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spk02: Good day, and thank you for standing by. Welcome to the Verisight Third Quarter 2023 Financial Results Webcast. 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 1-1 on your telephone. You will then hear an automated message advising that 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 first speaker today, Tristan Rebar. Please go ahead.
spk03: Good afternoon, everyone, and thanks for joining us for a discussion of our third quarter 2023 financial results. With me today are Mark Staffley, Verisight's Chief Executive Officer, and Rebecca Chambers, our Chief Financial Officer. Verisight issued a press release earlier this afternoon detailing our third quarter 2023 financial results. This release, along with the business and financial presentation, is available in the investor relations section of our website at fairsight.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 10Q and 10K. 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 our IR section of Verisight's website. I will now turn the call over to Mark Stapley, Verisight's leader.
spk04: Thanks, Tristan, and thanks, everyone, for joining us today. I am pleased to share our third quarter results, as well as an update on progress across our growth drivers. Our Q3 revenue was approximately $90 million, an increase of 19% compared to the prior year period. Yet again, our core testing business drove this strong outcome with impressive revenue growth of 27% versus the prior year period. We also continued to further enhance our already differentiated financial profile, generating $14 million of cash flow from operations and marking the fourth out of the last five quarters with positive cash flow. Our proven framework of driving test adoption through robust clinical evidence, reimbursement, and guideline inclusion has provided indisputable differentiation for our leading on-market tests, enabling us to serve more patients and grow revenue at an accelerated rate. During the quarter, we reported approximately 15,500 deciphered prostate tests, up slightly sequentially as summer seasonality was more than offset by a reduction in width. Given Decipher's growth, we have invested in our San Diego lab operations over the course of this year, focusing on both lab capacity and efficiency. I'm incredibly proud of our lab operations team that has executed on these improvements. One of the impressive outcomes of their efforts is that the Decipher turnaround time is now lower than we've ever seen, enabling us to get answers to physicians and their patients even faster. Consequently, Decipher WIP was lower at the end of the quarter than we forecasted by more than 500 tests, which were resulted in recognized as revenue. With the faster turnaround time as the new normal, our WIP should remain approximately at this lower level going forward. We again saw a record number of unique ordering positions for the Decipher prostate test in the quarter. as our highly productive urology sales force continue to broaden awareness of the test level one evidence status in NCCM guidelines. There are hundreds of publications and presentations contributing to evidence for the Decipher platform, and we continue to engage with KOLs through our Decipher Grid research offering. During the quarter, Decipher Grid was ordered by physicians close to 50% of the time. As a reminder, Decipher Grid information is added to the patient report upon physician request provide further gene expression and signature data for research use only, which may offer additional insights into prostate cancer molecular biology. Furthering clinical evidence for our products is a key tenet in our proven framework. This quarter was no exception, as we presented six abstracts of the recent American Society for Radiation Oncology, or ASTRON, conference. This included three oral presentations focused on a large randomized phase three trial, which showed the Decipher Prostate Genomic Classifier's ability to predict risk of metastasis among patients with clinically high-risk disease. This is our 12th validation study of Decipher in a Phase III randomized trial, demonstrating the test performance and clinical utility for enabling physicians to apply precision medicine for patients with prostate cancer. As far as we know, no other molecular test for prostate cancer comes close to this level of clinical evidence. With high-risk prostate cancer becoming an increasingly worrying trend, we remain committed to providing access for patients across the care continuum. As part of this, we have developed and validated our Decipher offering for those patients with advanced stage metastatic and castrate-resistant prostate cancer. We are currently engaging with Medicare's Moldy X program on their draft coverage policy, or LCD, to enable Decipher testing of this patient population. We expect the draft LCD to be finalized over the coming year. Once that is completed, we will submit for technical assessment, a requirement to grant Medicare coverage, and will in parallel engage commercial payers. We view these steps as critical to ensure our ability to more completely serve the close to 300,000 prostate cancer patients diagnosed each year in the United States. Moving to Affirma. We delivered another record quarter with approximately 13,500 tests reported. Our dedicated commercial team added more than 65 new accounts in the quarter, including some large health systems and competitive wins. We believe this growth is being driven by increasing usage with existing customers as well as market share gain. Our current estimate is that more than 550,000 patients receive a thyroid bimedal aspirin procedure in the United States annually. to assess their thyroid nodule for cancer. Of those, approximately 119,000 are cytologically in the indeterminate, or Bethesda 3 and 4 categories, which have historically accounted for the vast majority of a firmest patient population. This year, the Bethesda System for Reporting Thyroid Cytopathology broadened their recommendations for which patients may benefit from molecular testing to include those with a Bethesda 5 cytology diagnosis who likely have thyroid cancer. To this end, we are strong believers that Affirma can provide critical information for the approximately 15,000 additional Bethesda 5 patients annually who are now included in the recommendations for molecular tests. Given Affirma's strong performance and positive outlook, we are once again updating our revenue growth expectations to be approximately 18% for fiscal year 2023. Affirmed success is due in part to continued enhancements we've made to the test over the last 12 months, including the addition of term promoter mutation testing and ongoing customer experience improvements, such as our customer portal. We continue to work with leading KOLs to advance the science around thyroid nodules and cancer, and as a result, are excited to announce that we will be launching our RUO AffirmaGrid report this quarter. This research tool, similar in concept to DecipherGrid, leverages Affirma's whole transcriptome-derived sequencing platform and database and was developed through our novel discovery work and through published literature. It is designed to serve as a comprehensive resource for research into molecular characteristics that may ultimately help improve the understanding of how to manage patients with thyroid nodules and cancer. Going forward, our focus is to utilize this new tool to continue to partner with academic researchers and KOLs to advance findings that may one day help to further personalize treatment for patients. For both prostate and thyroid cancer, there is still a lot to learn to better support patients in their diagnosis and treatment, and we are proud to be able to facilitate new research with our grid offerings. Our goal for both tests, which are still significantly under-penetrated in the market, is that every patient that can benefit from our molecular diagnostic is able to access the CIFOR or FIRMA, and we strongly believe that continued research will help drive benefits to patients everywhere. Turning now to our long-term growth drivers, we continue to make significant progress on both perceptor nasal swab and our global IBD strategy. Our 19-gal study for the perceptor nasal swab test has grown to approximately 90 sites, and we remain on track to finalize trial enrollment no later than the second quarter of 2024. We continue to view the perceptor nasal swab test as serving a critical clinical unmet need as it improves the assessment of identified nodules for risk of malignancy in current or former smokers who undergo recommended screening for lung cancer, as well as provides a risk classification. This patient population continues to grow, As recently, the American Cancer Society expanded the lung cancer screening guidelines for former smokers, already a population of 15 million in the United States. With this update, the population appropriate for screening has been expanded to ages 50 through 80 instead of 55 to 74, and now includes anyone with a significant smoking history, even if they stopped smoking more than 15 years ago. We meaningly advanced our IVD strategy this quarter as well. We had another solid quarter for our ProSigna breast cancer test as product revenue increased 21% versus the prior year period, driven in part by demand from the Nordic region. As a reminder, earlier in the year, ProSigna was adopted as the definitive breast cancer test by the government of Norway, following a nationwide prospective study involving more than 2,000 patients. Looking ahead, We're excited about a report published this month by the Scottish Health Technologies Group, as it recommended a favorable position for Procigna reimbursement, which we believe will foster further demand for the test in the region. Our move of the manufacturing of our Procigna assay from Nanostring to our Marseille, France location is progressive. This transition, while always an important part of our ABD strategy, has become increasingly critical over the last few months, as we have faced a number of supply challenges. Consequently, we intend to stand up our own manufacturing line faster than we had originally planned. We're doing everything we can to ensure that all patients continue to have access to the ProSigna test. This situation reinforces the need for us to control our supply chain beyond simply improving our long-term economics around our IVD strategy. Our global supply chain and manufacturing teams, working collaboratively with the commercial team, have done a fabulous job taking on this accelerated goal and I'm proud of all they have accomplished to date. In spite of our mitigation efforts, we do expect this to be a headwind to volume and revenue in the fourth quarter, the impact of which has been offset by strong testing outlets reflected in our updated revenue guidance. Recall that product revenue represents less than 5% of our total revenue. As a reminder, our decentralized IVD strategy is designed to make our clinically impactful tests available to patients all over the world. Fundamentally, we believe that the quality of our diagnostics and level of evidence supporting them is what ultimately differentiates us, as we can clearly see is happening in the U.S. market. Based on our own experience in the field, customer feedback, the growing installed base of NGS and QPCR platforms, and the cost structure of other platforms, we have decided to adopt a multi-platform strategy for our tech. We now believe this approach will help us reach more patients with our tests more quickly and hence accelerate long-term growth. Leveraging the encounter development work already completed, our team has already begun bridging Decipher Prostate to qPCR and will surely be commencing a project to bridge our nasal swab to NGS. To enable our launch of products on NGS, as announced earlier today, we have already signed an agreement with Illumina to develop and offer some of our tests on their next C550DX instrument. We are on track to launch these new products consistent with prior expectations, the timeline for which was previously predicated on submission to the Notified Body in 2024 and 2025 respectively. Given our updated plan, our recent interactions with the Notified Body and the current evolving regulatory framework for IVDR, we expect the Decisive Prostate will commercially launch in mid to late 2025. and nasal swab in 2026. At that point, we expect to be able to immediately leverage our existing IBD commercial team who are selling ProSigna to drive towards reimbursement and adoption country by country for these new tests with the benefit of a large existing installed base of instruments. I'm excited about this multi-platform approach to launching our tests in the U.S. market, underscoring our belief that exceptional cancer care begins with broad access to exceptional diagnosis. To help us further advance our global vision, we were pleased to announce the addition of two highly respected industry veterans to our senior leadership team during the quarter. Dr. Phil Febo has joined VeriSight as Chief Scientific Officer and Chief Medical Officer, and Dr. Marie-Claire Tain is now GM of our IVD business based in Marseille, Toronto. Further, we recently launched a new corporate website which brings to life our vision and how we are differentiated from other companies in the space. In closing, Q3 was an exceptional quarter with strong execution in our core testing business and progress across our long-term growth drivers. We are now focused on executing our remaining goals for the year while also setting the stage for global leadership in cancer diagnostics. With that, I will now turn to Rebecca to review our financial results for the quarter and our updated guidance for 2023. Thanks, Mark.
spk08: As Mark mentioned, we achieved excellent results in the third quarter with $90.1 million of revenue, an increase of 19% over the prior year period. We grew total volume to approximately 32,500 tests, a 23% increase over the same period of 2022. Quarterly testing revenue was $82 million, an increase of 27% year-over-year, driven by strong adoption of our Decipher prostate test post-Level 1 evidence designation by the NCCN, and continued penetration of the AFIRMA market, as well as strong prior period cash collections. Total testing volume was approximately 29,500 tests, which includes the impact of our improved lab efficiency and WIP reduction that Mark mentioned. Testing ASP was approximately $2,750 per test, benefiting from approximately $1.5 million of out-of-period collections. Adjusting for this impact, testing ASP would have been approximately $2,700. Third quarter product volume was approximately 2,850 tests, and product revenue was $4 million, up 21% year over year. Biopharmaceutical and other revenue totaled $4.1 million, down 47% year over year. As expected, reductions in customer projects extended sales cycles, and 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, restructuring costs, and the impairment of long-lived assets, but does include routine stock-based compensation. Non-GAAP gross margin was 69%, up approximately 350 basis points compared to the prior year period. Testing gross margin was 73%, up 400 basis points compared to the prior year period, benefiting from efficiency gains, fixed cost leverage, test mix, and higher ASP. Product gross margin was 39%, roughly flat versus the prior year period. Biopharmaceutical and other gross margin was 18%, down year over year given lower fixed cost absorption. Non-GAAP operating expenses, excluding cost of revenue, were up 13% year-over-year at $58 million, driven by higher personnel costs and clinical trial expenses, as well as investments in facilities and infrastructure. Research and development expenses increased by $2.8 million to $13.3 million. Sales and marketing expenses decreased by half a million dollars to $23.8 million, and G&A expenses were up $4.3 million to $20.6 million. We recorded a gap net loss of $29.6 million, which included $7.3 million of stock-based compensation expense, $7.3 million of depreciation and amortization, and a $34.9 million impairment charge tied to our decision to adopt a multi-platform IVD strategy. We ended the quarter with $202 million of cash and cash equivalents, well ahead of our expectations. Turning now to our updated 2023 guidance, we have raised our revenue projections yet again to $352 million to $354 million as compared to our prior guidance of $342 million to $350 million. This increase is based on our strong third quarter results and an improved outlook on testing revenue, which takes into account the Q3 WIP impact and out-of-period collections, which we do not anticipate repeating. This guidance also contemplates Q4 product revenue of $2 to $3 million, given the supplier challenges previously mentioned. Moving to cash, cash equivalents, and short-term investments, as always, our comments are barring potential M&A. We now forecast to end 2023 with more than $200 million of cash on hand, accounting for the impact of upcoming milestones and contingent consideration payments, capital expenditures related to our lab expansion, and other working capital trends. Importantly, this updated guidance represents an increase of approximately $30 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. This year has been an incredible one for the VeriSight team, and I'm excited to continue to deliver on the financial goals we've set for 2023 and beyond. We'll now go to the Q&A portion of the call. Operator, please open the lines.
spk02: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star, one, one again. Please stand by while we compile the Q&A roster. Our first question is from Tejas Savant with MS. Your line is now open.
spk00: Hello, this is for Tejas. Thank you for taking our questions. Maybe starting with the Illumina collaboration that you announced today, How does this collaboration fit into more centralized testing model in the U.S., or is the focus here mainly OUS adoption? And if that's the case, has there been any changes in the strategy to build the tests on NCounter?
spk04: Yeah, great question. Thanks for that. So the collaboration with Illumina is very much focused on the OUS market, and it's regarding distributable IVDs as kits on the Nexig DX550 platform. Now, remember, we're very much from a clear standpoint, we're a customer of Illumina's today, and this doesn't change or impact that in any way, shape, or form, other than we've expanded our relationship with Illumina to relate to outside the U.S. as well. So we're excited about that. In relation to the encounter approach, the question you asked there, yes, the way that this multi-platform strategy of ours will take place is we are going to leverage the best instrument or instruments for the test. So, you know, as we talked about in the prepared remarks, we will launch Decipher Prostate on QPCR. We will launch Nasal Swab on NGS. And for every other future test, we'll consider the platform or platforms on which we'll launch those tests. The NCAN we're still going to support very much for our ProSigna test. and others that we have in place today, like Lymphmark, for example. No changes there. Prosignor is actually one good example where we will also launch that product on NGS, which expands and provides more options for our customers. Hopefully that answers your question.
spk00: Yeah, no, that was great. Thank you. And then a separate follow-up question. You touched on this during the prep remarks, but It sounds like some of the timelines have changed for submission of prostate and nasal swab for the IBDR process. I was wondering if you could elaborate on some of the discussions that you had with the notified body and what from the discussions may have changed the timelines there.
spk04: Yeah, so actually the timeline for when we now expect to launch these tests commercially has not changed. And when I say these tests, I'm talking about decipher, prostate, and nasal swab. But we've moved from providing a submission timeline, the steps after that, which would largely be outside of our control and unpredictable from a timeline standpoint, to now a commercialization timeline, which we think is better, more predictable, and clearer. And so now we're at a point where we're comfortable saying when we're able to commercialize these tests based on our roadmap and our project plan, whereas previously we weren't ready to put a commercialization timeout there. So, you know, had you previously assumed something like at least a year for commercialization, you would have landed on Decipher Prostate in 25 and Nasal Swab in 26. We're now confirming we will be ready to launch commercially Decipher Prostate in 25 and Nasal Swab in 26 consistent with that assumption. Okay, so we've just taken, I think, less of the uncertainty out of it and made a little bit more committal, a lot more committal, in my opinion, in terms of when we're ready to commercially launch. Now, one thing I want to be very clear about, when we're ready to commercially launch from an IBDR perspective, it doesn't automatically get us reimbursed and adopted in every country. Remember, and we've always said this, we still have to go country by country and drive reimbursement decisions and drive KOL support and adoption. So that doesn't change, which is why we continue to position this as a long-term growth driver.
spk08: And just one thing to add to that, Yuko, obviously this decision to broaden our strategy to include other platforms is really predicated upon the growing installed bases of those other platforms and as well ensuring that we can serve even more customers than what the install base of the end counter allowed for. So we really very much view this as something that is going to not only solidify the timelines that Mark, you know, discussed, but also really allow us an opportunity to grow revenue even more quickly given the number of instruments already in the field across qPCR and NextSeq DX.
spk00: Great. Thank you very much.
spk02: Thank you. One moment for our next question. Our next question comes from Matt Sykes with Goldman Sachs. Your line is now open.
spk07: Hey, guys. This is Prashant Kodhan from Matt Sykes. Congrats on the quarter. Really great to hear the results. So how does an MSED test fit into the paradigm of screening for lung cancer with Percepta Nasal Swab and low-dose CT?
spk04: Yeah, that's a really great question. So we've talked about this a little bit before, and the way we think about multi-cancer early detection and healthy, basically healthy screening today is very different than the way we position and think about nasal swabs. So nasal swab is focused very much on patients who have been identified with a lung nodule and therefore are at high risk for lung cancer. and helping to make an appropriate decision whether to accelerate treatment or avoid unnecessary procedures for those patients. Today, very few people out of the 15 million or even more, as we talked about in the prepared remarks, who could or should be getting screened today are actually getting screened. So it's a small percentage. It's about a million. And then there's actually more lung nodules found incidentally, actually, than there are by screening. So clearly, there's a lot of people, including us, who care a lot about getting more and more people screened. Now, the way I think about multi-cancer detection is that could feed that funnel. So if a patient is identified through one of those tests in the future, assuming that they are adopted and reimbursed as potentially having lung cancer, the next step would be a low dose CT. And if a lung nodule is identified, then that puts that patient firmly into the workflow for for nasal swab, for example. And so, yeah, that's how we think about it fitting in. Of course, at that point, you have to believe that there'll be reimbursement for these tests, multi-cancer early detection tests for healthy individuals. And you also have to believe that, you know, that there will also be reimbursement for low-dose CT and nasal swab. Having said that, you know, I continue to believe that, at least in the nearer term, the incidental population will continue to be large in the screening population until that issue of underscreening is resolved. And that will be, I think, in the first, you know, as we launch the nasal swab test, will be one of the primary use cases and drive a significant volume.
spk07: Got it. Thank you. That's helpful. And how are you planning on increasing market penetration with Affirma? Is it more sales reps, additional coverage expansion, product updates, or Can you give us some more color there?
spk04: More of what we've been doing, quite honestly. I mean, as you've seen this year, we far exceeded our original expectations with Affirma coming into the year, and we recently increased our guidance on that to 18% growth. And that's significantly higher than we anticipated. And it would appear that the multitude of things that we're doing are absolutely paying off in terms of penetrating the market and bringing on new accounts. which continues to be an encouraging sign. So what are we doing? We've enhanced the product. We've added mutation testing to our product offering. We've launched a portal for customers to make it a lot easier for them to order the test and for the billing information to be correct. We just announced our grid offering for research use only for Affirma. We also have an incredibly effective and dedicated sales team To be honest, I mean, adding a large number of sales reps isn't what's been driving this at all. In fact, we've been doing this with pretty much a stable sales force and a very strong sales force. So continuing into next year and beyond with these steps, we believe will help drive and fuel further growth. The market's about 50% penetrated today for these kinds of tests. And we've always said that we think that could get to 70% or beyond, and we can be the primary driver of that. Yeah, a lot more of the same, quite frankly.
spk08: The other thing I would add is there was also recently, I don't know if you want to talk about the draft LCD. It's not necessarily, you know, for next year per se because the timeline of that, you know, could be slightly longer. But as we look broadly across both Decipher and Affirma, we obviously are focused not only on penetrating the market as defined today, but also ensuring every appropriate patient can get the appropriate test and to that end, broadening the market. And so, you know, I think longer term, as we think about penetrating both Affirma and Decipher, it's both about doing exactly the things that Mark mentioned, but also broadening the market indications over a multi-year period. And to that end, our managed care team is actively working to do so vis-a-vis, you know, working with Moldex on the draft LCDs that have come out most recently.
spk04: Yeah, and so that's a great point, Rebecca. And that could add reimbursement for patients in the Bethesda 5 category, where we do believe there's a significant clinical utility of our test. And so, you know, if that gets passed in a year or so, then, you know, we'll be very pleased about that for patients.
spk07: Got it. Thanks. Sounds like you're tackling it from all angles. Congrats again. Thanks.
spk02: Thank you. Thank you. Please stand by for our next question. Our next question comes from Andrew Brackman with William Blair. Your line is now open.
spk03: Hi, Andrew. I'm not able to hear you.
spk02: All right. We will move to our next question. Please stand by. Our next question comes from Puneet Sudha with Leverink. Your line is open.
spk04: Hey, guys. Hopefully you can hear me. Yeah. Yeah. So I'm wondering if you could talk a little bit about the supply chain issues and what does that mean for the sort of the fourth quarter, if you can quantify that. And then maybe also, you know, it's good to see that you're addressing this with multiple platforms, but Can you maybe talk about the economic agreement there with Illumina, assuming that, you know, that being a multiplex platform, that you would, you know, see more growth there versus, you know, sort of the QPCR then counter approach? Let me come back to that one in a moment. But on your first question regarding supply chain, so as you know, I mean, this isn't the first time that we have dealt with supply chain challenges. We talked a little while ago, a couple years ago, less than that, about what we were dealing with with Affirma. And this isn't really that different in regard to every now and then you end up with a lack of supply of key components or parts or kits. And you have to mitigate that. And so the good news is we were doing our own, we were standing up our own manufacturing for these particular kits for ProSigna in Marseille as part of our IVD strategy anyway, as you know, and we had planned to get that done around the end of this year. Once we saw the supply chain challenges happening, we were able to accelerate that and are able to accelerate that and are making great progress on being able to launch our own kits to mitigate that supply challenge, which means that our kits supplement the other kits that we have, increasing our available inventory. The next thing you do then is you go through a very robust customer allocation process. You don't want to build inventory at customer sites when that inventory is extremely in short supply, and you want to make sure it's available for all patients. And so there's a lot of activity involving our commercial teams to balance that effectively. So I'd say we're getting through it. We have assessed a potential impact. You saw in our prepared remarks from Rebecca, Q4 product revenue of $2 to $3 million, which is lower than we've been seeing in previous quarters, and even lower than we anticipated because we did anticipate a little bit of an uptick in the fourth quarter. So hopefully we won't see that much, but that's what we're projecting right now.
spk08: And then, Puneet, could you repeat your question on economics for the Illumina agreement? It wasn't abundantly clear. Yeah, thank you.
spk04: Yeah, with Illumina, I mean, just want to understand, is it an IVD kit that you'll be manufacturing and it'll be simply run on 550DX, or is there, you know, some sort of revenue sharing or profit sharing with Illumina?
spk08: Got it, the structure. Thank you.
spk04: Yeah, I mean, the way to think about that is Illumina has this standard open offer clinical agreement. There's not a lot of, you know, room for maneuver in that, and so we've been able to adopt that. agreement, or at least our version of that, and that's how the economics are going to work. So there's technology access, there's milestone payments as you launch a new IBD, and then there's a royalty-based structure. And if you look online, you'll be able to see how that typically works.
spk08: And just one point is our updated cash guide does contemplate the technology access fee, which is contemplated in the open offer, and we've absorbed that in our cash guide.
spk04: Got it. That's helpful. Rebecca, I'm just wondering as we think about, you know, the biopharma impact obviously is happening with some of the biotechs and biotech funding being under pressure. It seems like Decipher is doing well for continuous to gain traction at these penetration levels. So maybe just wondering what, you know, what can you provide us in terms of, sort of 2024 as, or sort of the right jumping off point and overall, just given a number of these moving parts and now, you know, supply chain as well sort of mixed into it. And as you bring on these other platforms, maybe just if anything you can provide there, that'd be helpful.
spk08: Yeah, of course. So the other platforms, maybe just to hit those first, Puneet, those are tied to longer dated catalysts, right? With regard to the Decipher being launched in the back half of 25 and nasal swab in 26, so that won't impact 2024 per se. On the product supplier issues that Mark was just highlighting, given we are standing up our own manufacturing, we're very hopeful that this will not have an impact in 2024 and that it is short-term in duration, especially since we are pulling forward those activities. from our previous timelines of roughly around the end of the year. So that will not necessarily impact 2024 at this point in time, albeit still a lot of work for the team to do there. On biopharma, we aren't ready to call 2024 at this point. The good news is we said on our last earnings call we expected 18 to 19 million for 2023. How that looks in 2024, there's still very wide error bars too, so I wouldn't necessarily want to go into that at this point in time or draw a line in the sand given we're obviously working very hard with the teams to really kind of put a stake in the ground with regard to where we think 24 will be. Affirmative and decipher continue to be good news stories across the entirety of the portfolio. 2024, we hope we'll continue to see more of the same. That's not a quantitative statement. That's a qualitative statement in terms of we are not fully penetrated in these markets. We are broadening the indication. We are making it easier for for physicians to order our tests, and our sales team continues to crank. So, you know, I think 2024 will continue to be headlined by Affirma and Decipher, and the rest of it, hopefully, you know, will be more around the edges as we progress forward with our strategy.
spk04: Yeah, and maybe to add a little bit to that, I agree 100% with everything Rebecca said. The Decipher and Affirma tests, you know, if you think about all of the things that we're doing, and I ran through in response to an earlier question what we were doing in Affirma and you can clearly see what we've been doing in Decipher 2. None of that's gonna stop. We're gonna continue to generate the evidence. We're gonna continue to pursue guidelines. We're gonna continue to pursue coverage and all of these things that have been so successful for us in the past. So the only real headwind I see for those businesses is the fact that as they grow, the comp is a higher number. So mathematically, there's a headwind. But relative to how these tests continue to grow each quarter, we're not going to change the working formula that's served us really well over the last few years. Got it. And if I can squeeze one more in, good to see Phil's addition to the team. I don't know if he's there, but just wondering, obviously, prostate and thyroid, you know, continue to be major areas and nasal swab, you were developing, but Are there other areas or indication types where you can, you know, potentially take the technology now with, you know, now that you're going to have access to multiple platforms? Yeah, so thanks for that. Yeah, it certainly is great to have Phil on board with his expertise and experience in not just those but other areas as well. And as we think about expanding within indications and across indications, let me start with the current indications and, you know, our specialty model. that is working so well and is highly leverageable, of course, we're going to continue to drive into urology applications and more focus on bladder and so on. We're going to continue to drive our pulmonology franchise with nasal swab as the really important anchor for that, and we're extremely dedicated to that. And then outside in other indications, of course, as part of our strategic planning process, we always look at those other indications and think about where we can organically or otherwise expand. Nothing specific on that at this point. We're very satisfied with the indications that we're in and how they're fueling our business. But we're excited to continue to apply the model that we've built in other ways in the future. And that's why we brought on people like Phil and others to help with that strategy. So I'm excited to continue those conversations. Okay, helpful. Thanks, guys. Thanks.
spk02: Thank you. One moment for our next question. Our next question comes from Sung Jee Nam with Scotiabank. Your line is now open.
spk01: Hi, thanks for taking the questions, and congrats on the quarter. Maybe starting out with the IDD strategy, just kind of curious if you might be able to comment on why you're putting the decipher prostate on a qPCR versus next-gen sequencing versus the next week. Just given that, you know, I can decipher if I'm remembering correctly, it's a whole transcriptome analysis. And then also, if there is a specific qPCR platform you have in mind, or could this be utilized across multiple qPCR systems?
spk04: Yeah, great question, and thanks for that. So Decipher is a whole transcriptome test, as is Affirma in the U.S. in our ClearLab environment, and that's what enables us to launch something like GRID. But just a reminder that as we plan to launch IVDs, including any platform, whether it be NCounter, PCR, or NGS, we're launching more of a targeted test. So Decipher 22 genes fits beautifully on qPCR. There is a significant installed base for PCR. And as we look at the installed base, the economics, we listen to customers and so on, we've landed on qPCR as the appropriate platform for that. By the way, it was also going to be a 22 gene test on the encounter. So that doesn't change at all. That doesn't mean in the future, as the economics permit, that we wouldn't launch it also on NGS. We could, and that is an option for us. Other tests, for example, nasal swab, which you look at a lot more targets, make a lot more sense on next-gen sequencing. Same with Prosigna, which, as you know, is essentially PAM50. So, you know, that is the, again, that is the approach. It enables us to look at the right platform, the best platform to optimize for the test, and it could, of course, be multiple platforms. So hopefully that answers that question. On your second part, With respect to a PCR provider, there's multiple options. And, of course, you can imagine we're looking at them all. And we could support multiple options with the test with very little incremental effort in terms of R&D work. So that may ultimately be where we go. It's more of an open platform, so it's not following the same formula as the supply agreement does with Illumina.
spk01: Gotcha. That's super helpful. And then just on Affirma, great to hear that you're taking market share there still. Just kind of curious, are you referring to, are you actually taking share away from other, you know, your competitors? And kind of could you maybe talk about the key drivers of that, why they might be switching to Affirma? And also kind of what's your estimate in terms of your current market share is? Thank you. Okay.
spk04: Yeah, it's a great question. It's difficult to pass these things as you can imagine, but I think actually, and this is the case for, I believe, Decipher as well as Affirma, if you look at the overall market penetration, we're clearly driving more market penetration. In other words, patients getting tests that wouldn't otherwise have got a test, physicians using the products that otherwise would not have used ours or anyone else's product. So that's the first. Within our existing customers, we also see that the utilization is increasing. So that's the second. And then the third area of taking share from other tests, that's more anecdotal than anything else. But as we look at the respective growth rates, I think that it's clear to, you can clearly get to that as a conclusion in some respects. And as we hear from our sales team, you know, some of the things physicians like in a firmless case, for example, we've got the new ordering portal, you know, as we've just launched grid, we've got, and then of course there's evidence. you know, one of the most important differentiators for all of our tests is the level of evidence. In the case of Decipher, you've got NCCN level one. In the case of Affirma, you've got a tremendous array of evidence supporting the use of our test, including comparing it to other tests. So I think, you know, that and then you couple that with a very effective self-force in both cases who are very good at you know, making sure that existing and new customers are aware of the level of evidence behind us, then you start to see the kind of share gains we've talked about.
spk01: Great. Thank you so much.
spk04: Okay. You're welcome.
spk02: Thank you. Please stand by for our next question. Our next question comes from Mason Carrico with Stevens, Inc. Your line is now open.
spk05: Hey, guys. Thanks for the questions. Congrats on another strong quarter. Maybe a higher level one here. On the $14 million in cash from operations, that's great to see and obviously pretty unique in space. As we look into 2024, how are you thinking about the focus going forward, balancing investments and driving top-line growth versus focusing on operating leverage and starting to drive free cash flow?
spk04: I'll maybe start, and Rebecca, please weigh in as well. But nothing's changed in our philosophy in that regard. We've always been very focused on doing everything that we can to drive top-line growth appropriately, and we're not getting ahead of our skis in that regard. I think we've balanced that extremely well. We have been optimizing throughout our P&L for the last couple of years, if not before that. So there's a lot of things that we're doing that drive operational performance. In fact, you saw some of that as I talked about what the accomplishments in our Decipher Clear Lab in San Diego and the turnaround time and efficiency there. That's one example. Another example would be IT and systems, for example. So we're continuing to invest in terms of helping us scale our business, but also keeping a very close eye on the net profitability and cash flow. And we're not in a position, fortunately, where we need to raise cash, and we don't anticipate we will be. Anything to add?
spk08: No, just I think what you've seen out of us in 2023, our goal would be to continue that into the future. And obviously, now we've had four of the last five quarters where we've generated cash flow from ops, and that is a good news story. And one that we hope, obviously, we're not guiding to 2024 at this point in time, but one we have from a philosophical perspective, every intention of of moving forward with. And we don't believe that is coming at the expense of revenue growth. And we would, you know, not want to do that at the expense of revenue growth. So, you know, I think, Mason, thanks for asking the question. But I think when it comes down to it, we believe this is a differentiated portion of the Verisight investment thesis and one we feel strongly we should continue.
spk05: That's helpful. Thank you. And moving to the Decipher Metastatic Draft, LCD, could you talk about kind of your interpretation of the LCD, thoughts around the language and criteria that needs to change or could change in order to potentially open it up to multiple tests per patient. And then maybe if that were to occur, I'd assume that testing up front when patients have localized disease would potentially decrease the percentage of patients who ultimately progress So could you kind of frame up how we should be thinking about, you know, if that were to occur, the incremental testing opportunity?
spk04: I think to your first part of your question, I'll come back to the second one, but to the first part of the question, you've hit really the nail on the head in terms of the key element of the draft LCD that we're focused on. Let me take a step back. The draft LCD in and of itself is extremely favorable, as it should be for patients. We believe in testing for this cohort of patients. We believe we've got evidence to suggest that Decipher supports it, and so we're very happy to see the LCD. The one area that we believe needs to be addressed is what you called out, which is the multiple tests per patient. There are many, many examples where legitimately the same patient might need multiple rounds of molecular diagnostic testing, and as currently written, it would preclude that. So, of course, as you can imagine, we've shared our feedback very openly with Moldy X and prepared, you know, shared our comments. And so we're somewhat hopeful that that gets addressed. It's important for, it's not a large number of patients, but it's enough, and these patients do need to be taken care of appropriately. So we're hopeful that that gets dealt with. Now, in terms of the second part of your question, I want to make sure I understand, but are you saying that By identifying patients earlier, you increased the... Maybe you can just repeat the question and we can make sure we're addressing it.
spk05: Yeah, and maybe my interpretation here is flawed, but I guess the way I think about it is a certain number of localized patients ultimately progress. There's numbers out there. I think that the way I kind of think about it is if you're tested up front with the cipher, treatment management is better. Maybe... the progression rate goes down. Maybe that's not the case. I was kind of just asking about how you think about the incremental testing opportunity if you were able to test each patient twice.
spk04: I don't think you should think of it as a multiple episodes of testing for every patient type of approach, more so than there are some patients for whom multiple tests would be required. And an example of that might be, it's a little bit related to the case you described where a patient is on active surveillance and then develops another lesion and that other lesion needs to be tested and it's a more aggressive cancer. And so, you know, that will be driven by, you know, clinical factors and where we agree that there should be, you know, a concern from the physician who's treating them to desire a second test in that case. But, you know, I don't think you should think of it as every patient gets tested multiple times over their lifetime. Right, right.
spk05: And now that's pretty clear. But thank you, guys. I appreciate it.
spk02: Thank you. As a reminder, to ask a question, you will need to press star 1-1 for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by for our next question. Our next question comes from Mike Mattson with Needham and Company. Your line is now open.
spk06: Hi, everyone. This is Joseph on from Mike. Maybe just looking at the Cypher and Affirma grid, I guess, you know, it's the research use only for Affirma. Maybe just wanted to get your comment again, I guess, on the biopharma business. I guess it Is there any expectation that, you know, more tools or more services will be, you know, coming out of this side of the business? I know you guys have talked about it being kind of on the back burner, you know, lower priority. But maybe just wanted to get a refresh on how you think about the business. And I guess maybe is there a plan for, I guess, a firmer grid to be shifted to the clinical setting? And, yeah, just one more follow-up after that.
spk04: Yeah, so just to clarify, both Firmagrid and Deciphergrid are intended for research use only to provide additional information, and that's helpful in the context of the patient that the physician is treating and their overall practice and the research that they're doing as well. But in terms of Biopharma, this isn't really enabled by GRID. GRID is a byproduct of this, but the fact that we do whole transcriptome analysis on all of our tests gives us this incredible rich data set for all of these patients. And that has value for Biopharma customers. And so that side of our business of driving utilization of that data with Biopharma continues. It isn't enabled by GRID. It's enabled by our whole transcriptome approach. And we'll continue to engage with Biopharma in utilizing that data.
spk06: for their studies so yeah that's absolutely a part of what we're focused on okay yeah sure that makes perfect sense thanks for the uh clarification there um and then i guess i'll maybe ask just just because you know i i think mark you mentioned in the uh prepared remarks but um i guess link mark um you know have just haven't heard that uh said from you guys in a while so just wondering if there's like an update of Anything there, any milestones in the future? Yeah, just an update on the product in general would be great.
spk04: No, nothing specific at this point. We're continuing to work with our partner on that. And throughout this IBD strategy approach, with no change there, continue to support that on NCounter. And as we work towards a commercial launch, think about the right approach there with our partner. So no new updates. And certainly, you know, at this point, it's not something that you should factor in terms of the numbers until, you know, we get to a point where the studies are completed and, you know, it's clear where the commercialization happens and how that happens, what that would look like, in which case we would give more color at that time.
spk06: Okay, great. Thank you very much. Thank you.
spk02: At this time, I'm showing no further questions. I would now like to turn it back to Mark Stapley for closing remarks.
spk04: Thanks. I appreciate it. I'm extremely pleased with the performance of our core testing business, and I'm encouraged by the unpenetrated opportunity to help more patients in both the prostate and thyroid cancer markets. We're clearly growing in both indications at a rate that is exceeding the market, and with our extensive product enhancements, evidence development, and opportunities to broaden reimbursement, I see that continuing for many years. In addition, I'm excited to see our global expansion come to fruition with our augmented IVD strategy, and I applaud our team for their diligence and commitment to continuously evaluate our opportunity and approach. I'm proud of our VeriSight employees who have demonstrated their ability to execute quarter after quarter, driven by their passion to transform cancer care for patients all over the world. Thank you.
spk02: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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