Veracyte, Inc.

Good day and thank you for standing by. Welcome to the Verisight first quarter 2024 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 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, Shayla Gorman, Senior Director, Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us today for a discussion of our first quarter 2024 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 first quarter 2024 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. 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 Stapley, Verisight's CEO.

Thanks, Shayla, and thanks everyone for joining us today. Following a very robust end to 2023, I am excited to share that we have continued our positive momentum with a very strong start to this year. We delivered first quarter revenue of $96.8 million, growing 17% compared to the prior year period. This strength was driven by our testing business, which grew 25%, meaningfully exceeding our expectations. The performance of the Decipher Prostate and Affirma test again demonstrated the incredible power of the VeriSight Diagnostics platform to drive market penetration. This unique approach relies on broad sets of genomic and clinical data deep bioinformatic and AI capabilities, and a powerful evidence generation engine, which ultimately drives guideline inclusion and, combined with our proven commercial and managed care excellence, is designed to ensure durable adoption and reimbursement for our on-market diagnostics. In the first quarter, we delivered 16,500 Decipher prostate tests, hitting a new quarterly volume record, with growth coming from both new and existing providers. Our incredibly productive urology sales force continues to drive adoption through awareness of the test utility and associated clinical evidence, as well as strong guideline representation. In February, updated NCCN guidelines were published with deciphered prostate receiving a level 1B evidence rating, the highest rating of all gene expression tests for prostate cancer. Additionally, because of this classification, The Decipher prostate test is the only gene expression test for which the guidelines include a separate table that summarizes treatment implications for patients based on both their NCCN risk classification and their Decipher score. These updated guidelines are proving to be a meaningful resource to provide physicians with clear, summarized evidence from clinical trials on how Decipher prostate can inform treatment decisions. On the reimbursement front, We also made significant progress in the quarter, signing a contract with a major commercial payer to make Decipher Prostate an in-network offering for its close to 30 million members. We are thrilled to see this payer's patient population obtain more seamless access to the Decipher Prostate test, enabling their treating physicians to more efficiently optimize their care. Generating additional clinical evidence for Decipher remains a priority for us to drive further guideline inclusion the durable reimbursement I mentioned previously, and increased awareness in the significantly under-penetrated prostate cancer market. Last month, a publication in JCO Precision Oncology showed that among patients undergoing active surveillance for prostate cancer, the Decipher test is prognostic for identifying those whose disease is likely to progress. Pinpointing the optimal candidates for active surveillance, which can help patients delay or avoid interventions such as surgery, radiation or hormonal therapy is challenging given the potential harms of these treatments weighed against the risks of cancer progression and missed opportunities for cure. These significant findings make Decipher the only prostate gene expression test to have treatment outcome data from a prospective multicenter phase two randomized trial in the active surveillance population. Providing a tool like Decipher that could help to identify those whose disease is likely to progress can give physicians important insights to help them with this critical decision, while also aiding in the further penetration of this portion of the market. Moving to Affirma, we reported approximately 14,000 test results and 14% revenue growth compared with the prior year, in line with our expectations. With Affirma, we continue to illustrate our differentiation, resulting in market share gains due to broadened awareness of previously published evidence. demonstrating the quality and performance of our test. Another point of differentiation has been the launch of Affirma Grid, our RUO tool designed to advance the science around thyroid nodules and cancer. This quarter, we saw a high level of interest in Grid, with approximately 50% of physicians requesting the report on their test order forms in March. The addition of the Affirma Promoter Mutation Test enhances the clinical utility of our thyroid offering also reinforcing our competitive positioning. This quarter, following publication of analytical validity data for the test in the Journal of Endocrinology and Metabolism, TERT testing received Medicare coverage. While TERT represents a small portion of our total affirmer volume with limited revenue impact, this is yet another indicator of the strides we are making to provide the most complete offering possible for physicians and their patients facing a potential thyroid cancer diagnosis. Looking ahead to our growth drivers over the coming years, we believe that Decipher Prostate and Afirma will continue to grow meaningfully as we drive towards 80% penetration for both prostate and thyroid cancer molecular tests while continuing to gain market share and bolster ASPs. For Decipher, we believe the updated NCCN guidelines will be a meaningful catalyst to broaden awareness and change physician behavior. We recently conducted a voice of customer survey on this update, which queried urologists as well as medical, radiation, and urologic oncologists across the academic community and large urology group practice or LUDPA settings. Not surprisingly, 82% of respondents were aware of the updated NCCN guidelines, and 75% of respondents utilized the principles of risk stratification section, which details treatment implications based on the NCCN classification and decipher score. As a result of ordering trends since the publication, as well as the survey feedback, our confidence in our outlook on decipher growth over a multi-year period has been further solidified. In addition, we continue to anticipate the draft of Medicare's Local Coverage Determination, or LCD, for patients with metastatic prostate cancer to become final later this year or early next. We estimate that there are an additional 30,000 patients annually who could benefit from the prognostic and predictive information Decipher delivers to their clinicians at pivotal moments in their cancer journey. Meanwhile, we unfortunately continue to see growth in the incidence of prostate cancer, with the American Cancer Society estimating there will be approximately 300,000 new cases in 2024, up again from 2023, making Decipher even more important for more patients. For Afirma, in addition to the market dynamics previously highlighted, we are beginning to see standard of care changes on physician adoption in rural areas, where we see a long tail of clinicians who aren't currently utilizing genetic testing for this patient population. Additionally, we are engaging with MoDX on their draft LCB to cover thyroid nodules with Bethesda 5 cytology, expanding access to patients who can also benefit from Afirma. Now turning to our longer-term growth drivers, we are focused on three vectors, global expansion through our robust IVD strategy, solving new cancer challenges through the utilization of our platform, for example, our perceptor nasal swab test, and with the acquisition of C2i genomics, serving more of the patient care journey through minimal residual disease, or MRD, and recurrence testing. As we often do, and as we committed to do following the C2i acquisition, During the quarter, we continued our portfolio prioritization to rationalize our investments outside of these three key areas. As a result, we downsized the commercial support for our Invisia test. While we will continue to offer this important test to those patients facing interstitial lung disease, we will no longer maintain a separate Invisia sales force. Now shifting to our focus on global expansion, we are on track with the key product and market development activities for our multi-platform IBD approach, developing our Decipher prostate test on qPCR and our Procigna and nasal swab tests on NGS. Recall that once these tests are made available, we will still need to go country by country to drive adoption and reimbursement, utilizing the clinical evidence that we already have and are continuing to generate with our CLIA-based tests. This is yet another example of the leverage we get from the Verify Diagnostics platform where our clear strategy built around data, insights, proof, and utility will fuel our AVD strategy outside the U.S. On our second growth driver, solving new cancer challenges via perceptive nasal swab, we have made good progress with our Nightingale trial and have patients enrolling across our almost 100 sites. While we remain excited about our progress to date, the current pace of enrollment per site is tracking below our updated expectations. We've designed this study with a high degree of scientific and clinical rigor endorsed by the cancer community, and we believe the slower rate of enrollment is consistent with typical challenges currently faced by large multi-site pulmonology trials and isn't related to physician interest or market potential of the nasal swab test. While the pace of a call in April would be indicative of enrollment completion around the end of the year, our internal modeling has wide error bars, and this pace may or may not continue over the coming months. Given that, we will update you next when the study is nearing completion. Our last long-term growth driver is serving more of the patient journey. Now that we have integrated the C2i genomics team into VeriSight, our excitement for the technology potential has only grown. We kicked off the development of our first MRD test for muscle-invasive bladder cancer in our CLIR lab, which we intend to launch in the first half of 2026. As we mentioned last quarter, C2I's novel whole genome sequencing approach to MRD fits well into the Verify Diagnostics platform, making it the ideal solution for us to expand our test offering throughout the patient journey. As a testament to the strength of this approach, we are continuing many of the collaborations with academia and industry that C2I initiated and have seen strong interest from potential partners and collaborators as we present the technology and begin to build clinical evidence for the test. Between the inbound interest we have received since announcing the acquisition and the momentum in our development activities, we are confident in the strength and extensibility of our new MRD platform and the market potential. We believe this will prove to be a pivotal acquisition for VeriSight across numerous indications over time. With that, I will now turn to Rebecca to review our financial results for the quarter and expectations for 2024.