Veracyte, Inc.

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.

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.

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.