Veracyte, Inc.

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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 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, Senior Director, Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us today for a discussion of our fourth quarter and full year 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 fourth quarter and full year 2024 financial results. This release and a copy of the presentation we will review during the call today are available in the investor relations section of our website at Verisight.com. Before we begin, I'd like to remind you that various statements we 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. Additionally, 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 the IR section of Verisight's website. I will now turn the call over to Mark Stapley, Verisight's CEO.

Thank you, Shayla, and thanks, everyone, for joining us today. 2024 was a record year for Verisight. I could not be more proud of our team for their hard work on behalf of the patients we serve, which is the reason we come to work every day. Not only did their focus and dedication lead to approximately 150,000 patients benefiting from the information provided by our tests, It also enabled us to execute on our key strategic objectives and deliver a best-in-class financial profile. We capped off a record year with Q4 revenue totaling $119 million, or 21% year-over-year growth. This brought full-year total revenue to $446 million for robust growth of 23% year-over-year. Testing revenue, which now accounts for almost 95% of our business, grew 28% year over year. Fourth quarter testing revenue increased 24% over the prior year and marked our 10th consecutive quarter of 20% or greater testing revenue growth, demonstrating the durability and runway of Affirma and Decipher that we have consistently signaled. And we drove class leading bottom line performance, delivering full year adjusted EBITDA margin of 20.6% and cash generation of more than $70 million. Starting with Decipher, we further strengthened our position as the market leader with outstanding adoption over the course of 2024 as we delivered more than 80,000 tests representing volume growth of 36%. During the fourth quarter, Decipher volume grew 45% year over year to a new record of more than 22,400 tests. We are particularly proud of our land and expand approach in prostate cancer which has enabled us to go from an early beginning in RP only to adding biopsy almost a decade ago and growing that to be the vast majority of our testing today. In Q4, we saw 40 to 55% annual volume growth across each of the NCCN biopsy risk categories from low risk to intermediate risk and high risk. Importantly, low risk now represents an impressive 20% of our total Decipher volume. This is a testament to the value that Decipher brings to this population in better managing their disease from those that will benefit from active surveillance to those who have a worse prognosis and might need treatment. As a demonstration of the clinical utility of Decipher in the NCCN low-risk population, based on our extensive real-world evidence, about a third of those patients are reclassified to Decipher intermediate or high. Decipher's clinical validity and utility has already been demonstrated in approximately 85 clinical studies. This includes 42 on biopsy samples, more than a dozen of which could inform an active surveillance decision, and 43 on radical prostatectomy. Since our last earnings call, we added 20 new publications, posters, abstracts, and presentations highlighting the clinical utility for Decipher, as well as incremental disease insights powered by Decipher Grid. Looking ahead to further Decipher catalysts, we now estimate the growing prostate cancer market is approximately 40% penetrated, and we believe we have more than 65% market share, which we estimate increased by more than 500 basis points over the course of 2024. As we have previously shared, our goal is to drive at least 80% market penetration in all of our indications. With the 2025 updated NCCN guidelines for prostate cancer, Decipher is still the only gene expression test with Simon level 1 evidence, and we believe is now the only gene expression test that is recommended by the NCCM panel to make personalized treatment decisions for prostate cancer patients. Now to expanding Decipher to cover the entire risk spectrum for patients with prostate cancer, our metastatic technical assessment was approved in late December, and we secured New York State approval in January. We are well on our way to finalizing all the necessary commercialization and training activities to launch into this expanded population in the first half, with volumes benefiting in the back half of 2025 and beyond. Given our leadership position, the expansion of Decipher into the metastatic patient population, as well as significant greenfield opportunity ahead for our test in localized disease, we expect to drive meaningful Decipher growth for the foreseeable future. Moving to Affirma, volume growth continues to be very strong and increased 12% in 2024. Despite the challenging Q4 comp, we delivered more than 16,300 tests during the fourth quarter, growing 8% year over year, while revenue grew 4% given the large prior period collection in the fourth quarter of 2023. Deeper penetration into existing accounts, along with some sizable new customers, drove the majority of growth in the quarter. a testament to Affirma's differentiated level of evidence, service, and overall performance. As a reminder, an expanded LCB for Affirma went into effect in July 2024, adding reimbursement for Medicare and Medicare Advantage patients with Bethesda 5 thyroid nodules. Revenue for Bethesda 5 and 6 grew more than 80% year-over-year in the fourth quarter. We expect this to be a moderate ASP tailwind in 2025, as the clinical utility is further developed and resonates more with physicians. Meanwhile, the research use only grid data is driving interest in evidence generation from the KOL and academic community. We look forward to sharing a number of upcoming publications and poster presentations leveraging this data in 2025, as we continue to build on our commitment to patients and physicians to advance thyroid cancer research. The endocrinology market is still only about 65% penetrated as of the beginning of 2025, and we estimate is growing in the low single digits. We believe Affirma grew share in 2024, continues to serve the majority of the market, and will make gains in both share and penetration to deliver strong revenue growth of high single digits this year. We are confident that Decipher and Affirma have ample growth runway ahead to bridge this to our longer-term growth drivers, which I will discuss next. First, I'll start by providing a quick update on the status of our Nightingale study for nasal swab. To date, we have enrolled more than 85% of the 2,400 patients that we are targeting and look forward to sharing when enrollment is fully completed. Next, I'd like to provide an update on our effort to serve more of the patient journey through MRD and recurrence testing. Our MRD approach is differentiated in that it is whole genome every step of the way, including the initial baseline sequencing, followed by the sequencing of serial testing samples. This approach is backed by our fundamental belief that more data drives more insights, more clinical evidence, more payer coverage, and therefore more durable adoption. As we have shared, we are working on the first indication of our MRD platform for muscle invasive bladder cancer. This indication will leverage our strong decipher channel that serves urologists and radiation oncologists. We are also focused on expanding into other indications where we already have a commercial presence. We have completed setting up the workflow in our lab and submitted for New York State approval. Further, we recently submitted to MoldyX our proposed Z codes and expect to submit our tech assessment this quarter. These are critical steps for us to be able to launch, and we're pleased with the progress we're making. As is our strategy across our platform, we are committed to having reimbursement in place. and all development managed care and commercial activities are progressing well so that we can launch our inaugural MRD test in the first half of 2026. Finally, turning to our longer term strategic growth driver of international expansion. Here we are dedicated to launching our tests as IVDs to address patient needs outside the US. As you know, our French subsidiary, Verisight SAS or SAS, has been focused on supporting our IVD strategy as well as a legacy biopharma and third-party contract development manufacturing business. Given the declines in biopharma and our manufacturing supply challenges for ProSigma, we believe that to continue to support such a large operation and infrastructure may be inconsistent with our core strategy and may not be in the best interest of Verisight. Given this, we notified SAS that Verisight Inc. is considering no longer funding their operations. As a result, SAS will engage in consultation proceedings with the Works Council over the coming months, while in parallel seeking to identify one or more buyers for all or part of the SAS activities. Without Verisight Inc.' 's continued funding or identification of a buyer, SAS may be required to commence bankruptcy proceedings this year. Consequently, Verisight Inc. would no longer own or operate the Marseilles facility by year end, if not sooner. Our first priority is to our patients, and so we will do our utmost to maintain continuity of ProSigna and Council supplies for the foreseeable future, which will depend in part on finding a buyer for this portion of the business. Further, we remain committed to our IBD strategy and our ongoing development programs. Having said that, this potential change is expected to impact our timeline, and we are diligently reassessing our development roadmaps. In terms of the financial impact this year, This is, of course, highly dependent on the final outcome and the timing of that. Rebecca will share what she can to help you bracket the potential impacts. Our Marseille team has worked hard on behalf of customers and patients, and I truly appreciate their efforts. As we always do, we will compassionately support our employees during this information and consultation period. Despite these challenges in what is now a very small part of our business, I don't want to lose sight of the success we are having in the core business. As you can see, Q4 was another incredible quarter that capped off a truly exceptional year for Verisight. My sincere thanks to our team for their relentless focus on our mission to serve patients. It is their hard work that sets us apart as we transform cancer care for patients around the world. This year, we are committed to continuing to deliver robust testing revenue growth as we execute on a number of key catalysts that will expand our reach both further along the patient journey and geographically. We look forward to sharing more details with you as we progress towards these goals. With that, I will now turn to Rebecca to review our financial results for the fourth quarter and full year 2024, as well as our outlook for 2025. Thanks, Mark.

As mentioned, Q4 was a strong conclusion to 2024 as we delivered revenue of $118.6 million, an increase of 21% over the prior year period. Further, total volume grew to approximately 41,000 tests, a 22% increase over the same period in 2023. Testing revenue during the quarter was $112.2 million, an increase of 24% year-over-year, driven by Decipher and Affirma revenue growth of 44% and 4%, respectively. Total testing volume was approximately 39,100 tests Testing ASP was approximately $2,875, which included approximately $600,000 of prior period collections. Adjusting for the impact in the quarter, testing ASP would have been approximately $2,850, up 4% compared with the prior year period. Turning to the product line, fourth quarter volume was approximately 2,200 tests, and revenue was $3 million, down 18% year over year as we continue to experience supply and manufacturing challenges while also managing demand for Persigna. Biopharmaceutical and other revenue was $3.5 million, down 17% year over year. Moving to gross margin and operating expenses, I will highlight our non-GAAP results. Non-GAAP gross margin was 69.3%, down approximately 130 basis points compared to the prior year period. Testing gross margin was 72.3%, down approximately 150 basis points due to the impact of approximately $4 million of lower prior period collections compared with the same period in 2023. Product gross margin was 7.3%, down materially from the prior year period due to lower fixed cost absorption and manufacturing challenges. Biopharmaceutical and other gross margin was 26.5%, up 9.4% year-over-year. Non-GAAP operating expenses were flat year-over-year at $57.9 million. Research and development expenses increased by $.2 million to $17.4 million, given personnel additions from our C2I acquisition and increased development costs, partially offset by the NextSeq DX IVD technology access fee that was recognized in Q4 2023. Sales and marketing expenses increased by $0.2 million to $23 million. G&A expenses were down $0.3 million to $17.6 million, driven by lower compensation expense, partially offset by infrastructure investments. Moving to profitability metrics, our financial profile continues to be best in class, driven by our disciplined approach. In the fourth quarter, we recorded GAAP net income of $5.1 million and delivered adjusted EBITDA of $26.1 million, or 22% of revenue. Full year 2024 adjusted EBITDA margin was in line with our guidance of over 20% at 20.6%. We ended 2024 with $289.4 million of cash and cash equivalents, generating over $70 million of cash driven by $75 million of cash from operations. During the fourth quarter, we made an election to treat Verisight SaaS as a disregarded entity for U.S. federal income tax purposes, resulting in a $356 million worthless stock deduction. Given this, our Q4 GAAP effective tax rate was minus 48.5% Our full-year 2024 tax rate was 6.2%, and exiting 2024, our NOLs available to offset U.S. future income now stands at more than $600 million. Before moving to our outlook for 2025, I would like to provide you with additional information regarding the France business. Please bear in mind that we are subject to a strict legal process and so are somewhat limited in what we can share. BioPharma and other revenue now runs at about $2 million per quarter, as does product revenue. Our fixed cost structure in France runs about $7 million per quarter, and our net operating losses are approximately $5 million per quarter. Revenue could be negatively impacted any time, depending on our ability to continue servicing current customers, including through ProSigna production. Meanwhile, our cost structure will be positively impacted in the future if SAS completes a sale to a potential purchaser or finalizes bankruptcy proceedings. The timing of these events could occur in different quarters or not at all. This year, we are currently estimating one-time costs of up to $15 million. Going forward into 2026 and beyond, if this goes ahead, we would see an improvement in our annualized profit of approximately $13 million. Looking ahead to 2025, given the dynamic nature of the situation with our French entity, our guidance will highlight testing revenue and total company adjusted EBITDA margin for the year. We are forecasting testing revenue of $470 million to $480 million, or 12% to 15% year-over-year growth. As a reminder, and as we shared on our Q3 call, we made the difficult decision to pause offering the Invisia CLIA test at the end of 2024. Adjusting for the approximately $6 million revenue impact, testing growth would be 14 to 16%. For 2025, we are forecasting adjusted EBITDA margin to improve by approximately 100 basis points as we balance investment and organic revenue opportunities for long-term growth with enhancing our already best-in-class financial profile. Our guidance assumes 2025 gap and non-GAAP tax rate will be in the mid to high single digits. Turning to the first quarter, we expect testing revenue to step down from Q4 given a firmer seasonality as well as lower product and biopharma revenue. With the annual reset of taxes and merit as is typical, we expect Q1 adjusted EBITDA margin to be in the mid-teens. Further, due to standard first quarter personnel costs, we plan to use cash in Q1 before generating cash over the remainder of the year. In closing, I am proud of the tremendous strides we made in 2024 and, together with the entire VeriSight team, committed to delivering to the strategic priorities we've set in 2025 and beyond. Further, I'm proud of this organization's focus on delivering what is best for all stakeholders. We do our best to balance this each and every day with patience as our purpose. We'll now turn to the Q&A portion of the call.

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 question, please press star 11 again. In the interest of time, we ask that you please lend yourself to one question and one follow-up. Please stand by while we compile the Q&A roster.

And our first question comes from Doug Schenkel with Wolf Research.

Your line is open.

Good afternoon, everybody, and thank you for taking my questions. I have two and I will just rattle through both of them here and then get back in the queue. The first is a higher level question. 2024 was a really strong year for the company. You set testing expectations for 2025, you know, taking out all the adjustments at levels that I think were well ahead of consensus expectations. So, In many ways, you're in a position of strength in what is a tough environment for the broader market and the group. I'm just wondering, Mark, if you would talk a little bit about how you balance the potential to, you know, maybe get more aggressive with either further investment and growth and or capital deployment with, you know, really the desire and the need in this environment to continue improving margin and cash flow. How are you balancing those options and those levers you have to pull? So that's the first topic. The second is for Rebecca. Rebecca, I think the assumption for Affirma revenue growth is high single-digit growth this year. I think that's what's embedded into guidance, assuming I have that right. How much is expanded LCD coverage versus pricing or other levers contributing to growth within the Affirma franchise this year? Thank you.

Great. Thanks, Doug. I appreciate your questions. I'll take the first one, and Rebecca will take the second. So, yeah, I appreciate you pointing that out. I mean, 2024 has been an incredible year, and it's clear it's driven by our core testing business and the growth of Decipher and Affirm, and we've been signaling for quite a while now that both products have plenty of runway. I cited the amount of that kind of opportunity there is in the market to grow each further, the opportunities to take share, even though we're coming from a position of strength there. And so we feel confident that those two businesses, that core franchise, bridges us to our long-term growth drivers. And we talk about three things that we're doing within the company, including our international expansion, our MRD platform, and innovative tests like NasalSwab. And of course, as you can imagine, we're working on other things as well. We're not ready to get into at this stage. But there's a lot of things that we're focused on as a company. And I think what you've seen us announce today with, again, another step in our kind of portfolio rationalization work and our difficult decision, or rather than decision, our recommendation or, you know, our desire to look at the further investment in France. We have continued that portfolio process and As a consequence, if that goes ahead at some point, that might create opportunity for us to invest in other ways. And so, you know, this portfolio making process that we go through has been key to create opportunity so that we can both focus our company and focus our team and focus our investment in things that we think are going to drive a positive ROI for the company in the next few years, you know, five years and even 10 years. So we think very long term at Verisight, and we're excited about the opportunities we have. Capital deployment is one lever we have as well. Obviously, coming from a position of strength in terms of generating positive cash flow gives us even greater opportunity there. So, you know, lots for us to do, but right now our team is very, very focused on things that are right in front of us. We have to get through this consultation period with France. We have to get MRD launched. We have to get Metastatic launched. We're doing things within the company to improve COGS. You know, There's a lot in front of us right now, all very positive things, and one or two things that we just have to get through and let the dust settle.

Absolutely. And the other thing I would just add is the benefit of the structure of our P&L allows us to both enhance profitability over a multi-year period while also investing for those growth drivers that Mark mentioned and others that have not yet been mentioned. So we're pretty excited about 2024 results, 2025 outlook, and even beyond. All is headed in the right direction. To that end, Doug, on your question on Affirma, effectively, yes, you're correct. Guidance does contemplate high single-digit growth for Affirma. Given some of the, given effectively the benefit of what we're seeing both competitively, incidence, growth, as well as kind of share gains, we are driving most of that through volume. There is not a huge ASP tailwind assumed in the Affirma guide for the year. So I think we're going to kind of continuously play our playbook here for Affirma, and that is continuously introduce new product introductions, whether that's through customer experience or new grid signatures, et cetera. Get out there, pound the pavement, share what we're doing, and execute as we have for that product for the last number of years now.

Thank you. Our next question comes from Mason Carrico with Stevens.

Your line is open.

Hey, guys. Thanks for the question. I'll just keep it to one here. When it comes to guidance, could you give us some color around how you're thinking about metastatic revenue this year? I know you talked about the back half, but any incremental color around cadence or potentially the opportunity to pull that revenue forward this year?

Maybe Mason, I'll start, and Rebecca can jump on in terms of guidance. But a reminder for everybody, the metastatic indication is about 30,000 new incidents a year, which is about 10% of the total market. We're very deliberate about our choice of language there around the second half of the year. We've still got work to do to get this launched. The hardest part of actually getting everything ready and approved is very much behind us now. It's a lot of just blocking and tackling internally to get it done. And then we've got to go out to customers and really talk about the benefit of this test for patients in that setting. And so in that regard, we're starting from ground zero there. And so you would expect a ramp as our sales teams do that. We also don't want to distract from a core localized business that's been growing for fantastically as well. So how we meter those two things and balance those two things is a really important part of the equation. So given that, we've been very deliberate about this being more of an impact in the second half and accelerating it wouldn't necessarily be in our best interest. We're thinking about the long term, doing it right, launching it right, getting it right, and having the most success with that for the benefit of patients.

Absolutely. And on the guidance front, we have assumed a relatively small contribution given it'll be the first two quarters of launch. for that 30,000 patient population. So, you know, I think could there be upside to that potentially, but I think, you know, the bigger upside driver would be outperformance during the year on the core decipher business. That could obviously be a piece of it, but I think, you know, given our projections for where volume's coming from and where volume growth is coming from this year, you know, metastatic will be a multi-year growth driver more so than the second half of our 2025 growth driver. Mason, if you don't mind, maybe perhaps we can go into some of the sequential trends for guidance for the year. Given, you know, the highlight of the second half with metastatic, that absolutely is the case. As is typical, we do expect Q1 seasonality. There's a couple of drivers to that. One is AFIRMA. Last year, obviously, we saw a step down in AFIRMA. We're expecting something similar this year. Also, we are not going to have the benefit of Invisio revenue in the first quarter, which was around a million dollars in the fourth quarter. And then we did have a little bit more weather so far this year than we have had in prior years. The reason I cite this isn't because that has impacted order trends. On the contrary, order trends are actually quite strong, but it has impacted effectively three days of samples getting to us. And we'll make that up within the first half, but it depends on whether or not weather kind of strains out from here on out, whether we make it up in the first quarter or so. So just want to make sure you all have the benefit of that information. We're incredibly excited about this year for Decipher, for Affirma, for kind of the strategic long-term growth drivers and what we're setting up for here. So don't want to have some, you know, sequential trends be a surprise, given those are effectively what we see every year.

Got it. Thank you, guys.

Thank you. Our next question comes from Puneet Sauda with Learing Partners. Your line is open.

Yeah, hi, guys. Thanks for taking my questions. First one, just given the puts and takes on the NCCN, and first of all, you know, very strong quarter here in decipher volumes. Just want to understand, you know, NCCN contribution versus other factors that are contributing to that. And how do you expect that to play out in 2025? You have the advanced table as well. And also in terms of, you know, overall, the penetration of Decipher is a strong, well established in the market. So just trying to understand, you know, how should we think about Decipher 2025 and Decipher volume growth 2025 and longer term as well, given the status of this product with the strong clinical evidence behind it and metastatic also helping.

Yeah, thanks, Benin. You know, you talked about the key point here is the evidence because the NCCN is is really just a kind of a manifestation of the great evidence that you have for a product and that we have for Decipher. I'll start by saying, obviously, I appreciate the incredible amount of work that goes into the NCCM process. It's a group of very hardworking individuals who spend time understanding the evidence, making sure they can assimilate that evidence and provide guidelines that are in the best interest of patients. What's very clear is NCCN has, I think, raised the bar and is very focused on Simon Level 1 evidence, whether it's Level 1A or Level 1B. You know, they've determined that the table that's in the guidelines would be tests that have Level 1 evidence only. And I think, you know, it's probably fair to say, as an industry, we all strive to get to that level of robust evidence demonstration. And so, you know, Decipher is there, and I think that would be doing a disservice to our team and our KOLs and RPIs and collaborators by not calling out that distinction and how important that is. Having said that, you know, when it comes to, for example, metastatic would be a good example of this. When it comes to launching a new part of the test that doesn't have NCCN guidelines, we need to continue to generate the evidence to get there. And so I do think the guidelines are very important, but as we demonstrated before, we all had guidelines. You can continue to grow and penetrate the market without. They certainly help to, I think, step it up. But really, at the end of the day, what they do is they demonstrate that the test has incredibly robust evidence behind it. With 85 publications, peer-reviewed publications for Decipher, I couldn't be more pleased with how much evidence we've gotten. We are continuing, you know, we're not standing still. We're continuing to generate evidence at a very nice clip. So I think that certainly helps provide a tailwind, a continued tailwind for Decipher. I don't want to get specifically into, you know, guidance. You can obviously see the testing guide that we have. We've guided to a firmer. And so the Decipher volume is obviously a part of that equation as well.

Yeah, and the only other thing to help with that equation is effectively where, you know, CITO is, the plug, if you will, between Afirma and Decipher, and Cyto doesn't necessarily grow that materially. So I think you can assume Cyto's roughly around the same level in 25 as it was in 24.

And then just a clarification question in terms of Prosigna. I just want to clarify, with the biopharma products, And ProSigna, both of those will be obviously terminated with the French entity. Just can you clarify what products will continue forward? It appears Firma and Decipher are the only two commercial products at this point, but I just want to make sure I have that right. Thank you.

Yeah, I'm glad you brought that up, Puneet, because I really do want to avoid confusion on this and so want to be crystal clear. One is, you know, there is no decision at this point to terminate or anything else. At this point, we're in consultation and we're considering no longer funding our French legal entity in that operation. That will impact, if that goes, you know, to either a sell or bankruptcy process, it will impact our biopharma and other revenues. clearly, and, you know, that's coming out of that SAS entity. We do have a small amount of biopharma revenue that comes out of the U.S. entity, but that's neither here nor there at this point in terms of getting into, and I don't want to confuse the situation. Turning to ProSigna, though, this is a really important point. No, we fully expect to continue ProSigna. On the encounter, and as we've mentioned before, at some point we will move that test to NGS, and we do need to get our IVDR approval for that test on Encounter and ultimately on NGS. So that's important. Now, that is being run out of our, being manufactured by our Marseille operation. And so being able to continue that supplier pro signer is dependent, as I said in the prepared remarks, on being able to find a buyer for all or part of that business. So we want to continue. We want to make sure our customers have access to that test. And that is top of mind for us right now. So, no, this doesn't ultimately affect the long-term goal and the long-term IBD strategy. We're committed to our IBD strategy. We're committed to getting our tests that make sense into other markets, including, first off, Europe. And so this doesn't change that commitment. What it might change, as I mentioned in the prepared remarks, is our timelines for when we're able to get that certification and launch those tests. And so we're going to have to revisit our development roadmaps, depending on how this process plays out. And then we'll have an update on those timelines when we've done that. Hopefully that clarifies that situation. If there's any remaining, you know, questions, please do let me know.

Thank you.

Our next question comes from Andrew Brackman with William Blair. Your line is open.

Hi, everyone. This is Maggie Bowie on for Andrew. Thanks for taking our question. Maybe the first one on guidance, could you talk about what you view are potential upside levers for Decipher in 2025? You know, what type of areas can we see to pull upside there?

Thanks. Yeah, I mean, for me, I'd come from a couple of standpoints on Decipher. One is the significant amount of white space opportunity there is there in the market. You know, as we've talked about, the The test is only 40% penetrated coming into this year. We clearly have a lot of share there, but the key point there is there's 60% that isn't penetrated, and our goal is to drive molecular diagnostics in prostate cancer testing to 80%, and clearly we'd like to be the leader there. So, you know, that is priority number one, two, and three, and that's done through expanding the utilization within existing accounts. It's done by expanding into new accounts. It's also done by expanding into new indications, like as I said earlier, metastatic being a factor kind of later in the year than earlier in the year. The incidence is also growing, sadly, which is an important point. And I think those are probably the key ones.

The only other one I would add is typically at this point in time of the year, we don't have a ton of clarity on prior period collections. And so to the extent we see a strong amount of those over the course of 2025, that could be upside as well.

Got it. Thank you. And then maybe just one on Nightingale. You know, as you continue to make progress on enrollment here with over 85% of enrollment completed, can you just talk about your view on the market opportunity here? Has there been any changes to that as you continue to make progress there? Thanks.

Yeah, the market, thanks for asking. The market opportunity hasn't changed, or at least our view of it hasn't. I mean, it's still a leading major cause of cancer, of deaths in cancer, in terms of lung cancer, unfortunately. And, you know, it's a vast market, plenty of opportunity. The test utility, sorry, validity has already been demonstrated with respect to how it can actually help patients and determine and classify patients into appropriate categories. Nightingale will hopefully demonstrate, and that's the key to it, that it also is able to change practice, and patients will be treated differently depending on whether they have a low intermediate or high result based on our nasal swab test. But there is a tremendous amount of work to get done to get to that point, not only complete the enrollment, analyze the results, create a peer-reviewed publication from those results, and get reimbursement in place. And as we've always said, where we will make sure reimbursement is in place before we launch the test, and then we're off to the races. So, no, nothing has really changed with respect to our view of the market and the market opportunities for nasal swabs. It all hinges on, as it always has, the clinical utility and us being able to demonstrate that through Nightingale. And it's too early to say whether that will be the case or not. Step number one is continue enrollment and follow up those patients and look at the data.

Great. Thank you so much. Thank you.

Thank you.

Our next question comes from Luli with UBS. Your line is open.

Great. Thank you for taking my question. A lot has been asked, so I will keep it short. I guess my first one on the cyber. If I'm doing the math right, it seems like the guidance has seen 25% growth. Can I just get a little bit more color on that and how much is coming from pricing. Assume the majority is coming from volume. And second, on the MRD, it seems like you're planning to submit a technical assessment to MoDS in the quarter. I wonder what is the kind of like the latest timeline we can expect from our reimbursement outcome? And then do you think that All kind of like business around government agency will impact the type line for the review. Thank you.

Yeah, thanks. So on your first question, I think you're higher than the guidelines, the guidance would suggest to decipher. Again, if you think about our guidance that we provide in just for Invisia, it leads you to a testing revenue growth of 14 to 16% net of Invisia. And we said high single digits for firmer. So if you do that math, you get this site for somewhere in the low 20s, something like that. So slightly lower than you cited. And that's a volume. If you think about it right now, that's a volume factor more than anything else given. And Rebecca thought we'd jump in here if you've got anything to add. But given we had a lot of one-time collections last year, we had a big payer in the early part of last year that is now nicely embedded in the numbers. You know, so think of it that way for Decipher. On MRD reimbursement, you know, tech assessment said this quarter, and then, you know, it's a case of completing everything we need to do in our lab, automation, et cetera, getting the test launched, and then, you know, reimbursement should flow.

And with regard to your question around, you know, federal agencies and will that have an impact, there's always a chance. I don't think any of us know really what the impact on the types of decisions that are going on will be. That being said, we are in active engagement with Moldex on this and other reimbursement questions and haven't seen any change in their posture or their engagement. So, you know, we would hope that this would progress as as planned, but obviously there's always a tail risk to these sort of things given the dynamic of the situation.

Thank you. Thank you.

Our next question comes from Sungji Nam with Scotiabank. Your line is open.

Hey, this is Corey Rosenbaum. I'm on for Sungji. Thanks for taking my questions. So you're continuing to strengthen your clinical evidence for a deciphered bladder. including the recent study published in European Urology Open Science. Do you see the prognostic and predictive use cases of the cipher bladders largely distinct from the MRD test under development? And if not, do you think there could be a significant opportunity to use both tests concurrently?

Yeah, so to the first part of your question, we do see it as distinct. Obviously, the MRD test has now become our most important priority in bladder for muscle invasive bladder cancer. and that has a very distinct use case for patients who've been treated. In terms of the prognostic test itself, clearly it's another opportunity to drive more into the channel. It's more investment in the clinical utility, more studies like the ones that you mentioned, and that will be part of our roadmap over time, I'm sure, but it's not the immediate priority right now. But of course, yeah, the more we can continue to serve the urologists and their offices, the more we will do that as long as we see the cost of creating these studies is offset by the revenue opportunity in the future.

Got it. Thanks for the insight. And again on MRD, given the sensitivity advantages you expect from the C2I test, do you believe that the test will be viable potentially in the non-muscle invasive market as well for bladder cancer?

It's actually, I mean, it's a platform, right? And you've talked about the sensitivity of it, and the whole genome approach that we take for every sample, including just, you know, not just the initial sample, but the, you know, the serial testing samples, we think is unique, helps improve the performance of the test. In our minds, performance is measured by detection earlier than imaging. And so that we can, you know, we believe that that test will have multiple applications in multiple cancers. Muscle invasive bladder cancer is current focus, whether it can be utilized in other bladder cancers and not muscle invasive. Maybe, but that wouldn't be, in my mind, that wouldn't necessarily be the first place we would go. I wouldn't say it's a larger market opportunity. I think there are larger opportunities where we currently have channel and serve customers or will have. where we could launch that platform. But, you know, we're not ready to actually give the detailed roadmap yet. But you can imagine anything is in play where there's a utility opportunity for MRD.

Got it. Thanks for taking my questions.

You're welcome. Thank you. Our next question comes from Subbu Nambi with Guggenheim Securities. Your line is open.

Hey, guys. Thank you for taking my questions. Coming into 2025, what is your commercial headcount, meaning what is the proportional mix of focus by product, and where would you expect to build out more over the course of the year? That's question one. And question two, regarding the long-term outlook for Decipher, to the extent there is interest in using a digital pathology complement to your existing assays, how well are you positioned to bring something to market?

Yeah, so let me just quickly address the headcount question, because one thing that's been really, I think, important for both our Decipher and Affirma franchise is we've had tremendous leverage in our sales team, so we haven't added a significant number of sales heads, single digits, over each year, and I don't see that changing going forward, given the current opportunities we have to both test to broaden both market penetration and share. And I think it's roughly 50 heads per firmer and decipher a little bit more. In terms of digital pathology, I think the important thing to think about there is some of the studies that we've seen so far really don't demonstrate that digital pathology is any better than, and in some cases, actually not performing as well as the genomic test. I think the reason for that is they kind of focus on different biology, different parts of the biology. They're looking at different things, and consequently, there's not a great deal of correlation there. So if anything, we see maybe a complementary opportunity in the future. But whatever we do see the opportunity to be, and you can imagine we watch it very, very closely, we couldn't be better positioned. And the reason I say that is we have hundreds of thousands of samples, tissue samples, We've already scanned in our lab over 50,000 samples across more than 30,000 patients, and the vast, vast majority of those have clinical outcomes. And so, you know, with that richness of our data, and remember, the richness comes from us, you know, being able to run a whole transcriptome in every case. That gives us rich genomic data. Scanning is scanning, so we would have as rich data. digital pathology data as anybody else would have. And then, you know, we have incredible AI capabilities already within our company. It's not like we have to go out and build or buy that. We already have that. And so, you know, with that richness of data, we could do whatever analysis we need to do and publish on that. Again, it would be a question of the priorities. You know, we have lots of things to do right now which we think have a better near-term priority, an opportunity for the company. But, you know, bear in mind, we always have this in our back pockets to the extent we need it. And we'll continue to do research and fund research or support research that looks at the opportunities for digital pathology and AI in our markets, not just in prostate. And, you know, we'll always stay ahead of the curve.

Thank you for that. I'll hop back in the queue. Thank you.

Thanks. Thank you. Our next question comes from Tejas Savant with Morgan Stanley. Your line is open.

Hello, this is Yuko on the call for Tejas. Thank you for taking our questions. Some of the current players in the MRD market are now pursuing both tumor-informed and tumor-naive approaches. What are your thoughts on that direction of travel in MRD, and could we see you pursue both options down the road? And then, more importantly, do you think that physician preference will evolve where each approach is preferred in certain cancer types versus one-size-fits-all approach?

Yeah, it's a great question. Of course, we think about that a lot. And I think in a nutshell, I do believe that our MRD approach with whole genome in particular lends itself very well to all the research and studies we would need to do to demonstrate validity in tumor naive. But I think at this point and where we are in the market, our view is tumor-informed, where you have tissue, obviously, is by far the better performing test. Human IE comes into its own where you don't have tissue, hard to get to tissue, et cetera. But right now, for the vast majority of the market, you do have tissue. You have enough of it. You don't need a lot to do that initial sequence. And with a whole genome approach, it is by far the best approach. But as I say, it does lend itself to the studies we need to do to support human naive in the future. And I do think that both will be offered. Whether a physician preference or not, I think it's a little early for me to say. I don't have the data to suggest one way or the other on that. Certainly we could get that. But I think it's going to come down to a number of factors. I think what's most important is It's not a company like us that has the platform to be able to support whatever paradigms make most sense for the patient and the physician in the future. And it's hard for me to imagine a world where, you know, we're not all thinking about whole genome approaches five to ten years from now. You know, I think whole genome is absolutely the way to go because it does support those kinds of, you know, studies and product enhancements and expansions.

Great. That was helpful, Collar. Thank you for that. And then my follow-up question, given the unique approach that you're taking in MRD with C2I, do you think that you have an opportunity to file for ADLT status? Is that something you may pursue?

You know, obviously, for muscle-invasive bladder cancer, the answer is no, we don't need to, right? So we are where we are right now, and there's an LCD, and we're going to be able to just, you know, get to the market as soon as we can with that approach. Yeah, ADLT is a unique situation. And if there are unique situations where ADLT makes sense, then it's as open to us as it is to anybody else. So I don't build a strategy around ADLT or not ADLT. Our strategy is built around can we get a test reimbursed at an appropriate level given the number of sequences you have to do. And, you know, there are some things as an industry I think we need to evolve in terms of how MRD gets priced. MRD is a paradigm that hasn't been contemplated when a lot of these, you know, coverage determinations were put in place. And so there's some evolution that needs to happen there. But, you know, with that said, I think we'll build our strategy around getting the test launched with the appropriate pricing, managing our COGS to a level where we feel that the test is able to perform with an appropriate level of gross margin.

Great. Thank you.

Thanks. Thank you. Our next question comes from Mike Madsen with Needham & Company. Your line is open.

Hey, everyone. This is Joseph. I'm for Mike. I guess I'm decipher. A lot of levers of growth there, you know, indication expansion, obviously in the market in general, but Maybe just to focus on share gains in the market from your competitors, can you maybe just talk about a big picture what that looks like for you guys? Is it more individually with your sales force going in and converting people directly or do you think a lot of it is more passively driven from clinicians seeing stuff like the NCCN recommendation and just the division between your competitors in terms of clinical evidence And then if I could just ask the follow-up. AffirmaGrid, I was just kind of curious if you could give any metrics there, maybe compare it to DecipherGrid. You know, I guess they're the same proportion kind of opting for that. I believe you said it was somewhere around one in every two positions for DecipherGrid. But yeah, thanks for taking our questions.

Yeah, happy to. In fact, maybe I'll just go to the grid one first. I don't remember the exact metric on Enferma. You're right, it was one in two for Decipher and Enferma was roughly around the same, maybe 30% to 50% would be a reasonable estimate for that. The uptake has been pretty decent so far. In terms of Decipher and Share, you know, you can't really separate sales team going out and blocking and tackling from what you described as the passive reaction or response from KOLs because the sales team will highlight to the physician the extent of evidence that exists and what it means and why it's important, including the NCCN guidelines. So if we take a step back, all of this comes from robust evidence. It starts with robust evidence, which in our view starts with our whole transcriptome approach. That drives a lot of studies, both studies that we fund or support to studies that we aren't even remotely involved in that just get done with Decipher, given how much real-world data there exists for the test. And so, yeah, we see a lot of studies being completed. Our sales reps bring those to the physician's attention. Some obviously pay more attention to those studies than others. Obviously, those studies result in NCCN guidelines. They result in things like level one evidence, which then result in guidelines. Again, that's an important factor to sway some physicians, not all, but some. I think when you put it all together, it's the blended effect of all of these things that has really driven deciphered success in both RP and biopsy. I couldn't be more excited with the growth we've seen across all NCCN categories and I think that just demonstrates how Decipher is really covering the whole care continuum. And once we add metastatic, I mean, I truly will be able to see the whole care continuum for Decipher or the whole risk stratification for Decipher patients. So no, hard to say. It's all of that. It's giving ourselves incredible information to share with physicians and have a good reason to go out and do that.

Thank you.

Our next question comes from Matt Sykes with Goldman Sachs. Your line is open.

Hey, guys. This is Prashant Kota on for Matt. I have one question that's a two-parter. So building off of Puneet's question earlier, is it possible to quantify the benefit of NCCN guideline inclusion for a given test in terms of adoption, insurance reimbursement, and competitive positioning? And then my second part is, as you enter new indications, Given your NCCM guideline inclusion for deciphered prostate, does this increase the likelihood that future tests you may develop will get included in guidelines?

Yeah, I appreciate the questions. You know, it's not possible to quantify the benefit of NCCM because they're just part of a whole package of positive indicators that really support the use of a test for a patient. Obviously, it's helpful. It's incredibly valuable. but you can't literally take it apart and figure out which decipher test would have been utilized with or without NCCN guidelines. And I don't think it actually helps us. You know, you're kind of at the starting point or a level playing field when it comes to new indications and different indications as well, you know, for different cancer types. So a good example of that is metastatic. I mean, the NCCN guidelines for metastatic is going to be based on the peer-reviewed publications, what level of evidence, you know, when you get to assignment level one evidence, which is the new threshold. And we're going to have to, you know, get there over time. Same with a new indication, you know, in a new cancer type. So, no, I don't think it helps you there at all. I do think that, you know, knowing what it takes to and having the engine in the company to support and create that level of evidence have those strong, robust studies with scientific rigor behind them, get them through peer-reviewed publications, those are all factors that help you get, you know, this kind of recognition that we're getting from NCC. And so, you know, there is a competitive advantage to having done it before, but that's how I would characterize it.

Thank you. This concludes our question and answer session and today's conference call.

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