We also mentioned , you know , BCR based patients , which which could be part of the prevalent population hard to size it .
Speaker #7: But that's a potential upside . Of course you got incidence growth as well when you kind of subdivide the localized disease population . You know , we've said over 25 , 20% in low .
Speaker #7: So, that's actually quite a high penetration for us. We said that the high risk is actually one of our highest growers this quarter.
Speaker #7: And that's driven a lot , a lot by the metastatic data that's come out as well . And so , you know , while intermediate has always been the highest penetrated and maybe even the highest growing area in the past , it's clear that , you know , we are making great traction in every single category of prostate cancer patients .
Speaker #7: And metastatic is really helped . That and grid and everything else . NCCN guidelines help that as well . Thanks , Ben .
Speaker #2: Our next question comes from Andrew Brackman at William Blair .
Speaker #16: Hi guys . Good afternoon . Thanks for taking the questions . Maybe just on true MRD here . I appreciate all the color on the on the studies in the pipeline there .
Speaker #16: But can you maybe just sort of talk about some of the considerations that you have when you sort of think about choosing which indications to expand , sort of , sort of each year as we sort of look at it , some of those indications are a bit crowded , and there's others where Veracyte has a great channel .
Speaker #16: And so how do you sort of think about building out that annual roadmap of additional indications ? Thanks .
Speaker #7: Yeah , it's a great question . And Andrew , thanks for referencing our brand through . We're excited about that product . Obviously we picked Muscle-invasive bladder cancer for the reasons John just highlighted in terms of the Venn diagram and the overlap there with our existing customer base .
Speaker #7: You can imagine our really potentially going after any market with true because it is a pan cancer platform . But we will go after markets where we have an inherent advantage for example , where we have an existing channel or a building , a channel .
Speaker #7: It's really great for us to build out the entire care continuum . I think it will really help in MD to be a company that is able to support that patient and that physician right at up front in their diagnostic journey with a prognostic test or a diagnostic test or a predictive test , as they're being treated .
Speaker #7: And then an MRD test post-treatment . And so obviously , you know , covering that whole that whole spectrum , there will be an important advantage for us .
Speaker #7: And then beyond that , it'll be subject to things like cohort availability , existing published data that we've already got . We won't shy away from competitive markets .
Speaker #7: We believe our whole genome based approach is a differentiator . And so , you know , that will certainly some markets will be harder to go after than others , especially where they're already well penetrated .
Speaker #7: And let's face it , most markets are not well penetrated today . There's plenty of opportunity , but we won't shy away from it .
Speaker #7: We'll just be thoughtful about how we do that and the timing .
Speaker #16: Okay , that's perfect . And then somewhat related to that , another great quarter of cash generation here . So how should we sort of be thinking about your appetite for maybe expanding the portfolio through some acquisitions to maybe round out that , that care offering ?
Speaker #16: Thank you .
Speaker #7: Yeah . I mean , absolutely . We've we've I'm very pleased with the performance of the business , especially the cash generation as well this quarter .
Speaker #7: And as Rebecca said , we're going to you know , first and foremost , we look at investing in our business clinical trials .
Speaker #7: Product development . You know , some of the stuff in infrastructure , we're really building an incredibly efficient engine here of our site .
Speaker #7: And we we have the opportunity to be able to do that . M&A , of course , is on the list . And if there's something that makes sense , then we would go after it .
Speaker #7: But our narrative on this hasn't changed one bit . The funnel isn't huge . We look at everything , we kick the tires and we're very diligent and we're not , you know , this this cash doesn't burn a hole in our pockets .
Speaker #7: Far from it . It change the approach that we take . And then , you know , beyond that other other capital allocation opportunities , none of which , you know , are top of mind for us right now .
Speaker #7: Anything you want to add , Rebecca ?
Speaker #10: No , you covered it quite well .
Speaker #16: Okay . Thanks so much .
Speaker #10: Thanks , Andrew .
Speaker #2: Our next question comes from Andrew Cooper at Raymond James .
Speaker #17: Hey , everybody . Thanks for the questions . Maybe first just one on on some of the numbers . I think in the script you called out a little bit of timing of spend on the 30% EBITDA margin this quarter .
Speaker #17: But you do have EBITDA up , I think around 10 million or so at the midpoint . So when you think about those prior plans versus where we are now , what was timing ?
Speaker #17: What was operational performance and then maybe in the guide , is there any incremental spend that you're pulling in that wasn't expected in 25 in the first place ?
Speaker #17: And how do we think about sort of the jumping off point as we head into next year from a from an OpEx perspective ?
Speaker #10: Yeah . Fair question . Andrew . So effectively , what was goodness was the revenue outperformance versus our commentary plus prior period collections , which obviously flowed out at 100% .
Speaker #10: I would say there was a little bit of of V2 afirma goodness in there , a little bit further ahead of of kind of the transition than , than we would maybe have expected , though that's a rounding error with regard to the 2025 spend , I would say there I wouldn't call it anything specifically material that was pulled in .
Speaker #10: I would say maybe a couple of heads here and there , but we just tried to de-risk it as much as possible . And the jumping off point for next year , I think you've effectively , you know , quantified it decently well .
Speaker #10: You know , you can effectively back into whatever you think the revenue number is with getting to that 25% adjusted EBITDA for 2026 .
Speaker #17: Okay , helpful . And then I already asked you maybe just a little bit more on the molecular features reports , you know , help us frame how that fits in from a competitive perspective and what you think that can do .
Speaker #17: Is there any opportunity to kind of go out and monetize that a little bit more directly ? How does it compare to something like , you know , Tert Promoter Score that you've added on a and what that what that's helped kind of enable with that platform ?
Speaker #8: Yeah . Great question . No , there isn't a way to monetize from it directly . But I believe it's yet another way that we continue to improve self disrupt ad evidence , prove to each one of our HCP customers that they are using the best tool to make the most informed , clinical management decision on behalf of their prostate cancer patients .
Speaker #8: This is just one more thing that we will continue to do . Yeah ,
Speaker #9: Just .
Speaker #17: To add .
Speaker #9: Just to add from a medical perspective , you know , adding these features to our report underscores the value of the biology . And so , you know , the treatment of men in that high risk group and that biochemical recurrence and the metastatic group will we're seeing some very good growth because of our coverage , recent coverage and metastatic and increased interest in the high risk is getting more complex .
Speaker #9: We have hormonal therapy . We have chemotherapy , we have . Radiation therapy . We have , you know , a whole slew of therapeutics adding predictive signatures to complement the best in class prognostic signatures will really help clinicians , urologists , as well as some of the radiation therapists and medical oncologists in that space .
Speaker #9: And so it's part of the decipher report . But it really helps drive a lot of and inform some of the increasingly complex decisions managing those high risk patients .
Speaker #9: Thanks . So perfect .
Speaker #17: Thank you .
Speaker #2: This concludes the question and answer session . Thank you for your participation in today's conference . This does conclude the program . You may now disconnect .