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spk09: Good day and thank you for standing by. Welcome to the VeriSight Second Quarter 2023 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 this session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Shayla Gorman, Director, Investor Relations.
spk06: Good afternoon, everyone, and thanks for joining us today for a discussion of our second quarter 2023 financial results. With me today are Mark Stapley, Verisight's Chief Executive Officer, and Rebecca Chambers, our Chief Financial Officer. Verisight issued a press release earlier this afternoon detailing our second quarter 2023 financial results. This release, along with a business and financial presentation, is available in the investor relations section of our website at Verisight.com. Before we begin, I'd like to remind you that various statements that we may make during this call will include forward-looking statements as defined under applicable securities laws. Forward-looking statements are subject to risks and uncertainties, and the company can give no assurance they will prove to be correct. Further, we are not under any obligation to provide further updates on our business trends or our performance during the quarter. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Verisight files with the Securities and Exchange Commission, including Verisight's most recent Forms 10-Q and 10-K. In addition, this call will include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures are included in today's earnings release, accessible from the IR section of Verisight's website. I will now turn the call over to Mark Statley, Verisight's CEO.
spk04: Thanks, Shayla, and thanks, everyone, for joining us today. Our second quarter was incredibly strong, with revenue of over $90 million, representing growth of 24% compared to the prior year. This success was driven by our core testing business, which grew an impressive 37%, and is another clear demonstration of our proven framework of driving test adoption through robust clinical evidence, reimbursement, and guideline inclusion. Our performance in Q2 once again demonstrates our ability to consistently deliver strong top-line results as well as our commitment to enhancing our already differentiated financial profile. To this end, this quarter we generated approximately $17 million in cash from operations, a record for the company. We reported approximately 15,000 decisive prostate tests in the quarter, with our level one evidence status in the most recent NCCN guidelines, we believe now contributing to a meaningful step up in tests delivered to patients. This and the execution by our talented commercial team led to us recording the highest number of new physicians receiving a Decipher test result that we have experienced so far. We are proud to be empowering so many physicians with key insights to guide important treatment decisions for their patients with prostate cancer. We last updated our penetration estimates for the prostate market at year end. Given the outperformance of our Decipher franchise year to date, we now believe that the market for molecular diagnostics in prostate cancer is approximately 30% penetrated, with Decisive continuing to represent the majority of that penetration. While we've made significant progress in adoption, we believe that there is still ample opportunity for continued growth for many years to come as we work to make this test available to more patients facing a prostate cancer diagnosis. In line with our strategy of developing clinical evidence for our test, We continue to add to our impressive library of over 75 published studies supporting the performance and clinical utility of the Decipher Prostate Genomic Classifier. We were pleased to share a real-world study that published in JNCI Cancer Spectrum, which matched the data from our Decipher Prostate test with that from the National Cancer Institute's population-based SEER program. Results of the clinical utility study suggest that use of the decipher prostate test helps physicians personalize prostate cancer treatment approaches as intended. Specifically, the findings show that physicians treat patients with higher risk decipher scores more aggressively and patients with lower risk decipher scores more conservatively, demonstrating clear real-world utility for the test. Our dedication to evidence development extends to leveraging our testing capabilities and data sets to help advance scientific understanding in the disease areas that we address. A good example is our research use-only DecipherGrid offering in prostate cancer. This quarter, at the American Society of Clinical Oncology annual meeting, findings from three separate studies were shared demonstrating the ability of DecipherGrid to help provide new insights into specific molecular profiles that may predict individuals' response to certain treatments. In endocrinology, we delivered another record quarter with more than 13,000 affirmer tests performed, helping physicians make better diagnostic and personalized treatment decisions for their patients with thyroid nodules. This outstanding performance is due in part to continued enhancements we've made to the test, including the addition of promoter mutation testing, as well as ongoing customer experience improvements to our online physician portal, including online ordering. Our excellent commercial team leveraged these enhancements to add over 70 new accounts in the quarter and drive further penetration of existing accounts. Given this performance, we are now raising our Affirma revenue growth expectations to be in the low to mid teens for 2023. We are excited about the potential to leverage our testing capabilities and data sets to also help provide researchers with further insights into thyroid nodule biology, similar to how we are using Decipher Grid. This quarter, for example, in a study presented at the Endo2023 meeting, investigators developed and tested hundreds of genomic risk signatures based on a firm's whole transcriptome gene expression profiling. Interestingly, they were able to identify risk signatures that showed potential to differentiate indeterminate thyroid nodules that were low risk for tumor invasion and regional lymph node metastasis. such as these may help fuel product development efforts in the future as we continue to improve our tests and enhance our ability to help patients facing thyroid cancer. Turning to our biopharma business, like others in the space, we continue to face significant challenges this year given the current macro environment. As a result, we are seeing reductions in existing projects as well as lengthened timelines for signing new business. At this point, we have not yet seen a shift that would indicate this trend is reversing in the near term, and so we continue to expect declines in our biopharma and other revenue line and have updated our guidance accordingly. Moving to our long-term growth drivers, we made significant progress in the second quarter on site initiation for Nightingale, the clinical utility study for our perceptor nasal swab test. I'm extremely proud of our clinical and medical teams who have signed up almost 70 sites to be part of the study so far, with even more in the pipeline. This demonstrates, we believe, the strong support and enthusiasm for the nasal swab test from principal investigators, or PIs, and patients with the vast majority of lung module patients who are offered the test choosing to participate. However, the pace of individual site ramp-up and patient enrollment is lower than we and our PIs anticipated. driven largely, we believe, by ongoing staffing challenges at many of our investigator sites. Given that, we have conservatively adjusted our estimates for enrolling the last patient in the trial to now be during the second quarter of 2024. Our IBD strategy, which will enable us to deliver tests to physicians and their patients outside of the United States, is focused on our current IBD offering, the ProSigna breast cancer test, as well as the development of Invisia, Decipher, and Nasalsorb IBD products. Beginning with ProSigna, we had another solid quarter. Compelling clinical utility data for the test was presented at the ESMO Breast Cancer Congress from the EMIS study in Norway, a prospective multi-year population-based study, including data from over 2,100 participants. The results of these initial data demonstrated that ProSigna test results altered treatment decisions, including significantly reducing the use of chemotherapy among patients with clinically high-risk disease. Consequently, Prosigna has been adopted as a definitive breast cancer test in Norway and is now used routinely for patient care. On the development front, with Invisia already submitted for regulatory approval, we continue to make good progress on our Decipher Prostate and Perceptor Nasal Swab offerings with regulatory submissions slated for 2024 and 2025, respectively. In summary, Q2 was an exceptional quarter with strong execution in our core testing business and progress across our diagnostic long-term growth drivers. We're excited about our performance through the first half of the year and, as such, have meaningfully raised our expectations for the fall year. So with that, I will now turn to Rebecca to review our financial results for the quarter and updated guidance for 2022. Thanks, Mark.
spk08: As Mark mentioned, we achieved excellent results in the second quarter with $90.3 million of revenue, an increase of 24% over the prior year. We grew total volume to approximately 31,800 tests, a 28% increase over the same period of 2022. Quarterly testing revenue was $81.7 million, an increase of 37% year-over-year, driven by higher-than-expected decipher prostate and affirma volumes. as well as strong cash collections in the quarter. Total testing volume was approximately 29,000 tests. Testing ASP was over $2,800 per test, benefiting from approximately $2 million of out-of-period collections. Adjusting for this impact, testing ASP would have been more than $2,700. Second quarter product volume was approximately 100 tests, and product revenue was $4 million, up 29% year-over-year. Biopharmaceutical and other revenue totaled $4.6 million, down 55% year-over-year. Reductions in customer projects and extended sales cycles driven by overall spending constraints across the industry led to the decline. Moving to gross margin and operating expenses, I will highlight non-GAAP results, which exclude the amortization of acquired, intangible assets, other acquisition-related expenses, and restructuring costs, but does include routine stock-based compensation. Non-GAAP growth margin was 67%, up approximately 100 basis points compared to the prior year. Testing growth margin was 71%, up 250 basis points compared to the prior year, benefiting from higher lab volume, test mix, and $2 million of out-of-period collections. Product growth margin was 42%. Biopharmaceutical and other growth margin was 12%, down year-over-year, given lower fixed cost absorption. Non-GAAP operating expenses, excluding cost of revenue, were up 21% year-over-year at $59.3 million, driven by higher personnel costs, as well as clinical trial and IDD development expenses. Research and development expense increased by $3.4 million to $12.5 million. Sales and marketing expenses increased by $1.7 million to $24.9 million. And G&A expenses were up $5.1 million to $21.9 million. We recorded a gap net loss of $8.4 million, which included $10.4 million of stock-based compensation expense and $6.9 million of depreciation and amortization. Overall, we ended the quarter with $191 million of cash, cash equivalents, and short-term investments well ahead of our expectations. Turning now to our 2023 guidance, we have raised our revenue projections to $342 million to $350 million as compared to our prior guidance of $330 million to $340 million. This increase is a result of our strong first half results as well as updated full-year expectations of mid-20s growth in testing revenue and $18 to $19 million of biopharma and other revenue. We are forecasting Q3 revenue to be down sequentially across testing, product, and biopharma and other given typical seasonality and normalized testing collections before finishing the year with strong quarter-over-quarter growth. On full-year non-GAAP gross margins, we are raising our total company projections to mid to high 60s from the prior guide of mid-60s. This assumes second-half testing and product gross margins that are roughly in line with Q2 results, as well as lower biopharma and other gross margin given the fixed cost structure of this business. Moving to our expectations for cash, cash equivalents, and short-term investments, as always, our comments are barring potential M&A. We now expect to end 2023 with $190 million of cash on hand, accounting for the impact of upcoming contingent consideration payments, capital expenditures related to our lab expansion, and other working capital trends. Importantly, this updated guidance represents an increase of approximately $25 million compared to our expectations at the beginning of this year, driven by the strength of our testing portfolio, as well as the fabulous execution of our managed care and billing teams. I am proud of how our entire VeriSight team has performed through the first half of the year, and I'm excited to continue to deliver on the financial goals we've set for 2023. I'll now turn the call back to Mark for closing remarks.
spk04: Thanks, Rebecca. Before closing, I'd like to share some organizational updates. Given the underlying strength of the Decipher business and our focus on succession planning, Tina Nova has decided that now is a good time for her to step down from an operational role. So effective on September 3rd, Tina will be transitioning from GM of the urology business and will continue to support Verisight in a consulting capacity. Tina has been instrumental in the success of Decipher, refocusing the company for growth in 2018, and has provided valuable leadership of Verisight since our acquisition of Decipher Biosciences in 2021. We thank Tina for all of her contributions, including building an incredibly strong team to support our CLIA business going forward. To that end, John Light will move into the role of Chief Commercial Officer of the CLIA business, providing leadership and oversight to our urology, endocrinology, and pulmonology businesses, as well as our managed care team. We just had an excellent quarter, and we're on track for a strong 2023. I'm especially pleased with the growth in our core testing business, the progress we are making on our long-term growth drivers, and our differentiated financial profile to enable sustained growth. I'd like to thank the Verify team for their hard work, execution, and commitment to the patients we ultimately serve and to our vision to transform cancer care. We'll now go into the Q&A portion of the call, so operator, please open the lines.
spk09: Thank you. We will now conduct the question and answer session. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your questions, please press star 11 again. Please stand by while we compile the Q&A roster.
spk05: Our first question comes from Mike Sykes of Goldman Sachs.
spk00: Hey, good afternoon. Thanks for taking my questions and congrats on another strong quarter. Thank you. Maybe if we just start with Affirma. Mark, you gave a couple of different sort of dynamics that led to that sort of the guidance raised for Affirma growth. But just given what we've seen, I know obviously COVID had an impact, but it's been pretty impressive to see that growth, you know, continue. Just wondering if you could dig in a little bit more into some of those dynamics you were talking about, obviously the new accounts. you signed up, but also the online ordering, and just kind of help us understand what are some of the bigger levers within that that's driving that increased growth.
spk04: Yeah, thanks. I appreciate that, and I appreciate the comments as well. So Affirma has been a very key focus for us for quite a time, as you know, and we've talked fairly consistently about enhancing the product, which includes, as you also just pointed out, the improved ordering capabilities, as well as recently our addition of the TERT platform a promoter mutation gene as well, so something that a number of our customers would be looking for and is now available to them. And we've really focused on cells execution and communications with our physicians. We've had multiple reasons over that time frame to engage with our customers, including even, ironically, back to the supply chain challenges that we had kind of around this time last year, which you kind of take a little bit of adjustment for in terms of the comp. But even then, an opportunity to engage with our customers, reassure them that we were on top of that, and clearly we were. And then obviously with the ordering process and the TERT since then, we just have this regular drumbeat now of communication, helping us to continue to gain new customers, gain share in existing customers, and grow in both current accounts and new accounts. So I'm attributing this a lot to great execution by our very talented team and a lot of focus internally.
spk08: Yeah, and just one thing, Mark's comments are absolutely spot on with regard to the volume drivers, Matt. In addition to the volume drivers, we've also had a good news ASP story, thanks to the managed care and billing teams, as I mentioned in my prepared comments. If you recall last year, we were battling through the headwind of the CPT co-change, which obviously we have the benefit of having that behind us now, as well as we did collect a couple million dollars of prior period collections, of which about half of that was tied to Affirma. So if you look at where we are year-to-date on the prior period collections, totaling around $4 million, again, you know, half of that coming to Affirma, that's going to be a great tailwind to the growth story as well. So this is both a volume and ASP story currently, and we're obviously very excited about raising the guide to that low- to mid- teens from where we started earlier in the year, which was mid to high single digits. So all in all, a great story all around, and congratulations to the Affirma team for their execution.
spk00: Great. Thanks for all that color. And then just for my follow-up, just on the biopharma business, you guys have flagged this very early, so it's clearly not a surprise, some of the dynamics in that industry. But just given sort of the level of revenue where it sits today and the a little bit. How are you thinking about that business? It's obviously longer term attractive, just given kind of the biorepository you have and the relationships you have. But how are you thinking about that business in terms of level of investment and sort of commitment to that business moving forward, just given the strength and the rest of your portfolio?
spk04: Yeah, that's a great point. And so maybe just to recap a couple of things, BioPharma sits within the BioPharma and other line, which in aggregate is less than 10% of our total revenue. And the BioPharma piece is slightly the majority of that, less than 10%. And so also included in there is IBD services and contract services revenue. On the biopharma side in particular, we did call out quite a while ago some macro-level headwinds, which we're continuing to see, and those affect us in two ways. One, we have seen terminations of projects, in particular a very significant large project, that was based out of our Marseille organization that terminated. We talked about that a few quarters ago. And so that clearly affected the backlog that we had there as well as signing up new business. I mean, we have a lot of good conversations, but then transitioning from conversation to contract is taking longer than it has done in the past because of these macro headwinds. So thinking about that business going forward, of course, just like we always do, we always think about the strategy for our for our various businesses in our portfolio and making the right investments and balancing those investments when we see the opportunities for growth right in front of us and when those opportunities are going to come. The visibility so far to the end of these temporal macro headwinds is not clear at this point, so we have to continue to be very prudent in how we grow or stabilize that business. given these customer effects. So something, you know, as you can imagine, all of us, myself, Rebecca, and our general manager of that business are very focused on right now and will continue to be until we start to see the opportunity for that to continue to ramp up again.
spk00: Got it. Thanks, Mark. Appreciate it.
spk09: Thank you. Please hold for our next question. Our next question comes from Tejas Savat of Morgan Stanley.
spk03: Hello, this is Yuko on for Tejas. Thank you for taking our questions. Maybe following up on that biopharma question, you previously mentioned that you're putting efforts towards diversifying that customer portfolio. Could you talk about some of the strategies that you're employing and also provide some color around the progress you're making to diversify that?
spk04: Yeah, it's a good point. The comment that I provided previously is that there has been a very concentrated customer base with a few large customers making up a significant portion of the revenue. And that's obviously impactful when you start to see those customers holding back on their spending. And so we've been on a drive here to bring in more new customers, even for those initial small pilots that often lead into bigger contracts. So as I said earlier, One of the things that we have seen is an increase, you know, certainly more conversations than we were having with more customers previously. But again, it's that issue of those transitioning to firm contracts and arrangements that we are able to deliver on and then turn into revenue. So some of those are happening, but not at the pace that we would like to see. But we're continuing to be very focused on that. A couple of other areas where I see diversification opportunities are very much in the U.S. Most of our revenue, as I think you're probably aware, is very focused on our customers that are based out of our Marseille team's delivery remit. We also have the incredible data that we have with Firma and Decipher that we can also leverage in the U.S. and globally. And so those create other opportunities for customer diversification. And there are conversations, again, continuing there, but it's the same macro-level issue of getting those over the finish line. So continue to focus on that, and diversification of that customer base is clearly going to be something that we're going to continue to strive for.
spk03: Thank you. Thank you for the color. And then also... For Rebecca, could you provide early color for 2024, particularly for Decipher as we begin to lap tough comps? How should we think about steady state growth in the medium term?
spk08: Yeah, I'm happy to, Yuko. I think when you think about Decipher, we've obviously had an outstanding year this year and have now penetrated this market. and around to be around 30%, right? So when you think about where we are with different products like Affirma that are longer in their life cycle, if you will, there's still a number of, there's a lot of headroom for us to move from that 30%, even up to 60 or 70%. So I don't have any worries that we will continue to be able to continue to deliver very strong decipher growth for an extended period of time. You know, we still have a lot of work to do in 2023, let alone to start commenting on 2024, so we're not going to do that today. But when it comes down to Decipher, we have a lot of confidence in our ability to continue to penetrate this market and grow this revenue level for an extended period of time. I mean, Affirma now is on year 12 or 13, so... you know, Decipher is very much further behind that. So, you know, when it comes down to it, you know, we're going to start wrapping tough comps in the back half, but over the course of 2023, we're now expecting to grow in the mid to high 30s for Decipher. So that still is ending the year at quite a high growth rate and cadence on a go-forward basis. So, Not going to comment on the level for 2024 again, but very excited about the ability to continue to grow in this market and continue to help more prostate cancer patients over time.
spk03: Thank you.
spk09: Thank you.
spk05: One moment for our next question. Our next question comes from Puneet Sudha of Larynx Partners.
spk01: Hey, Mark, Rebecca, thanks for taking the questions and congrats on the quarter here. And Tina, you know, great work on Decipher all along and, you know, really wonderful working with you. So good luck going forward. Maybe with that, let me ask a question on Decipher. I'm wondering, you know, obviously clinical evidence is built. That's helping you get to the 30% penetration you talked about. Could you talk a little bit about the commercial sales force that's in place? Were there additions to that? Was there anything that changed on the commercial that helped you drive strength in the current quarter? And what are you contemplating for the commercial side for Decipher and the rest of the year in 24?
spk04: Yeah, Puneet, thanks for that and appreciate your kind words. One of the things that we've consistently talked about is the excellent performance of our sales team. and how they knock it out of the park quarter after quarter on various metrics, efficiency metrics, and then the great leverage that we get from that organization who have built these very strong relationships with existing urologists and practices and continue to go and hunt out new ones as well. Every year or so, we tend to think about some small territory realignment. We did that this year, and that proved to be very successful. We've added a small handful of reps And that's proven to be successful as they get up to speed in the period of about six months or more and start really contributing to the business. And they've been very successful, our entire sales team there, which is only roughly about 45 or so people, have been very successful at growing in existing accounts and also growing new accounts. So both those levers contributed to the performance this year. If you think back to You know, this time last year when we announced we had roughly 10,000 tests and this quarter 15,000 tests, that's a 50% growth in volume just in the one year alone. And I really do attribute that mostly to the sales excellence, but also, as you know, we always talk about the evidence generation that you brought up at the beginning of the question. And with over 75 publications and then NCCN Level 1 guidelines, I'll be honest, first, I didn't think that would be such a significant step up in ordering. And I think it's pretty clear now that we're seeing that that has resulted in a step function increase there and is probably also one of the reasons why we're seeing so many new customers this quarter. So, yeah, I think that bodes well for Decipher for the long term. There's so much additional white space to go after here. In the marketplace, we're still, even with our 30% estimate of penetration, still, you know, a significant number of patients with prostate cancer who aren't getting any kind of molecular diagnostic. And so, you know, our goal is to try and drive Decipher to be that test and for more patients to be able to get access to that. not just in the U.S., but globally as well.
spk01: Got it. That's very helpful. And on Affirma, Rebecca, I mean, you gave context around the cipher and the prostate. Could you maybe just provide some context, you know, in about 2024? I know it's hard to sort of give, you know, overall guidance, but, you know, how do you expect that business to trend given these higher growth rates for Affirma that you're seeing now? Thank you.
spk08: Yeah, Puneet, I mean, we continue to be excited about Affirma, and as I mentioned with Decipher, it's a later in its life cycle, but I think this year surprised all of us, and the execution of the team surprised all of us. So I'm not going to comment on Affirma, just like I didn't comment on Decipher for 24, but this is a well-established franchise. We're continuing to invest in enhanced product differentiation products and the team is excited about continuing to penetrate this market. We haven't updated the penetration numbers beyond what we shared at year end, and that was around, you know, Affirma being around 50% penetrated in the market alongside the other tests available, and Affirma having the majority of that. So, you know, I think we're in a decent spot, but there's still white room here, too, or white space here, too, and so we're just going to go after it and get it done, and And, you know, we think this is going to be a – continue to be a good story for us in 24 and beyond. You know, I think that's where we're at. Affirma and Decipher are driving the vast majority of our growth, and we're in a good spot given that, you know, they're approaching 90% of our revenue.
spk01: Fair. That's fair. Thanks, guys.
spk09: Thank you. One moment for our next question. Our next question comes from Sung Ji Nam of Scotiabank.
spk07: Hi, thanks for taking the questions, and congratulations on the quarter. So just on the NVIDIA IVD submission that, you know, that was completed at the end of last year, just was wondering if there's any active engagement with the regulators in Europe, you know, might be getting any feedback on that, and then also, you know, is there a possibility we might be, you might be able to see that clearance you know, in the next 12 months or so?
spk04: Yeah, I certainly hope so. So thanks for that question. Again, this goes back to just to ground everybody. This goes back to our IBD strategy where we're launching multiple of our products, including Invisia, as you mentioned, and then Decipher Prostate and NasalSorb, as I mentioned in the prepared remarks, outside the U.S. as IBDs. And you're quite right. We submitted Invisia in December last year, a little bit ahead of our own schedule. There is absolutely communication with the notified body. You always get several rounds of questions. The first round comes back with a lot of questions, and you answer those quickly. And our team did an excellent job of responding to those very, very fast. And then you hope to get fewer questions coming back, and we did get fewer questions by an order of magnitude in the second iteration. And so those handful of questions or so are being responded to or have been responded to roughly at this point. And so, you know, hopefully at some point in the near future we get some approval, if not more questions. We just don't know. The problem is it's still very early, the IBDR process. I'm proud of what our team has been able to accomplish, and I'm very encouraged by the feedback that we've been getting so far. but it's not over the finish line until it's done. So I wouldn't want to set any expectations on when that might happen, but we're going to continue to respond and answer all their questions and give them what they need and continue to generate the evidence to then drive adoption. Remember, even once we get approval, that doesn't then mean adoption by every country. That just means we've got approval in Europe. We then still have to go country by country, get reimbursement, drive adoption using, you know, the body of evidence that we've got for the test and just keep, you know, pushing the test throughout the various different countries. And then the same will apply once we submit and get approval for prostate as well and then nasal swab.
spk07: Great. Thank you. And then just a quick follow-up for Rebecca. For the IVD contract manufacturing revenue that's part of Biopharma and other, I know there's a portion of that that would be prioritized, right? Just remind us again when you expect to anniversary that.
spk08: I would love to say that's an easy question to answer, Sanjeev, but it's a little bit more fluid than that. So I would think about the majority of the impact kind of being in the run right now, if you would, and not necessarily anniversarying out. So I apologize if I'm not being clear because I think it's just a challenging question to answer because those resources are relatively fluid.
spk07: Okay. Gotcha. Thank you so much.
spk08: But it's not going to be a major driver one way or the other in terms of the $18 to $19 million guide above and beyond where we're at now.
spk07: Okay.
spk08: Does that make sense? Thank you.
spk09: Okay.
spk08: Thanks.
spk09: Thank you. One moment for our next question. Our next question comes from Andrew Brackman of William Blair.
spk02: Hey, everyone. This is Dustin on the line for Andrew. Thanks for taking our questions. Very strong cash generation in the quarter. Just wondering what the number one priority is now or what this change is the most. Is it M&A reinvestment in the business or just continuing to build up the cash and anticipation of something else in the future?
spk04: Yeah, it's a good question. I don't see at this point it really changing anything. Our thesis and our strategy is still the same. We're very focused on investing in these long-term growth drivers of both nasal swab and the IVD strategy, moving those as quickly as we can. And this doesn't allow us to go any faster. We were going as fast as we can anyway on both those projects. But, you know, I think just continue to push on those as our core strategies for long-term growth and continuing to make Decipher and Affirma be as successful as they clearly are being at the moment. So those are the key. On M&A, it doesn't change our thesis at all. I mean, for me, the bar, as I've always said, is very high. We would be focused on businesses like Decipher that contributed very quickly to the unique financial profile that we have. And as I said before, the funnel is not very broad for that. So no change. I'm proud to see that strong cash generation by our team, and I think there's been a lot of focus by many people in our company to achieve that kind of outcome, and they're going to continue to do that.
spk02: Understood. Rebecca, on the prior period cash collections, are any future collections anticipated in the guide, and was this any part of the raise that you had in revenues?
spk08: Can you repeat the second part of that question? I didn't catch it fully. I understood the guide portion, but you were a little, you broke up a little bit on our end.
spk02: Okay, sorry about that. Yeah, I'll just repeat the whole thing. Prior period collections, was this anticipated in any part of the raise, and what would the full year total be, if so?
spk08: Yeah, totally fair. So, with regard to the guide, the only thing that's contemplated in the guide is what we have booked year-to-date, which is that $4 million. So, On a go-forward basis, we're expecting more normalized ASP, and that's what's implied in the guide. And just, again, on a year-to-date basis, it's around 50-50 to cipher a pharma.
spk02: Great. Thank you.
spk08: And we do believe that's prudent to just take that one step further. And the reason why we believe that's prudent is because those are very much related to both the – the increasing performance of the number of managed care contracts that we had on the decipher side, which has been relatively stable now for a couple of quarters, as well as the normalization of the affirma CPT code issue. And so we're now starting to anniversary though. So it is prudent that we are not necessarily counting on collection performance to the extent we saw it year to date because those were temporal issues in nature that have been resolved.
spk02: Okay, understood. Thank you.
spk09: Of course. One moment for our next question.
spk05: Our next question comes from Mason Carrico of Stevens, Inc.
spk10: Hey, guys. This is Jake from Mason. Thanks for taking the questions. Maybe one on Decipher here. Appreciate the color you guys gave on the updated penetration for that market. But could you just maybe update us on the competitive dynamics within the market? Have you seen any competitors gaining traction? Or do you guys feel like you're capturing share at the rates you were in 2022?
spk04: Yeah, I mean, if you think, thanks for the question. If you think about that growth rate, as I mentioned, you know, there's a 50% growth in volume this quarter versus the same time last year. You can look at your own competitive reports and outcomes there to the extent that they've been announced. I think it's pretty clear that we're continuing to take share. It certainly feels that way in terms of anecdotally what we hear from our sales team in terms of where they see other tests and where they don't. Of course, you're going to always find examples where there's puts and takes at a customer level, but if you take it at a very high macro level, I think the numbers speak very loudly for themselves. And, you know, I really do attribute that to the two things I talked about, the incredible evidence generation that we have for Decipher, which led to the NCCN Level 1 guidelines, and also the excellent sales team that we have that's really performing on every metric.
spk10: All right, got it. Thanks for that. Maybe switching gears a little bit here, on you guys' manufacturing transition, Assuming that's completed by the end of the year, what factors should we take into account as we think about the product's gross margin going into next year? Thanks.
spk04: Yeah, I mean, I'll let Rebecca comment, too, but you really shouldn't take too much into account in terms of how it shows up in the income statement, because where it really is going to make the biggest difference is when we have volume in our IVD tests outside the U.S. So today, as you all know, we're selling ProSigna. The volume's good. The test system performing well, but it's, you know, a few thousand tests a quarter, and what we really need to see is, I think, decipher prostate. Even once we launch Invisia, remember that's a rare condition, and so we'll see some volume from Invisia, but we really need a test like decipher prostate on the market, commercialized, to be able to really see the benefit of the manufacturing transition show up in the income statement, and we're going to submit that test, as I said, in 2024, and So it'll be commercial sometime after that. So we've got some room there, but it's still important for us to do. We have a team very focused on this, and it's tracking nicely, and we're in the final phase now of making that transition happen. Anything to add on the P&L, Rebecca?
spk09: Absolutely not. Well done. Thank you. One moment for our next question. Our next question comes from Mike Mattson of Needham and Company.
spk11: Hey, this is Joseph on from Mike. Just one from us. With the, I guess, pushback of the estimated completion for the enrollment in the Nightingale study, was maybe wondering if you could give an updated expectation for when you would be able to really select preliminary data from that study.
spk04: Yeah, so as I mentioned in the beginning of the call here, we pushed back the final patient coming through that trial into the second quarter of next year, which I view as a conservative estimate, but one that we absolutely want to achieve, even with the lower enrollment that we've seen and the lower ramp-up that we've seen in a number of our sites. What I'm really encouraged by and pleased about is the almost 70 sites that we've initiated so far. Our clinical, medical, and commercial team have done an excellent job of identifying and enrolling those sites. The level of excitement is very high by both patients and the PIs and the teams involved in these sites. And so that's all very encouraging. Now, in terms of the data itself, as I've said before, once we finish the enrollment, and even actually before then, we are able to look at the data We are able to see what it tells us. Having said that, you do need, you know, to some extent for clinical utility, we are going to need to see the benign status, and that can take time, obviously, to follow that up. Standard, you know, guidelines there are two years, but there's certainly evidence to suggest one year follow-up may be sufficient. So no change in our strategy there. We'll unmask the data. We'll take a look at it. We'll see what it's telling us. We'll do the necessary work. follow-up and publications on that and have the appropriate conversations with Medicare on that. And, you know, our goal is to get this test commercialized as soon as possible in the U.S. The second element to this, of course, is the OUS launch as well, which, as I mentioned before, we're going to submit in 2025. And we'll get that through regulatory approval in Europe, and then we'll be able to launch NasalSwap globally. Very excited and encouraged by the reaction to the test so far from what we've seen and looking forward to getting it through this pivotal study.
spk11: Okay. Yeah, thank you for answering that, and congrats on a great quarter.
spk04: Thank you.
spk09: Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.
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