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spk04: Good afternoon, ladies and gentlemen, and welcome to Verisight's Fourth Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to C.D. Morris, Verisight's Vice President of Corporate Communications and Investor Relations. You may begin.
spk00: Thank you, Alex. Good afternoon, everyone, and thanks for joining us today for a discussion of our fourth quarter and full year 2020 financial results. With me today are Bonnie Anderson, Verisight's Chairman and Chief Executive Officer, and Keith Kennedy, our Chief Operating Officer and Chief Financial Officer. Before we begin, I'd like to remind you that various statements that we may make during this call will include forward-looking statements as defined under applicable securities laws. Forward-looking statements include, among others, statements regarding Verisight's anticipated timing of launches of new products in 2021, Verisight's plans, objectives, expectations, financial and otherwise, or intentions with respect to the anticipated acquisition of Decipher, the expected timing for Verisight's completion of the Decipher acquisition, and its expected benefits. Availability of Verisight's testing internationally, Verisight's total addressable market, the current and future impacts of COVID-19 on Verisight's business actions Verisight has taken or will take in response to COVID-19, potential timing for recovery of Verisight's business, the catalyst to drive momentum through 2021, and Verisight's long-term outlook. Management's assumptions, expectations, and opinions reflected in these forward-looking statements are subject to risks and uncertainties that may cause actual results and or performance to differ materially from any future results, performance, or achievements discussed in or implied by such forward-looking statements. And the company can give no assurance that they will prove to be correct and will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. Please refer to the company's February 17, 2021 press release and the risk factors included in the company's filings with the Securities and Exchange Commission for discussion of important factors that may cause actual events or results to differ materially from those contained in our forward-looking statements. Prior to this call, we announced our fourth quarter and full year 2020 results, which are available on our website at Verisite.com under Press Releases in the Investor Relations section. We also published a business and financial presentation, which we will reference during our remarks. This presentation is also available on our website under Events and Presentations in the Investor Relations section. I will now turn the call over to Bonnie Anderson, Fair Sites Chairman and CEO.
spk06: Thanks, Tracy, and thanks, everyone, for joining us today. Despite the pandemic headwinds, we closed 2020 with strong momentum across the business and are on track to launch multiple products in 2021, including our non-invasive nasal swab test and perceptogenomic atlas in lung cancer. And we now have a new general manager-based structure in place to drive our business forward. Earlier this month, we hit the accelerator with our agreement to acquire Decipher Biosciences, a world-class precision oncology diagnostics company whose market-leading tests in urologic cancers will expand our presence into seven of the 10 most common cancers, further solidifying our global genomic diagnostics leadership and significantly accelerating our revenue growth. We delivered strong revenue of $34.5 million in the fourth quarter, an increase of 11% over the prior sequential quarter and 16% over the fourth quarter of 2019, reflecting a strong rebound from the pandemic. Our genomic testing and product volume was 13,130 tests in the quarter, an increase of 12% over the third quarter of 2020, and 14% over the prior year. Pending the final acquisition of Decipher, which is assumed to occur by April 1, 2021, we are guiding a 2021 combined revenue target of approximately $190 to $200 million, which represents approximately 65% growth over 2020 at the midpoint of the range. We anticipate this growth will be fueled by the increased adoption of our four revenue-generating products in lung cancer, breast cancer, thyroid cancer, and interstitial lung diseases, as well as by Decipher's tests in prostate cancer. While relatively new to the market, Decipher's tests have gained rapid commercial traction. Now let's cover the highlights of the fourth quarter and the full year 2020 results. I'll start with commercial growth, our first measure of success. Our business has continued to rebound faster than we anticipated. Our fourth quarter 2020 genomic testing and product revenue was $34.2 million, more than double that of the second quarter when the business hit its pandemic low. Our Affirma business continues to lead the recovery with Affirma testing volume up 9% over the prior year quarter and 10% over the sequential or third quarter. Our pulmonology business, although improving, is rebounding at a slower pace as we had expected. We continue to be very pleased with our Persigna momentum where we exceeded our revenue goal for the year and delivered volume in the fourth quarter of 2020 that was nearly triple that of the prior year. We had several key reimbursement wins during the year, our second success metric. These included receiving an advanced diagnostic laboratory test, or ADLT designation, and a new Medicare reimbursement rate of $5,500 for our Invisia classifier, which improves diagnosis of interstitial lung disease. including idiopathic pulmonary fibrosis. The new rate went into effect on October 1, 2020, and will apply to the approximately 70% of our amnesia patients who are covered by Medicare. Additionally, we secured our first Blues Plan coverage policy for the Afirma Expression Atlas, which uses comprehensive genomic profiling to inform treatment decisions in thyroid cancer. Physician demand for Affirma XA testing continues to rise with the growing number of targeted therapies for thyroid cancer that are available or in development. The XA rounds out our comprehensive Affirma offering in which we guide care throughout the patient journey in thyroid cancer diagnosis and treatment. We also achieved a significant milestone for Persigna with the German government approving reimbursement for the test for all breast cancer patients with hormone receptor positive HER2 negative early stage disease. This is important because each year approximately 70,000 women in Germany develop breast cancer and in many cases physicians are challenged to determine which women will benefit from adjuvant chemotherapy based on clinical pathological factors alone. We are poised to accelerate growth in Germany through our NCANNER instruments that are already in place to support local pathology testing for patients. We strengthened our library of clinical evidence, our next metric of success for our genomic tests across all of our indications, including 10 studies published in peer-reviewed journals in 2020. Among these was a study published in the journal CHEST showing that the Percepta Genomic Sequencing Classifier reduced unnecessary invasive procedures in lung cancer diagnosis. Another study published in the American Journal of Respiratory and Clinical Care Medicine demonstrated that the Invisia Classifier improves physicians' ability to diagnose idiopathic pulmonary fibrosis without the need for surgery. We believe these publications will be key to our reimbursements efforts with commercial payers. In breast cancer, a landmark study published in the Journal of Clinical Oncology by leading breast cancer researchers suggested that the foundational biology upon which our PROSIGNA test was built may explain the test's increased ability to predict long-term risk of recurrence among certain breast cancer patients compared to other breast cancer tests. These findings will be among those evaluated as part of the PROCURE study in Europe, which we announced in September 2020. The PROCURE study has brought together top breast cancer researchers and clinicians to achieve consensus on the evidence and the clinical utility of the most frequently used genomic breast cancer tests, including PROSIGNA. The study, which is expected to complete in about a year, is led by an independent scientific steering committee of world-renowned breast cancer experts and is gauging about 180 clinicians throughout Europe. The study utilizes Delphi methodology, a well-known technique for generating consensus on complex issues. In Decipher's business, we were delighted to see that last week JAMA Oncology published an important study validating the Decipher Prostate RP test as the first independent predictor of overall survival. The study also shows how predicting metastatic risk with the Decipher test can be utilized to better guide treatment decisions in men with prostate-specific antigen or PSA recurrence. We believe this is a significant milestone for Decipher's development of evidence for the test. In fact, the author of an accompanying commentary in JAMA Oncology stated that the findings should, quote, lead to reconsideration of ASCO guidelines that recommend the use of the Decipher test on the basis of the strength of the evidence and its adoption into routine clinical use should become commonplace, unquote. it's hard to get more positive endorsement than that. Our final success metric is pipeline development and biopharmaceutical partnerships. And here too, we made significant advances throughout the year. Most notably, we unveiled preliminary performance data at our R&D day event in December for our first of its kind non-invasive nasal swab test for early lung cancer detection and our perceptive genomic atlas for informing treatment decisions in lung cancer. We shared nasal swab classifier cross-validation data for four candidate genomic test models, which demonstrated that when lung nodules are initially detected, our test will be able to identify which patients to work up and how aggressively to work them up. Today, physicians do not have a reliable way to do this. which leads to unnecessary invasive procedures in benign cases and delayed treatment in a disease that is the leading cause of cancer death worldwide. We also shared preliminary data for our Percepta Atlas showing that the in-development test could accurately detect known gene alterations in lung cancer, including early stage disease, using tiny samples from the initial biopsy used to diagnose the cancer. We believe the Percepta Atlas will provide physicians with the information they need to make informed, targeted treatment decisions at the time of diagnosis and build what could be the first large-scale lung cancer biorepository across all stages of lung cancer. Both tests are on track to launch in the second half of this year. Also in lung cancer, we expanded our collaboration with the Lung Cancer Initiative at Johnson & Johnson to include the NOBLE trial, a 9,000 patient prospective multicenter clinical study designed to distinguish genomic and other differences in lung cancer development and progression among patients with lung nodules detected by CT imaging. The trial will provide a robust biorepository of genomic, clinical, and other data which we plan to use in the development of future tests, including those that can help diagnose or predict lung cancer at its earliest stages. The Lung Cancer Initiative at Johnson & Johnson has stated that one of its key goals is to intercept lung cancer before it can even develop, and through the NOBL trial, we are excited to help advance this vision. Also in pulmonology, we are on track to commercially launch our Invisia classifier on the NCounter analysis system so that we can make it available to physicians and their patients in global markets through laboratories that will run the test locally. This will be the first of our advanced genomic tests that we add to the NCounter as we advance our vision of offering a comprehensive menu on the fully automated instrument. We plan to complete development of our nasal swab test on the encounter in 2022 following its launch in our CLIA lab in the United States this year, and we'll begin to transition it as part of a broader portfolio to the instrument shortly afterwards. Pending the close of our acquisition of Decipher, a key priority will be for us to secure a final Medicare coverage policy for the Decipher bladder test and then expand its commercialization into the 320 million bladder cancer market. The test is intended to provide physicians with previously unavailable information about which patients with localized breast bladder cancer may benefit from more intensive treatment. For example, in patients with muscle-invasive bladder cancer, it will help determine which patients will better respond to neoadjuvant chemotherapy prior to bladder removal surgery. The test is the only genomic subtyping tool that we are aware of for physicians in the United States treating patients with locally advanced bladder cancer and has been issued at draft local coverage determination, or LCD, by CMS for Medicare reimbursement. I will now turn the call over to Keith for a more detailed review of our fourth quarter and full year 2020 financials.
spk07: Thank you, Bonnie. I will refer to our business and financial presentation, which Tracy mentioned earlier and which is available on our website. In her prepared remarks, Bonnie covers the list of Q4 2020 key highlights. are key takeaways illustrated on slide three, as well as content on slides four and five. I would refer you to slide six, where the table and footnotes shown here, along with the details in our SEC filings, further explain how we recognize and report revenue under U.S. GAAP. For discussion purposes, we may combine testing and product revenue to describe our diagnostic testing business and biopharm and collaboration revenue to describe our strategic arrangements. As a reminder, net sales of data or other services to our customers are classified under biopharmaceutical revenue, and all other non-customer revenue are classified under collaboration revenue and are consolidated statements of operations and comprehensive laws. Post-close, we expect to include deciphered tests and testing services. Turning to slide seven, we generated 2020 revenue of $117.5 million. Despite the impact of COVID-19, our testing and product business grew 3%. Pending the completion of the acquisition of Decipher Biosciences, which is assumed to occur by April 1st, 2021, we expect total combined revenue in 2021 to be approximately $190 to $200 million, representing growth of approximately 65% over 2020 at the midpoint of the range. Turning to slide eight, we present our quarterly revenue results to show that the business has proven resilient through the global pandemic and that the U-shaped recovery appears to be playing out. Slide nine shows our performance against six key performance indicators, or KPIs, for the fourth quarter and full year 2020 compared to the prior year period. Our revenue, gross margins, cash flow, and volume recovered nicely off the second quarter lows that were driven by the onset of the global pandemic. As illustrated in the far right column, Our fourth quarter 2020 total revenue, or total volume, excuse me, of 13,130 tests increased 14% relative to the prior year. Our fourth quarter test volume included 11,221 reported genomic tests and 1,909 distributed tests. Genomic test volume of 11,221 included 10,370 Afirma, 572 Percepta, and 279 Invisia tests, representing 3% growth over the prior year period and 10% sequential growth. Our fourth quarter product volume of 1,909 Prosigna tests represents 181% growth over the prior year period and 32% sequential growth. Slide 10 digs a level deeper into total revenue, breaking down revenue into testing, product, and biopharma and collaboration revenue. The results are shown against the prior year period. Compared to the fourth quarter of 2019, our fourth quarter 2020 revenue grew 16%, comprised of 10% growth in testing services, almost 200% growth in our product business, and 37% growth in our biopharma and collaboration revenue. Testing revenue of $31.5 million includes $2.1 million in cytopathology services. For the fourth quarter and full year 2020, Average testing and product revenue per reported test was approximately $2,600 and $2,500, respectively. Slides 11 and 12 provide revenue trends, sequential and year-over-year. Slide 13 and 14 provide volume trends, also on a sequential and year-over-year basis. Slide 15 shows our cost of revenue in absolute dollars. as well as our gross margins with and without biopharma and collaboration revenue. The remaining slide 16 to 19 show trends in our operating expenses, net loss, cash flow, and cash balances. Despite the peak in COVID-19 cases and deaths in January, our total genomic test and product volumes increased approximately 4% over January 2020 total volumes. Starting February 12th, winter storm Yuri, a major coast-to-coast storm, spread snowfall and damaging ice from the northwest into the south, midwest, and northeast. We continue to monitor and take steps to help our customers deal with logistical issues, which we expect to persist throughout this week. As Bonnie mentioned, we expect to close the Decipher acquisition on or before April 1st. In summary, We announced the acquisition on February 3rd and followed that announcement with an equity raise of approximately $594 million, which increased our cash balance to over $930 million. We expect to use $600 million to fund the acquisition and up to $15 million in transaction expenses. The transaction, which has been unanimously approved by Verisight's Board of Directors, and by an independent special committee appointed by the Decipher Biosciences Board of Directors, is expected to close on or before April 1, 2021, subject to regulatory approval and the satisfaction of other customary conditions. We expect the acquisition to accelerate our revenue growth and pathway to profitability. Despite the impact of COVID-19, based on Decipher's preliminary 2020 revenue of $39 to $40 million, the company generated over 130% top-line growth compared to the prior year period. We expect the acquisition to be gross margin accretive, and based on preliminary results, Decipher reported positive operating cash flow for 2020. I will now turn the call back over to Bonnie.
spk06: Thanks, Keith. Turning to the beginning of the presentation that Keith reviewed, Slide three lays out the key takeaways from our prepared remarks. I'll next point you to slide four, which showcases our strategic growth pathway and demonstrates how the various facets of our business all fit so well together. This slide also shows the key role we believe Decipher will play in advancing our business. Looking ahead, we believe 2021 is going to be another transformative year for VeriCyte as we integrate the cipher, launch multiple new products, and build out our vision of offering a comprehensive menu of tests along the care continuum in cancer and other diseases for physicians and their patients around the world. We believe our new general management-based structure along with key new hires that will further strengthen our marketing team, will help drive strong growth across our products in 2021. Upon finalizing our acquisition of Decipher, we'll focus on ensuring a smooth transition of integration into our business with Dr. Tina Nova, Decipher's president and CEO, remaining at the helm as our new GM of urologic cancers. As I mentioned earlier, we are guiding our full year 2021 total revenue of approximately $190 to $200 million. This anticipates three-quarters of revenue from Decipher's prostate cancer franchise and reflects our expectations of continued strong momentum with pharma in thyroid cancer and proscina in breast cancer. We expect our pulmonology business to further recover as the COVID vaccine rollout results in hospitals increasingly performing bronchoscopies. With three pulmonology products scheduled to launch this year, along with the anticipated near-term opportunity in the large untapped bladder cancer market, we intend to reprioritize our work in the smaller lymphoma market to focus solely on our lymph mark efforts with Asserta Pharma in 2021. We will revisit plans to bring forward a standalone test at a later point in time, perhaps. Against this backdrop, I'll refer you to slide five in R, in which we highlight the key catalysts that we believe will drive our business in 2021. These catalysts fall into three key areas of focus, product launches, reimbursement expansion, and evidence development. First is product launches. In 2021, we expect to launch our Affirma XA, make it available for use on advanced or metastatic thyroid cancer that is radioactive iodine refractory. Advanced thyroid cancer is one of the many solid tumor indications where tyrosine kinase inhibitors have demonstrated ability to improve progression-free disease survival. Now, our Affirma XA will be validated to provide comprehensive gene alteration profiling for these metastatic cells collected from the thyroid bed, head and neck masses, and lymph nodes. Additionally, we will continue to liaise with KOLs and lung cancer and ILDs as we prepare to introduce our new lung cancer portfolio products and the Invisia test in Europe, and expect to similarly prepare the market for the planned expanded commercialization of the Decipher bladder test in mid-2021. Our second catalyst is reimbursement expansion. In addition to expectations for Medicare coverage for the Decipher bladder test in 2021, we will focus on securing commercial coverage decisions for our pulmonology tests the Percepta GSC, and the Invisia Genomic Classifier on the back of recent compelling published evidence demonstrating our test's clinical utility. And third is evidence development. We plan to continue adding to the growing body of clinical evidence supporting each of our tests. We will unveil clinical validation data for our nasal swab tests, and analytical validation data for our perceptive genomic atlas, respectively, prior to their launches later this year. Additionally, you should expect to see data demonstrating the Invisia classifier's ability to deliver results on the encounter analysis system that are comparable to those in our CLIA lab prior to the test introduction on the instrument to labs in international markets. Wrapping up, we are excited to close our acquisition of Decipher, which will fully solidify our global diagnostics leadership in cancer and other diseases while accelerating revenue growth. We believe we are uniquely positioned to offer the most breadth and depth in genomic-driven testing in cancer and other diseases for patients everywhere at every step in their journey. And with over $300 million in the bank after the anticipated close of our Decipher acquisition, we have significant strategic flexibility for advancing our company's long-term profitable growth. I'd like to finish today by thanking all of our employees for their hard work, focus, and perseverance during a year that threw curveballs at all of us. Despite challenges from the pandemic, We made incredible progress in our business, and I could not be prouder of our team or more confident in our strategic vision and our ability to execute on it. And with that, I will now ask Alex to open the call up for questions.
spk04: As a reminder, to ask a question, you will need to press star 1 on your telephone. Again, that is star 1 on your telephone. Your first question comes from the line of Puneet Sauda from SVB Learing. Your line is now open.
spk10: Yeah, hi, Bonnie. Keith, thanks for taking the questions. So the first one I have here is on guide. I just want to clarify, and maybe I think it's just a matter of clarification, that I mean, you're projecting $195 million at the midpoint of the guide. You just did $117.5 million. And if we look at what Decipher did and we look at, you know, $39 million that they just did and take a pro forma number for the year, about $157 in my calculation, we're looking at about a 25% pro forma increase here for a growth here for the combined company. That is a bit lower than the projected 30% CAGR that you've had in the past, and maybe it's just a function of not including the first quarter, but I just want to clarify that point and get a clarification of where that delta is coming from.
spk07: Yeah, I think you're right. We're assuming in our guidance that we close the acquisition on April 1st, and their results are for three-quarters, not four. I can walk you through how I get, you know, we're giving top-line guidance, but for those building a model, we typically, all the analysts have looked at sort of volume times price to get to revenue. So not to be indicative of guidance, but let me, given that we're going to pro forma this end starting April 1st in terms of models and Let me walk you through sort of how to get to the midpoint of 65% growth. Again, any one of these parts move around, so we're only getting the top line, but this will help with the modeling exercise. So, if we did 33,787 tests in 2020, if we go to 41,000 tests in 2021, that's 21% growth in volume. Our price is around $2,600 in 2020 per test. So I'm looking at revenue for a firma divided by volume. So it's $2,600 for 2020. If we achieve $2,700 per reported test, so we take 2,700 times 41,000 tests, we get just around $111 million on a firma. Our cytopathology, we think that will be flat, around 7.5 million from 2020 to 2021. On the lung portfolio, we did 3,614 tests in 2020. And as you all are seeing, the lung portfolio during COVID right now, there's less procedures on there. So if we're flat on our volume and do 3,700, I think that'll ramp up throughout the year as vaccines come into, I think we're at, you know, like 60, 70 million people vaccinated at this point. So we have a ways to go. But if we can get that 3,700 lung test, we did in 2020, we did about $2,000 on a blended revenue per test on lung. That's Perceptin and Vizia. If we go to 2280, 2285 on lung products on a combined basis, we'll achieve about $8.5 million of revenue on lung. And then Decipher, we're expecting that they'll do around 19,000 to 19,500. So let's say that's 19,250 tests at $2,500 per test. That's about $48 million for the three quarters starting in Q2. So that should get you to testing of around $175 million. So that should be about 71% growth over the prior year. Our product business. We did about 7,088 tests in 2020. So we had 9,200 tests in 2021. That's 30% growth in that business on the volume basis. And on the price per test, we averaged about 1,389 in 2020. So if you just go flat at $1,390 per test, that should get us to about $13 million in revenue. That's a 30% growth for that business. And then so our testing and product, we should go from 44,489 tests in 2020 to 73,000, about 150 tests. And that V is around 64% growth. And our average price per test should go from around $2,500 to, say, $2,560. So it's a slight 2% increase in pricing. We obviously work on that, and hopefully we can do better, but that's sort of where you get to the midpoint. And so that takes your revenue from about $112 million in 2020 to 187, 188 million. So it gets you to 68% growth in testing and product. And on the BioPharm on collaboration side, we recognize 5.7 million in 2020. And we would expect that number at the midpoint be around 6 million or 6% growth. Again, that's a non-recurring, typically, business for us. I would say that we would have, that $6 million includes $4 million from the achievement of the milestone of the nasal swab and the CLIA transfer of that technology. So that would be, I'd probably put that in the fourth quarter. It happened in the second half of the year, but I'd put that in the fourth quarter. And then for AZ and Noble, I combine, call that $500,000 per quarter of revenue, or $2 million for the year, so I get you to $6 million. So in total, it goes from $117.5 million in revenue in 2020 to $193.6 million at the midpoint in 2021, so a $76 million increase in revenue and a 65% V in to the prior year. So that should get you to the midpoint, how we think about it. Is that helpful?
spk10: Yeah, that's super helpful.
spk07: You're clearly going to have to read the transcript after this.
spk10: That's the most detailed answer. There's probably not too many more questions. No, I really appreciate it, Keith. That's the most detailed diagnostic CFO answer ever, but this is great. Thanks for clarifying all that. And I really don't have any questions beyond that except that if I could just, you know, ask one broad question as to, you know, as you shifted towards encounter, you know, could you give us a sense of, you know, sort of how many of the tests have truly shifted to encounter and sort of, you know, how that progression is going to play out throughout 2021? Thank you so much.
spk06: Yeah, right now the only second test that's planned to be introduced on the NCUNNER this year is the Amphysia test at the very end of the year. And then, you know, we're going to be taking a look at how we line up to accelerate menu expansion on the NCUNNER, especially with our decipher acquisition. Prostate cancer is an important testing area around the world. And the thesis of that whole strategy is building menu. And so we'll keep you posted on what the future plans look like. Thank you. Thanks for joining. Thank you, Bernice.
spk04: Your next question comes from the line up, Brian Weinstein from William Blair. Your line is now open.
spk03: Hey, guys. Thanks for taking the questions. Thanks for joining, Brian. Of course. So just one question as a follow-up to the soliloquy just there from Keith. On Decipher, I thought that ASP was kind of trending closer to $2,800 in the fourth quarter there. Am I wrong on that? Because I think I heard you say $2,500 for all of next year. Is my assumption wrong on the $2,800 in the fourth quarter? And if it's not, were you just being conservative there?
spk07: Well, they recognize they're not up the full reimbursement journey that we are with the history. So, you know, a little bit over half of their revenue is accrued, and the other half is based on cash collections, and that can be lumpy. So sometimes when you're looking at one quarter, you know, on a blended basis, that's what it works out.
spk03: Okay. Got it. Okay. And then... Also, on the guidance, I didn't hear anything just to make sure, nothing really from new product contribution. Obviously, these things are coming at the end of the year, but there's really nothing kind of factored in for Nasarisk, for Invisia, on Encounter, and I'm forgetting, oh, and on Percepta Atlas. Nothing really in there, right?
spk06: That's correct. We're expecting to get, you know, lined up to get a Medicare coverage decision. And as you know, that takes a while. So, yeah, we don't point to revenue in the first year of products introduced.
spk07: If that changes throughout the year, we'll update you.
spk06: Yeah.
spk03: Yep. Okay. And then as a broader question then, you put that GM strategy in place now. Can you just talk a little bit more about about how you think that helps drive revenue. And can you please also review kind of the sales and marketing structure that's now in place and what your plans are for that sales and marketing structure over the next year?
spk06: Yeah. In November, we announced the restructuring of sales and marketing and managed care and then lining up some of the operational support functions underneath that by clinical indication. So what it's going to do for us is, bring focus to the two mature products where the market and reimbursement is already in place, lining up our endocrinology and breast cancer business under 1GM. That includes sales, marketing, managed care, support services, et cetera. And then pulling all of our pulmonology programs under 1GM for the same reason, going really deep in clinical understanding and our building the relationship with pulmonologists, which will be the call point for the entire portfolio. That team, of course, has the challenge of launching three new products this year, our Nasoswab test, our Perceptogenomic Atlas, and, of course, Invisi on Encounter. So we have a lot of investment going into that area, but we wanted to put a team together that would have ultimate focus in pulmonology. We think that's the right way to do that. I mean, early on we had that with Affirma because it was our only product, right? And we could get the leverage across three indications, but when we got to five, quite frankly, we needed to do something to bring that focus back, which is what we've done. And with the acquisition of Decipher into this new structure, it works perfectly. because Dr. Tinanova is going to stay on and be the GM for urologic cancer. So we now have the business set up in the way that we can drive both focus and growth with this new structure.
spk03: Yeah, okay, great. Thank you guys so much for taking the question. Thank you. Thanks, Brian.
spk04: Next question is from Songji Nam from BTIG. Your line is now open.
spk05: Hi, thanks for taking the questions. I just have a couple of clarification questions. On the prostate cancer, the site for prostate expanded Medicare indications, is that the LCD that went into effect last year, at the end of last year, or is that something new?
spk06: They did get an expanded indication toward the end of last year, for sure, and there are a couple of new expanded indications going through this year, smaller opportunities to get coverage. And then the bigger decision this year, of course, will be on the bladder cancer test, which already has a draft, and we expect to get to final later this year.
spk05: Gotcha. And then just on the Percepta and Invisio commercial coverage expansion next year, or this year, I guess, just given the, you know, the headwinds on the pulmonology franchise last year, just kind of curious, what would be driving that? the expanded commercial coverage.
spk06: It's all the new data. It's all the new evidence that came out showing really great clinical utility. And even though the pulmonology suites have been somewhat suppressed in terms of the number of patients they can put through those suites, obviously there's still a lot of interest and the data continues to emerge. And it's really the data that will drive the coverage decisions.
spk05: Okay. Thank you. That's it from me. Thank you.
spk06: You bet. Thank you.
spk04: Next question is from Chehasa Vaughn from Morgan Stanley. Your line is now open.
spk01: Hello. This is Yuko on Fortasia. Thank you for taking my question. Would you talk about the cadence of commercial channel spending as you prepare for nasal risk and other launches, including bladder cancer tests from Decipher? Sure. And then on a related note, At what point would you begin to scale up investment to expand the sales force for NCounter? Could this come second half of this year, or should we expect that to be a 22 event?
spk06: That will be a 22 and 23 event. We will be – have already begun some of the market shaping activities in Europe for the launch of the expanded menu on NCounter. but much of the early access is going to be sites that have already made the investment in the instrument, and we're bringing the menu to them, which is, you know, a great way to have an intro into that market. As we bring more menu onto the end counter, that's the point when we will start to accelerate the expansion of installed base. but it's really not prudent to do that too quickly still with just one or two menu items on the end counter. So that's how that will work. And we really have built into our plan through the year, and Keith can kind of give you a little bit of an indication around that, a relatively modest increase, because the test being launched is typically taken to the market in a pilot fashion, and until we get Medicare coverage, we won't really accelerate the efforts around driving growth. That's always the way we've done this with this type of business. And with a bladder, it's sort of unique, because what we love about Decipher's urology cancer franchise is it's all the same call point. So they will begin to accelerate on the back of a final Medicare coverage decision that comes later this year with the same sales team and the same physician client. So you get a lot of leverage there, kind of like we do in pulmonology. So, Keith, do you want to give a little bit of indication on how the spend is expected to go through the year?
spk07: Yes. So we, you know, the first quarter is typically, for people that are new to the story, is our slowest quarter. premiums reset. People tend to go get procedures done at the end of the year. We have COVID cases and things peaking in the first part. We have weather here. So we probably do, you know, we did 31 million last year through January. I was saying we're slightly up to last year. February last year, we had a really good month. March, we had a really good month. So But, you know, we do $31 million, $32 million in the first quarter. We do decipher in the second quarter that adds and builds. We generally have a 10% pop in our business from Q1 to Q2. It's relatively flat Q2 to Q3, and then we usually get a 10% increase, as you saw this past quarter, from Q3 to Q4. So we will have seasonality in the business. In terms of sales and marketing... We were around, excluding Decipher, around 115 people in the field for U.S. and international. We got about 14 people internationally, 15 people internationally. We will build that. We've been between 35%, 40% of revenue on sales and marketing costs, and so we're targeting long-term 35% of revenue. Decipher is around that number as well. So we would like to stay, even though we're launching multiple products, sub-50 and then scale back down to 35% of revenue on sales and marketing. So that's how we sort of think about it. We burned less than $10 million of cash in 2020. We generated positive cash flow of $4 million in the second half of the year. So the first half of the year is where the burn is. We generally have our burn – In the first quarter, there's burn. In the second quarter, that ameliorates and gets less, and then we pick up in the third and fourth quarter. We expect some more trends this year. We will have transaction expenses around the deal. I said up to $15 million. So I will come back and identify that separately when we file and tell you where that expense is hitting in our financial statements. And then when we spend $600 million to acquire this business, the GAAP accounting, their stock is accelerating, so any expense associated with the acceleration that wasn't contemplated in anticipation of the deal, we will have to book that expense into our financial statements on day one, but that will be part of the $600 million. So some of the $600 million or a majority of that will actually get capitalized, on our financial statements, but a portion of that will hit as a P&L expense for the acceleration of stock. We have not gotten to what that number is, but when we do, we will highlight that number when we close the transaction.
spk01: Thank you. That was super helpful. And then just a quick question. Would you help us think about the progress around the finalization of algorithm for NASA RISC? I know you mentioned the second half launch, but is it fair to expect validation data on the finalized algorithm in the 3Q timeframe?
spk06: Yeah, that will come out in advance of the launch of the product for sure. There's a lot of analytical work and assay optimization and testing that has to happen once we lock the classifier to prepare the laboratory and show the robustness in the assay in advance of unlocking the validation data that usually happens, you know, kind of the last testing that is done before we wrap up and then go to market. But at this point, we are, you know, you develop a tremendous confidence based on all of the data and all the subtype analysis that you look at. And so, you know, we're in the mode now of lock and verification testing and moving toward that launch.
spk04: Okay, thank you.
spk06: You bet. Thank you.
spk04: Next question is from Thomas Flatton from Leak Street Capital. Your line is now open.
spk11: Good afternoon, guys. Thanks for taking the questions. Just a quick clarification on the Decipher field team. I know there was a plan in place there to add about a third to that field force. Is that plan still a go, or is that on hold pending the integration?
spk06: No, we actually were in agreement to go ahead and add, I think it was an addition, maybe five additional hires coming into this year, and that's lined up to plan for the bladder test coverage decision as well. So that will happen. But it's relatively modest when you consider.
spk11: Yep. And then, Keith, are there potentials for synergies in the middle of the P&L, maybe most specifically the G&A line, or is this Should we just think about stapling their numbers onto yours as a preliminary step from a modeling perspective?
spk07: Yeah, I'd staple the numbers on. They're running really well and lean as a private company, and, you know, we're focused on helping them remain successful and accelerating their volume and have no plan to start the business or make any changes that would risk that. Yeah.
spk11: And then just one final one, with respect to the U-shaped recovery, I think that kind of panned out really well, particularly on their firmer side and a few quarters ahead of where we thought it might be. Could you give some more color around what you're seeing with respect to the pulmonology suites? How slow are they, relatively speaking, and are they providing any intelligence to your field team about when volumes might recover, et cetera?
spk06: Oh, yeah. Our field team is plugged in. I can tell you there's been a ton of – interaction, medical education, everything like that has continued to unfold. The challenge is that, first, these pulmonologists are the same pulmonologists that are caring for COVID patients. So, you know, in ICUs, those segregated in the wards and, you know, all of that, as Keith pointed out in his prepared remarks, January was a really high infection rate. So pulmonologists have been yanked in to help with the pandemic because that is their specialty. So that's part of it. And then the second part of it is until patients get vaccinated, there's still an uncomfort of going into a hospital and undergoing a procedure to get worked up for either early detection of nodules, and there's less screening going on to find those nodules, just like there's less mammograms going on to find breast cancer patients, right? So it's kind of the downhill effect of just the overall impact of the pandemic. The reason our Affirma business rebounded much quicker, which is what we anticipated, by the way, is because about half that market is in the community doctor office market, and those doctors quickly maneuvered to not put patients into the waiting room, to set them up with text messages so they can wait in their car, come in one at a time. And even though volume going through the doctor's office still isn't what it may have been a couple years ago, the doctors maneuvered around the safety factors and got back to business and seeing patients. So we think the pulmonology products will rebound. You know, Affirma kind of was ahead of the curve, and the Pulm products are about where we thought they would be with the U-curve. So no big surprises there.
spk11: Great. I appreciate that. Thanks so much, guys.
spk06: Thank you.
spk04: Next question is from Mike Madsen from Needham and Company. Your line is now open.
spk08: Hi, thanks for taking my questions. I guess I just appreciated the comments on the kind of OpEx outlook, but I was wondering if you could maybe comment on gross margin outlook for 2021. You know, it sounds like you are expecting a little bit of a benefit there from Decipher.
spk07: Yeah, we are targeting 64% to 66% gross margins as we layer in products.
spk08: Okay, thanks. And then from a share count perspective, you know, post this latest stock offering, it seems like it should be around 66 million approximately. Does that sound right?
spk07: Yeah, we had 58 million, and I think we issued 8.5 million. Okay, thanks.
spk04: Yeah.
spk07: All right. That's all I have.
spk04: Thank you.
spk08: Thank you.
spk04: Next question is from Sandy Dweeper from Trust Securities. Your line is now open.
spk02: Thank you so much. Not a whole lot left to ask here. Maybe two quick ones on encounter. I think Kiki said 30% growth. And just trying to be clearly, you guys have turned that around. It's going well. Is that growth mostly just over COVID comps? Or maybe talk to what you're doing is driving that business, because right now you're not expanding the Encounter panel. Why is it getting better? And then the second follow-up, probably for Bonnie, sort of a subtle read of a comment. It sounds like with Decipher, you may be reshuffling your thoughts on what the next one or two products are on Encounter. Am I reading that right, and I'm not expecting you to show me the cards, but just think it sounded like you were suggesting that two more areas you're going to sort of rethink the strategy of what's next. Thanks.
spk06: Yeah, I mean, yeah, thanks for the question. First of all, yeah, Persigna is going very well. I think in our hands the team is just highly focused. We've got a lot of good – clinical support people and, you know, dedication and now a very well-trained team leading it. There's been some great data come out on Prosignan last year. We've made a few really great hires, especially in Europe, to lead new market segments and businesses as country managers. And we just got a Germany coverage decision, which is really going to fuel some nice discussions light into that as well. So we're seeing the Prosigna business go, you know, really strong. We're very, very pleased with that under our attention. And then, yeah, I think when you're sitting here with a portfolio of tests that address seven of the ten top cancers by incident, it makes sense to rethink what is the best priority of moving tests on to the encounter. And I think what we'll be doing is maybe thinking out of the box on how we might be able to accelerate that down the road. And we've had a very good success sort of optimizing the Invisia classifier, the test, the assay, and the algorithm onto the encounter platform. It's gone extremely well. So we think that we're, you know, in a position to maybe accelerate some of those over the next, you know, few years. It won't happen overnight. But prostate's obviously a really big market to go after if we end up with breast cancer, prostate cancer, lung cancer, IPF. I mean, that begins to build on a menu that you can take anywhere in the world. Thanks, Bonnie. You bet. Thank you.
spk04: Your last question comes from the line of Paul Knight from KeyBank. Your line is now open.
spk09: Hey, guys. Last question, but I promise it will be pretty good. You know, the encounter historically was good at taking less than optimal samples and delivering good results. Are you seeing increased sensitivity and specificity with the encounter, the disjuncture?
spk06: It's a fantastic designed instrument. And I think that, you know, the elements that make it a really, really great design to do what we're doing for using it as a distributed platform for building menu for global markets is that the sophistication of the technology, being able to measure protein, DNA, RNA, being able to put 800... features of genomic content into a given test, that capability is rich, yet the complexity is built into the cartridge design and the instrument itself is very simple. And that combination made it really ideal for us. So love the platform. We love being able to be in a position now to build out menu and achieve what our vision was just a couple short years ago, and it's now underway.
spk09: Yeah. And then is there any change in the cadence and the schedule on LPD CMS meetings and their coverage decisions? based on COVID or any structural changes that's undergone there?
spk06: No, they've maintained a pretty good process. You know, it's pretty clear now what data they want, what to put into your technical assessment. I mean, we've been through this now numerous times. So we're going to be lining up with the new products coming to market, trying to accelerate getting the submission of the publications that are needed, and then getting those publications out so that they can be submitted as part of the technical dossier into Multi-Access. And that's a real priority. In fact, we have some corporate goals built around that effort because it's not just getting the product to market, it's then getting the evidence published so that it can be used to accelerate Medicare coverage. And then on the back of Medicare coverage is when we can expand volume growth and get the revenue resulting from that. Okay.
spk03: Thank you.
spk06: All right. Thank you.
spk04: You don't have any more questions at this time, presenters?
spk06: You can go ahead and close the call.
spk04: All right, ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now all disconnect.
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