Veracyte, Inc.

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 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 2025 financial results. With me today are Mark Stapley, Verisight's chief executive officer, Rebecca Chambers, our chief financial officer, and John Light, our chief commercial officer, who will join us for Q&A. Verisight issued a press release earlier this afternoon detailing our first quarter 2025 financial results. This release and a copy of the presentation we will review during the call today will are available in the investor section of our website at Verisight.com. Before we begin, I'd like to remind you that 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 the 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 Investor section of Verisight's website. I will now turn the call over to Mark Statley, Verisight's CEO.

Thank you, Shayla, and thanks, everyone, for joining us today. I am pleased to share our Q1 results as well as updates on our growth drivers and other key initiatives, all of which are the result of our team's daily focus on serving patients globally. Q1 total revenue of $114.5 million, or 18% year-over-year growth, was fueled by testing revenue, which grew 19% year-over-year or 21% after adjusting for Invisia. With both Decisor and Affirma delivering another strong quarter of double-digit volume growth, 37% and 10% respectively, we are encouraged by the ongoing durability of our core testing business and are confident in delivering on our expectations for this year and beyond, despite the challenging macro environment. We delivered a healthy adjusted EBITDA margin of 21.6%, meaningfully higher than we expected, and ended the quarter with a strong balance sheet comprising $287 million of cash and short-term investments. As you know, we are focused on a number of strategic initiatives, including growing our existing tests, decipher and affirmer, expanding across the care continuum with our minimal residual disease platform, expanding internationally, and solving novel cancer challenges with innovative products like our Perceptor nasal swab. Today, I'm excited to share our progress and some new initiatives. Starting with Decipher, the impressive 37% year-over-year volume growth resulted in approximately 22,600 tests and revenue growth of 33%, with the driver of this difference being higher prior period collections last year. Encouragingly, we continue to see broad-based expansion across each biopsy NCCN risk category, with roughly similar growth in low, intermediate, and high risk. Further, this quarter, we saw both a record number of ordering providers up over 20% from the prior year and increased orders per physician. While January and February were, as previously shared, seasonally lower months, March was exceptional, and that strong momentum continued in April. We believe these positive trends are a testament to the recent NCCN guideline update, as well as the excellent execution of our commercial laboratory teams. Looking ahead, there are a number of activities that position us for sustained, strong, double-digit Decipher growth. With meaningfully differentiated performance and an incredible body of clinical evidence, Decipher is already in a field of its own. At the recent AUA annual meeting in April, there were no less than 18 new abstracts presented across both Decipher prostate and bladder, including new data from the use of Decipher in clinical trials, as well as insights derived from the research-use-only grid platform. We are also progressing across the care continuum with our Decipher Prostate metastatic launch. As of late April, Decipher Prostate is available for use in the metastatic population on a limited basis and will be available broadly in June, meeting our expected launch timeline. The clinical validity and clinical utility for use in this patient population has been demonstrated in multiple prospective phase three clinical studies, including the results from the Stampede trial presented at ESMO Congress 2024. Importantly, the test will provide information to help clinicians determine which patients will likely benefit from chemotherapy and which will not, thereby avoiding unnecessary toxic side effects. One such case involves an older man who was diagnosed with metastatic disease. His doctor ordered the test to help guide treatment selection between doublet therapy, that is ADT plus ARPI, and triplet therapy with the addition of docetaxel. Although the patient is fit, active, and fully independent, his physician was concerned about adding the chemotherapy. The Decipher Prostate Metastatic Test will provide an additional data point for the physician and patient as they make the treatment decisions necessary at this critical phase of the disease, balancing the likely benefit with the impact on quality of life. This launch meaningfully expands the population appropriate for Decipher testing, serving an incremental 30,000 patients diagnosed annually. and now addressing the entire risk spectrum of prostate cancer, further strengthening our confidence in the test's long-term growth trajectory. We have also continued our investment in digital pathology studies to assess the complementary benefits of the technology, as well as to ensure research collaborators have the necessary tools to further our collective understanding of prostate cancer. In addition to the data presented at the 2025 ASCO-GU earlier in the year, We have now scanned over 70,000 slides from over 40,000 de-identified patients with outcomes data, solidifying our digital pathology capabilities with advanced AI models that incorporate long-term outcomes and may ultimately complement the prognostic power of our deciphered test. Further, we have recently made our digital pathology services and associated AI models available to research collaborators to advance the science in the field of combined AI-based imaging and molecular analysis. Looking ahead with the most prolific and growing body of real-world evidence, NCCN guideline recommendation, and now the expansion into the metastatic patient, Decipher's opportunity to significantly penetrate the nascent and growing prostate cancer market is even clearer. We look forward to continuing to drive meaningful growth for the Decipher franchise for years to come. Moving to Affirma, volume growth continues to be strong and increased, as I mentioned previously, 10% year over year, resulting in approximately 15,500 tests. We were encouraged to see higher year-over-year utilization per account again this quarter, which gives us confidence in the go-forward durability of the Affirma franchise. Revenue growth was lower than volume growth, driven by the prior period collection benefit in 2024, as well as the negative impact of a lab benefit manager's mistaken coverage policy change last year. While the mistake was quickly corrected, it took longer than anticipated to be worked through the respective payer systems and therefore reduced collections below the amount estimated over the course of 2024. This has been fully resolved. However, we are still adjudicating some of these claims, and the full return to normal rates may take another quarter or two to be reflected. With the volume strength we're seeing, as well as indication expansion and the product enhancements we've delivered, our confidence remains strong that Affirma will continue to gain in both share and penetration. We expect the first presentation of independent analysis leveraging the grid database later this month at AAES and look forward to sharing additional publications and poster presentations that advance thyroid nodule and cancer research. As with this cipher, the flywheel of research and evidence around the test is representative of the power of the Verisight diagnostics platform and will enable efficient evidence generation and insights that will help expand patient treatment and ultimately, we expect, will drive continued growth. While on the topic of Affirma, I'm excited to share key advancements that we are making in our ClearLab. Over the past two years, we have invested in improving the efficiency of our testing business. As part of our overall COGS reduction roadmap, we have been working to transition Affirma onto V2 of our VeriSight transcriptome, running on the latest and most cost-effective sequencing technology. We will first launch Affirma on the updated assay this summer. This transition enables cost reductions that are designed to offset normal reagent list price increases we might experience in 2026 and beyond, while also helping to mitigate unpredictable tariff impacts and to potentially enable us to reinvest in organic opportunities to serve more patients. I'm also excited to be able to announce today that we have decided to launch ProCigna as an LDT for the U.S. breast cancer market, given the tremendous opportunity we see ahead. There are over 300,000 patients diagnosed annually with breast cancer in the U.S., and approximately 225,000 of those have early-stage hormone receptor-positive disease and would be eligible for the test. ProCigna, which is based on the well-known, well-researched, and scientifically respected PAM50 signature, can provide physicians and their patients with additional data around the biological classification of the cancer and the risk of recurrence to help inform treatment decisions. While Prosigna is currently available only as an IVD on the NCounser platform, the Prosigna LDT will be run out of our CLIA lab using our brand new V2 Verisight transcriptome. Commercial availability will begin in mid-2026, and we believe key data readouts, some of which we'll see in the next few months, will support adoption of Prosigna, augmenting decipher and affirmer growth in the near to mid-term. As always, we are focused on driving evidence for the test through the Verisight Diagnostics platform to support continued research for patients navigating the stressful diagnosis and associated treatment paths. Moving to the other growth drivers mentioned previously, I would like to start with our commitment 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 beliefs that more data drives more insight, more clinical evidence, more payer coverage, and therefore more durable adoption. We have made good progress in advancing our MRD platform for our first indication, muscle invasive bladder cancer. This indication will leverage our strong decipher channel that serves urologists and radiation oncologists. In March, we submitted our tech assessment to Maldi X and remain on track for commercial launch in the first half of 2026, once we have reimbursement in place. While we are initially focused on MIBC, beginning in 2027, we plan to deliver indication expansion annually, serving more patients across more indications. Building out the clinical evidence behind our platform is key to our go-to-market approach. We're excited to share that our MRD platform was selected for the important Umbrella trial being run out of Institute Gustave Roussy on approximately 700 patients with non-small cell lung cancer, colorectal cancer, soft tissue sarcoma, and pancreatic cancer, as well as leveraging MRD-positive status to direct IO therapy. Umbrella investigators chose our MRD platform given its tissue-agnostic analytic validation, which enables a trial to include multiple tumor types. The data from some of these indications will be pivotal as we look to expand our tests beyond MIBC in the future. Further, strong performance data from the Multi-Center Interventional Tombola Clinical Trial was presented at the annual European Association of Urology Congress in March 2025, supporting the accuracy of our whole genome sequencing-based MRD platform for MIBC. This data showed that our tests had a higher specificity, equivalent and outstanding negative predictive value when compared to a DD-PCR approach, and was able to detect cancer occurrence a median of 93 days sooner than standard imaging. Next, turning to our geographic expansion strategic growth driver, where we are committed to launching our tests as IVDs to address patient needs outside the U.S., I would like to update you on the ongoing process with our French subsidiary, Verisight SAS or SAS. As I had previously shared, Verisight Inc. notified SAS that we were considering no longer funding their operations. As a result, SAS engaged in consultation proceedings with the Works Council in France, while also seeking to identify one or more buyers for all our parts of the SAS activities. In late April, Verisight Inc. notified SAS that Inc. definitively decided to no longer fund the entity, and accordingly, SAS filed a bankruptcy petition shortly thereafter. We remain confident in a full resolution of SAF's proceedings by the end of the year, at which time Verify, Inc. would no longer own or operate the Marseille facility. We are focused on maintaining pro-sigma supply to help minimize patient impact as much as we can. SAF and its financial advisors are working to identify potential buyers for portions of the business, and any sale would be handled by the commercial court as part of the proceedings. Our decision to no longer fund SAFs does not reflect a change of strategy or our commitment to global expansion, but this process does inevitably impact our IBD product development timelines, as previously shared. Importantly, we have made significant progress on these products. For example, our Decipher PCR IBD product is bridged and partially validated with a single pilot launch, thereby meaningfully reducing technical risk. We are now in the process of reinitiating that development program in the U.S., working with a U.S.-based contract manufacturer, and expect to complete our joint development and manufacturing work by the end of next year. Similarly, we now expect to complete our pro-signet NGSIBD product development work by the end of 2026 as well, working with a different third-party contract manufacturer. We continue to work with TUV Rhineland, our notified body, and are in the process of resubmitting ProSigna and Counter to their North America division. These steps will all be necessary to launch our IVD products in Europe, along with gaining reimbursement country by country, which, as always, will take some time. Importantly, we don't believe this change in development and certification timelines meaningfully impacts our revenue models for the next five years. And in fact, we expect that any delay of IVD product revenue will be more than offset by the launch in the U.S. next year of our ProSigna LDT. Our last growth driver is solving new cancer challenges with innovative products like our Perceptin Nasal Swab, to which we remain very committed as evidenced by our major investment in clinical evidence. Lung cancer is the leading cause of death worldwide, and early detection and management is key to reducing mortality and improving outcomes. Perceptin Nasal Swab is a simple, non-invasive test that assesses lung cancer risk in patients with a detected lung nodule and smoking history so that the right patients get the right intervention at the right time. In the first quarter, we were pleased to publish nasal swab analytical validity data in BMC cancer, demonstrating the robustness of the test. This publication, as well as completion of the prospective Nightingale study, are key steps in our effort to bring this important test to patients. With a target of 2,400 patients, Nightingale is now close to 95% enrolled, and with just over 100 patients left to register, we are now confident in predicting completion of enrollment in the third quarter. Then we will be able to commence the important follow-up and data analysis leading to publication and ultimately reimbursement. To summarize, at VeriSight, everything we do is to advance our vision of transforming cancer care to improve patient lives all over the world. Leveraging our unique VeriSight diagnostics platform, We deliver the deep insights that physicians can rely on today while continuously fueling the flywheel of evidence needed to solve new cancer challenges tomorrow. Q1 was another amazing quarter, demonstrating our capabilities to this end. We saw incredible volume growth across our core testing business, meaningful strides in our COGS reduction roadmap, progress on our commitment to launch nuclear tests starting with Procigna LDT, and great progress across all of our long-term growth drivers during the quarter. We have a rich and exciting portfolio of products in development over the next few years and beyond, and I'm confident these activities, as well as others we're working on, will enable us to serve even more patients facing cancer, ensuring we are living our ethos of patients as our purpose. With that, I will now turn to Rebecca to review our financial results for the first quarter, as well as our outlook for 2025.

Thanks, Mark. As mentioned, Q1 was a strong start to the year as we delivered revenue of $114.5 million, an increase of 18% over the prior year period. Further, total volume grew to approximately 40,650 tests, a 22% increase over the same period in 2024. Testing revenue during the quarter was $107.3 million, an increase of 19% year-over-year, driven by Decipher and Affirma revenue growth of 33% and 6%, respectively. Total testing volume was approximately 38,000 tests. Testing ASP was $2,818, down 3% compared to the prior year, and includes approximately $600,000 of prior period collections, or PPC. Adjusting for the impact of PPC, testing ASP would have been approximately $2,800, roughly flat compared to Q1 2024. Turning to the product line, first quarter volume was approximately 2,570 tests, and revenue was $3.6 million, up 1% year over year, as our actions to maintain continuity of supply over the quarter were more successful than anticipated. Biopharmaceutical and other revenue was $3.6 million, up 19% year-over-year, as SAS customers accelerated programs given Verisight Inc.' 's impending financing decision. Moving to gross margin and operating expenses, I will highlight our non-GAAP results. Non-GAAP gross margin was 72%, up approximately 400 basis points compared to the prior year period. Testing gross margin was 74%, up approximately 200 basis points, giving timing of material spend as well as the benefit of automation and lab efficiency programs that we launched late last year. Product margin was 60%, up materially from the prior year period given higher cost absorption. Biopharmaceutical and other gross margin was 27%, up 18% year over year. Non-GAAP operating expenses were up 14% year over year at $60.5 million. Research and development expenses increased by $2.1 million to $15.7 million, given increased development spend and one additional month of personnel expense from our C2I acquisition as compared to the prior year period. Sales and marketing expenses increased by $0.8 million to $22.5 million. G&A expenses were up $4.5 million to $22.3 million, partially driven by billing and customer service hiring to support our scaling testing business and IT support for product development projects. Moving to profitability metrics, our financial profile continues to be best in class, driven by our disciplined approach. In the first quarter, we recorded GAAP net income of $7 million and delivered adjusted EBITDA of $24.7 million or 21.6% of revenue, well ahead of expectations as we benefited from our lab efficiency projects as well as the timing of project spend. Turning to our second quarter outlook, we expect testing revenue to step up sequentially. For gross margin, we're expecting a modest step down sequentially given lower fixed cost absorption at our Marseille site and the timing of consumable spend in our testing business. Based on the current SAS dynamic, we expect product revenue of approximately $2.5 million, while biopharma and other revenue is expected to be approximately $1.5 million. Going forward, product revenue should remain flat sequentially as long as we are able to maintain continuity of supply for Prosigna on encounter and minimize customer disruption. For Biopharma and other, once the SAS process concludes, most of this revenue will go away. Given our solid Q1 results, we are reiterating our 2025 testing revenue guidance of $470 million to $480 million. Due to our strong Q1 performance and the gross margin improvement projects we expect to benefit from in the second half, we are raising adjusted EBITDA margin guidance for the year to 22.5%. from 21.6% previously. Also, we are estimating our 2025 gap and non-gap tax rates to be in the mid-single digits. In closing, we were encouraged by the performance of both Afirma and Decipher in the first quarter and the value we're delivering to both patients and clinicians. With a robust set of growth drivers, including the recent launch of Decipher in the metastatic population, and the upcoming launch of our ProSigna LDT, we are well positioned to deliver sustained growth in our business. Above all, we remain deeply committed to our mission of transforming cancer care and improving patient lives all over the world. We'll now turn to the Q&A portion of the call.

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 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. We ask that you please limit your questions to one question plus one follow-up question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Subbu Nambi of Guggenheim Securities. Your line is now open.

Hey guys, thank you for taking my question. There are two topics that I would like to cover. First, you are a management team that has not been timid in pursuit of portfolio optimization, whether it's moving out of businesses or adding new products via M&A. How do you feel about the portfolio as it stands today? And is there a desire to round out the portfolio in a way that would give you broader menu similar to other companies in this area? Second, One question we get a lot is how to think about the pipeline value of FairSight, MRD and NAVIL swab especially. How would you respond to those who believe the value assigned to those initiatives are limited? Thank you, guys.

Yeah, thanks, Subbu. Appreciate the question. And you're absolutely right. We've been very focused on portfolio management, making sure that things that we are investing in have both the appropriate evidence, reimbursement, and the launch to the right time. And we're not investing in things that don't have the ROI. And then adding to our portfolio, for example, by acquiring an MRD asset. If I kind of just remind everybody where we were, I mean, we started out as a company with a single product and a single indication, so a firmer for thyroid, indeterminate thyroid. And then we've added not just new products, but also broadened and lengthened The indications of those products cover, for example, in Afirma. With Afirma, we've added Tert, and we're now working on Bethesda 5. With Decipher, which is an even better example of the expansion, it started out in RP, expanded to biopsy, and now it's expanding to metastatic. And so now Decipher covers the entire spectrum of patients with prostate cancer. So I'd say number one is expand within the indications. as much as you can, given the leverage. Number two is expand the channel. And so you've seen us take our urology channel and expand that with a bladder test and soon to be MRD. And then the third would be indications. And you've heard us talk a lot about adding lung as an indication, which we're very, very significantly working on. And then as we announced today, really adding breast as an indication in the US next year as well. And so, and then, you know, taking our MRD platform, and as we mentioned today, expanding the indications there, one a year, starting in 2027, after we kind of proved this out with our launch in muscle invasive bladder cancer. So, as I think about that portfolio, I think it's incredibly broad with a rich pipeline of new products to come. And I couldn't be more excited about it. Now, could we continue to add more menu? Sure. And as you can imagine, you know, we work a lot on things like that, both organically and inorganically. And if there were great opportunities, we would certainly pursue them, which is why we just announced what we're doing in Brest, for example. To your second part of your question on the pipeline value, I mean, I agree with you. The MRD and nasal swab are not much in there today. And we're proving both of those out. And we've got milestones. We've told you what the milestones are. And MRD is the muscle invasive bladder launch next year. First half in nasal swab is completing the nightingale study and ultimately getting that product reimbursed and launched. And those are massive markets. And if you think about it, in both cases, growing from zero in significant markets across multiple indications, in the case of MRD. And so, you know, we've got differentiated products in both cases, and we've proven our execution capability. So I think, you know, investors should look at our track record and, you know, evaluate those markets and verify accordingly.

Yeah, and just the only thing to add is, you know, I think historically those have been longer-dated growth drivers, right? So as we look at where we are today, Here in May of 25, we have multiple product launches coming up over, you know, the next 12 to 18-month period. And I agree wholeheartedly with Mark on everything he said. The only thing I would add is, you know, the time is coming where these things are going to be super exciting and launched, and we'll be able to demonstrate our execution in multiple areas besides just Affirma and Decipher.

Hey, guys, thank you so much for articulating that. I'll hop back in the queue. Thanks, Subha.

Thank you. Our next question comes from the line of Andrew Brackman of William Blair. Your line is now open.

Hi, guys. Good afternoon. Thanks for taking the question. Maybe actually to pick up on the last question there, you know, you obviously do have these product catalysts and launches over the next coming quarters and years. Maybe just big picture, can you talk about how you're ensuring organizational readiness both commercially and operationally for these launches? And how do you sort of think about investment into some of the areas that you still need? What are those areas? And how much are you sort of willing to spend? Thanks.

Yeah, it's a great question. You know, our first step is obviously to get these products to market and go through the product development. And, you know, we talk about how much we invest in that, as well as generating the evidence, which is a key part of our, you know, our engine, our VeriSight diagnostics platform, to make sure that, you know, we don't just launch products on the market that don't have the evidence to support adoption, reimbursement, and ultimately guidelines. So all of this is coming together, and then it's, you know, at the end of it, there's obviously a launch plan with the commercial activities all planned out around that. And it's a very thoughtful launch plan. I'll let John discuss a little bit more of it since he's on the call with us today. But, you know, we make sure that we don't, you know, we don't invest ahead of the opportunity growing. So we add, and you saw us do this with the Siphon Affirmer, we add sales teams and commercial capabilities as we need it as we grow. John, you want to? Yeah, thanks, Mark.

I'll add to that just by saying you'll see that there's been great thoughtfulness in how we think about the analytical platform first. We mentioned today version two of our transcriptome. That's the underpinning of a variety of products that we're developing and launching. Number two was C2I acquisition we mentioned from the very beginning. We really saw that as a platform play from which we could gain leverage and launch new indications rather quickly. So it all starts in the lab. And then from there, I would say channel synergies are what we look at very, very carefully. With muscle-invasive bladder cancer, one of the selection criteria for that was that served the market where we have leadership, we have very strong relationships with those ordering physicians. And then beyond that, we're being very thoughtful and considerate as we add new channels, as would be the case with Persigna and the LDT test here in the U.S. We'll do that in a very measured way, not taking on a big investment up front, but looking to scale that over time as we see proportionate revenues.

And just on the investment front, perhaps, Andrew, as both Mark and John mentioned, obviously the lab is a critical cornerstone of us being able, from an organizational perspective, to be ready here. And I think we've previously mentioned, I know it's in our filings, that we have renewed the lease for both San Diego and San Francisco and are in the process of building out capacity in both locations that allow us to operate for the next five to seven years. And so, you know, from that standpoint, the lab is ready to go for all these things once they're finalized in development. And obviously, both John and Mark both cited that we, you know, we parse into these commercial channels if they're net new. You know, we will have some incremental investment on the R&D front to get all of these to market over the next 18 months. That being said, we also are obviously always looking at our financial profile and ensuring that it is delivering upon what we have shared with you all. So in any given year, things can swing a little bit one way or the other as we look for the next 18 months, though. Obviously, we're expanding our adjusted EBITDA margin guidance today, and that's going in the right direction. And obviously, we think about balancing all these things as we structure our P&L in any given year.

That's great, Keller. Thanks for all that. And then maybe just on the cipher today, Mark, I think you called out a 20% increase in the ordering physician base in the quarter. Can you maybe just tell us a little bit more about that 20% increase? Who are those doctors that sort of came on board? Are they sort of competitive wins, or are they new to testing in sort of general? And then as you sort of think about the potential for additional doctors to come on board, where are we in terms of penetration into the overall ordering base that you see? Thank you.

Yeah, thanks, Andrew. The commercial execution this quarter in Decipher has been yet again exceptional, selling new records. And, you know, John leads that organization. I'm going to ask John to share a little bit about the makeup of that 20% growth.

Yeah, it's a bit of a mixed bag, Andrew. Thanks for the question. We're constantly running initiatives within our commercial strategy that focus on new physicians that are new to the test. or they're formally ordering physicians that for some reason or another have kind of fallen off that are familiar with the test, but maybe their ordering rate has fallen off and we've reactivated them. And we see great gains there. Some are entirely new to the business and have never ordered a genomic test before, so that would be pure penetration into the space. And then as you alluded, a good number are market share gains.

And on the penetration from an ordering perspective, I think the key there is obviously we're penetrating the larger accounts, and there's always going to be a long tail of smaller accounts. But the penetration into the position base, which is an extremely difficult number to measure actually in terms of who are the actual ordering positions, but the penetration is very strong. Obviously, given that long tail as a percentage, you'd expect it to be a little smaller than our overall penetration. which is, I'll remind everybody again, you know, about market about 40% penetrated and decipher about 65% share, but still very strong.

All right. Thank you.

Our next question comes from the line of Puneet Suda of Learing Partners. Your line is now open.

Hi, guys. Thanks for the questions here. So maybe first on the guide, I just wanted to clarify the moving parts there. In terms of the number you delivered, I mean, you came in, I think, 4 million ahead of the street, but you're not raising your guide. There's Invisia, some impact in there. There is some of that. There is impact maybe from Marseille, and the biopharma is getting pulled out. So can you maybe walk us through those? And then beyond that, how should we expect The FIRMA growth rate, it looks like it's been low single-digit growth. Is that the right way to think about FIRMA and then, you know, decipher as well within the context of the guide?

Yeah, I'm happy to take that one, Puneet. So, I just want to be very careful here. We're talking apples to apples and oranges to oranges. So, the first thing on the guide is recall the guide is 470 to 480 for testing only. And, you know, everything we've looked at, the guide and, I'm sorry, the Q1 results were right on top of street estimates for testing. And so where the beat came from was primarily biopharma and product, which are not, we don't have a total company guide right now because we don't have definitive clarity on the timing of the Marseille operation, which then impacts the total revenue, if that all made sense. Okay. I'm going to pause there and just make sure, do you have any follow-ups on that before I move to AFIRMA?

No, that's helpful. Yeah, AFIRMA.

Okay, great. For AFIRMA, we delivered 10% volume growth, 6% revenue growth. About two-thirds of the delta between the two was tied to prior period collection in the prior year. A third was tied to the LBM impact that Mark mentioned. So 6% revenue growth in Q1, we are still contemplating high single-digit revenue growth for the year. I think you might be looking at it with cytology, which we have said on the last call, cytology typically is pretty flat. So we don't think about cytology in the same way. Cytology is a mechanism of getting samples, not necessarily a growth driver for us. So when we think about Affirma, we're giving just the Affirma number, not including cytology.

Got it. Okay, that's helpful. And then on the Marseille side, you talked about gross margin impact because of the fixed cost, but can you just clarify how should we think about that? Was there an OPEX impact as you continue to run this facility into 2025? And then what are the scenarios there? Is there a scenario in which it could take longer than the year end of 2025?

Yeah, I'm happy to take that and kind of have Mark opine. Yes, we had our typical run rate of OpEx in Marseille. We said with revenue that was about a $20 million loss on an annualized basis. And so you can think about the quarterly impact of that as expected. Obviously, it was slightly less given the gross profit outperformance, but you're close enough if you just take that impact. And then with regard to the process itself, We have confidence that we will be done by the end of this year. Obviously, you know, these things could take longer. I wouldn't say that's a 0% probability, but all of our expectations, all of our advisors' expectations is that we are done with this by the end of the year. And we had an important step today with the court accepting the application for bankruptcy. So everything seems to be tracking as planned.

Yeah, and don't forget, also, if you think about it, there's some one-time costs associated with this as well that we talked about last quarter, and our estimates around that are similar at $15 million.

And that's a cash number. There'll be non-cash impacts as well. Thanks for that reminder, Mark.

Yep. Okay, thank you. And then if I could just ask one last one on ProSigna. You're launching that in U.S. I just want to understand, is there – something you know differentiating about the test because it is you know launching in in a market that is well penetrated oncotype dx has been in the breast market well established for a long time you've got mammoprene there too so just trying to understand um you know how are you thinking about the us market and and the growth expectation for persigna

Yeah, thanks, Puneet. We actually, yes, we do believe that the test is differentiated. I mean, as we always do, you know, we base our business models on evidence generation. And, you know, we alluded to the fact that we're expecting some data that supports the use of the test, the clinical utility, and the differentiation of the test. And so now it's the right time for us to launch that into what you correctly state is a penetrated market, starting from zero, effectively zero for us in the U.S., and gaining some share there. John, do you want to add anything?

Yeah, it's obviously something that took a good bit of consideration from us. You know, in Europe, it is a test that has gained some traction, especially amongst the key opinion leaders. It is, in fact, those thought leaders who've been driving much of the more recent evidence. It is on the backbone of that evidence that we are looking to gain share within the U.S. with our LDT test. So evidence is one layer of differentiation. The second is the playbook. It's not entirely unlike how we ran Decipher. Decipher was also a late entrance into the space, and based on our product design, based on our philosophy towards evidence development and collaboration with key opinion leaders, based on our commitment towards evidence generation and guideline inclusion, Decipher has come up very quickly in terms of market leadership That's what we're hoping to rerun with this for Cigna as well.

Okay. Thank you. Thanks, Vineet. Thanks, Vineet.

Thank you. Our next question comes from the line of Doug Schinkel of Wolf Research. Your line is now open.

Hi, thank you. This is Colleen on for Doug. We just have a question on the decipher ramp for the balance of the year. It looks like ASPs came in around 2950 in Q1. And our understanding is that the metastatic test will have similar ASPs as the biopsy-based test. And with that in mind, should we keep ASPs flat throughout the balance of the year? And how should we be thinking about the volume growth trajectory this year and into 2026?

Yeah, Colleen, I'm happy to take that. Recall slightly more of the population for metastatic is Medicare, and therefore the ASP, I would think, is very slightly higher, but not materially so. But on the counter side to that, we will not necessarily have coverage or contracting for the non-Medicare population. And so those two things probably net out. I would love to be able to give you more Details behind that, but in all honesty, it is a quarter-by-quarter play depending on mix. So, you know, I think having around the same ASP may be drifting up very, very slightly over the rest of the year is reasonable. From a growth rate perspective, our full-year guide implies 19% to 22% revenue growth. Volumes, you know, we are, as we saw in the first quarter, experiencing a prior period collection headwind versus a prior year. And so as we think about the rest of the year, we are contemplating that. The comps get harder for volume, but obviously we have great expectations for the Decipher franchise for the rest of this year and into perpetuity, especially given the nascency of the market at 40% penetrated. We have 65% share. We just grew volume 37% this quarter. We've seen some other numbers out there that are less than 37% for our competitors, and so I think we're well on our way to continuing to deliver really strong growth from the Decipher franchise, thereby bridging the gap into our other growth drivers that are now very much on the come in the next couple of years or two.

All right, thank you. And then we just have one follow-up on MRDs. So, can you help us better understand how the data shared from Tombola positions your test as differentiated in bladder relative to currently marketed assays? And also, given higher COGS associated with sequencing the whole genome at every time point, what optionality do you have on sequencing to ensure that your MRD test isn't meaningfully margin dilutive at launch? And then finally, I believe in the prepared remarks that Mark indicated that you submitted your tech assessment to MoldyX last month, or in March, rather. Should we assume that you'll have reimbursement at the time of launch?

Yeah, so let's cover each of those. And Rebecca and John, feel free to jump in here. But Tombola differentiated the test relative to DDP-CR and compared the performance of the whole genome approach. And if you actually look at that, publication or that presentation and see how the investigators tackled that. If you think about relative to other tests on the market and how to penetrate the MRD market, we have consistently maintained that the most important measure is, you know, how much sooner than imaging, which is the standard of care, you are detecting recurrence. And so in this particular case, Sambola, it reinforced data that we'd already presented and published in MRD, which is, you know, in this case it was 93 days, which is a great lead time. And so, you know, that, and then, of course, the whole genome approach is what we really believe every step of the way is differentiating. And it goes to our underlying philosophy. I'll come to the kind of further part of your question and let Rebecca come back to the COGS impact of that. But it is, if you think about deciphering how we've approached that, I said before, we could have run a 22-gene assay for every single test and we would not have, you know, close to 100 publications supporting the use of Decipher if we had done that. It is the ability to have all that rich data. So as long as we can, you know, make sure, to your point, we can manage the cogs of that and the margin of that, it is a very worthwhile investment in creating the richness of that data for every single sample and the ability to use that in the future to advance our test into other indications and into, you know, human naive, and what else? I mean, there are things we could do with it that, you know, we can't even contemplate today. But it's hard to imagine a world where, you know, five to ten years from now, everybody's not talking about the richness of whole genome data in this space.

Yeah, of course. And on the COGS side of the equation, in muscle-invasive bladder cancer, we absolutely are excited about that indication because approximately 85% of the population is Medicare, and therefore, from an ASP perspective, it should be a relatively nice ASP out of the gate. We have multiple projects ongoing on the COGS reduction front for MRD, just similar to those that we talked about today with regard to AFIRMA. And so, you know, over a multi-year period, we have a lot of confidence in our ability to drive down sequencing costs, excuse me, as well as, obviously, there are many different sequencing platforms that are currently at play that, you know, may or may not be influencing our our costs on roadmaps. So we're excited about the potential for having a very data-rich MRD platform with cost that is more expensive, admittedly, but similar to the reasons that Mark cited from the Decipher standpoint, we think that's a worthwhile trade. We're really focused on making sure that on an adjusted EBITDA basis, this is a product and a project and a platform. I couldn't get the right P word out, sorry. A platform that is able to be, you know, accretive to our adjusted EBITDA over a multi-year period. And so, I think that's kind of the way we're thinking about it, more so than on a gross margin basis. And the last point that I'll add in there is similar to Decipher, you know, we have higher COGS, but we have lower R&D spend in terms of the clinical utility. So, All in all, we're very comfortable with the path forward, excited about it, and, yes, we will be launching with reimbursement.

Yes.

All right. Thank you so much.

Thank you. Our next question comes from the line of Teja Savant of Morgan Stanley. Your line is now open.

Hey, guys. Good evening, and thanks for the time here. Just one quick clean-up for you, Rebecca, on the guide. I think you called out mitigating tariffs as one of the rationales for your v2 transcriptome switch for a firma. Is that a meaningful dynamic for you, or is this just really you guys expecting your vendors, including your Suprinsic vendor, to likely add tariffs or charges here shortly?

Yeah, I'm going to actually have that one handed over to Mark.

Yeah, actually, we were working on this as part of our lab optimization process, as you would expect us to, for a long time. And, you know, the point around tariffs was the fact that we're doing this helps us mitigate or should help us mitigate the impact of the tariffs to some extent. There's a lot of uncertainty around that. None of us knows how impactful this is all going to be. But as we've always done, we're very focused on COGS to mitigate whatever the supply chain risks are, whether it be tariffs or just price increases. At the same time, as Rebecca mentioned earlier, we expect price decreases on certain agents as well. So as we've always said, we don't really see first or second order. We don't really see first order effects for us, but we do get second and third order effects. Our supply chain is impacted by tariffs. And in fact, we've already had one vendor talk about raising surcharges on us as well, you know, in the future. And, you know, that's something that we've contemplated in the guide that we've given here. So, you know, we're managing to that. But there's some uncertainty around that and we'll continue to track it. But we'll respond accordingly as we always do. And we've got a lot of irons in the fire to make sure we're able to continue to drive, you know, positive gross margin and EBITDA in the future.

Got it. And then a couple of quick follow-ups on the MRD side, Mark, if I may. First of all, I mean, on the Thumbola results that you guys have shown, you know, at ACR and even earlier this year, I guess my question is, you know, the investigator found that DDP-CR was more sensitive, but your assay was more specific. So are you guys exploring any opportunities to further boost sensitivity, or you don't think you really need that? And then second, what sort of data should we expect to see at ASCO shortly here?

Yeah. So, I mean, I just go back to my previous comment on MRD. If you look at any single measure, whether it be sensitivity, specificity, limited detection, you're missing the broader picture, right? The broader picture is how much sooner can you pick up the detection than standard of care. And you could tune any one of those other metrics at the detriment of another metric. And, you know, if it doesn't help the lead time to detection, then you're going in the wrong direction. So we look at it as a collection of these factors and studies that show that the test is effective in picking up detection early. And so that's one of the metrics that came out of the study that we really like. What should we see in terms of ASCO? Anything, John, you want to refer to on that? No, nothing. Nothing that we're expecting at this point. I don't think we're expecting anything on MRD in particular. Got it. So we'll keep you posted and we'll give you our perspectives on things that do come out.

Got it. And then one last one here for me on the decipher side of things, Mark. You know, you've lacked your digital pathology efforts. Could you just share some color on this view that there's a decent amount of physicians out there who value the complementary data provided by a combo approach? Hearing some of that from one of your competitors recently, and they're planning to launch their version of the combo test in, I guess, by year end this year. So curious as to how you're thinking about the timelines to market here and how big the opportunity might be for a value proposition like that.

Yeah, I think, you know, I think if you ask physicians, and of course you can imagine that we have, and I'm sure others have too, if you ask physicians, then of course the more data, the better. And they don't tend to take one data set and take it at the, you know, at the substitution of another data set. More data is better. And so, of course, if they could have complementary data that enhance the information they have, then they would say, yes, we'd love to have that. The question that we're still trying to answer is, is the data set complementary? We think it can be complementary, but it can also be contradictory, and that can cause confusion in the space. Now, if you need to add a digital pathology approach in order to bolster an existing molecular diagnostic test to make it perform better, then that's one way to do it. But as we've always said, Decipher has so much evidence behind it, performs really well across the entire spectrum. that we don't see that that necessarily is needed to enhance Decipher. If there's a market opportunity for that, then given that we've scanned 70,000 images across 40,000 patients with outcomes, plus we have whole transcriptome for every single one of those, you can imagine that we could make that information available. And we're actually, we have made it available for collaborators today. You know, the research, this is interesting from a research perspective. We don't see the commercial opportunity yet, but we're continuing to drive the research. And if there is a commercial opportunity, then you can imagine we can jump on that.

Got it. Fair enough. Appreciate the color. Thanks, guys.

Thank you. Our next question comes from the line of Thomas DeBorsy of Nephron Research. Your line is now open.

Guys, just a question on Decipher related to, I guess, your ability to expand coverage now with, I guess, level one, I guess, being in NCCN guidelines relative to other tests. You know, have you seen, I guess, an expansion of coverage over kind of the last several quarters? And, you know, have payers maybe changed also their position on some of the other tests as well that maybe also help share gain?

Yeah, don't allow for that.

Thanks for the question, Thomas. Yes, this is obviously an ongoing set of activities here being managed by my team. We are constantly engaging with payers, whether they be government, private, or otherwise. We do see traction in our discussions and very active engagement. with payers, with the coverage setters, with the lab benefit managers. We are in an active exchange of the latest evidence as well as the latest guidelines. As you can imagine, these are generally long-term conversations that coincide with an annual review of the evidence. And so when we believe we're closer to gaining traction or when we believe that a release on coverage policies is is looking to expand, we'll be sure to note those.

And, Tom, one thing I would add, obviously, you know, having a conversation with payers and showing the level one guidelines, the NCCN guidelines with the level one evidence that we have really helps bolster that conversation. Now, it doesn't get you over the line in every case. You know, it's really hard sometimes, but it certainly helps.

Thanks. And maybe just a follow-up question on... you know, I guess the slide, you know, talking about 2026 to 2028 targets and I guess, you know, profitability targets still, you know, about 25% of adjusted EBITDA. And so just in the context of new product launches, you know, would you also kind of be considering your spending relative to, I guess, you know, targeting that 25% adjusted EBITDA goal?

Yeah, the goal absolutely takes into account what we believe will need to be spent over the next period of time to launch all of those products. We have shown an ability to do things much more efficiently than others in the space and a revenue per headcount basis using that as one metric. And, you know, I don't expect our new product launches to be any different. We will be building a MedOnc channel for ProSigna. It will take multiple, you know, quarters and years to really get to the point where it's at scale, similarly to how we're investing in Decipher and Affirma, you know, we put a handful of heads in that in any given period. And so we'll be able to meter that in in a way that's tied to revenue growth, and we're super excited about our ability to continue to drive a differentiated profitability profile and do all of these things at the same time.

Great. Thank you. Thank you, Tom.

All right, thank you. Our next question comes from the line of Soongji Nam of Scotiabank. Your line is now open.

Hi, thanks for taking the questions. Maybe on the umbrella study with the 700 patients, is that enough for at least some of the indications that you mentioned for you to submit to Medicare for reimbursement? Or should we anticipate a few more studies of the size might be needed for you to do that?

Well, first let me answer by saying that you're probably always going to see more studies coming from us, given our track record. The second is, yes, we do believe that the study is being appropriately designed in its prospective manner, and it will be sufficiently powered per indication to yield a positive coverage from Medicare.

Got it. And, Rebecca, you mentioned your guidance raised for adjusted EBITDA margins for 2025. You attributed to laboratory efficiency projects and timing of project spend. Could you elaborate a bit on the project spend, what that entailed?

Yeah. Actually, so one is a good guy, one is a bad guy, right? So Q1, we outperformed by, call it, around 150 basis points. We raised the guide by around 100 basis points. The delta between those two plus a little bit of the goodness from the gross margin projects is what we're relating to in project spend. Think of that, Sungji, as really R&D that we thought was going to be spent in Q1 getting pushed throughout the rest of the year. Just timing.

Gotcha. Thank you so much.

Thank you.

Thank you. Our next question comes from the line of Matt Sykes of Goldman Sachs. Your line is now open.

Hey, guys. Thanks for taking our questions. This is Will on for Matt. Can you talk about the initial response to the early launch of Decipher in the metastatic population and remind us of the potential contribution in the back half of the year following the broader launch? Thank you.

Yeah, the initial launch, as you can imagine, and the reason we did an initial launch is because we had physicians chomping at the bit to start to use this in patients. And I cited an example in the prepared remarks of an existing case. And that particular physician is very excited to be able to have that information. And so it's early days. We just launched this at the end of April. But so far, we're quite excited about the reaction.

Yeah, we just came back from the AUA, and there already the conversation was very strong around metastatic disease, and we expect the trend to continue at ASCO, where we will be in full launch mode. But I appreciate the question. Thanks. And the ramp in the second row?

It's implied in the guide, effectively. You know, we are expecting this to be not dissimilar post the biopsy. launch when it received Medicare in 2019. Obviously, it will change the trajectory when we have guidelines, but we're not expecting that in the guide this year. So I think it's a contributing factor, but the vast majority of the growth this year will come from penetrating and share gains in the biopsy portion of the market.

Understood. That's helpful. Thank you. And then switching over to Affirma, How should we think about the components of growth for the rest of the year, I guess excluding prior period collection impacts, including any potential benefits from the updated grid offering?

Yeah, again, I take the updated grid offering as kind of being table stakes for us at this point in time. It's needed to demonstrate the growth that we've talked about. more so than driving a specific component of growth. It's just part of our overall strategy. It's really challenging to parse out things like that. But in general, we saw great volume growth in the first quarter. We would expect that pretty strong volume growth. Prior period collections for AFIRMA may end up to be a headwind for the rest of the year. We'll have to wait and see. And so between those two things, we're expecting high single-digit revenue growth. How one nets out versus the other in any given quarter I would love to be able to tell you, but that's not perfect. My crystal ball is not that clean.

Got it. Thank you.

Thank you. Our last question comes from the line of Mason Carrico of Stevens Inc. Your line is now open.

Hey, good afternoon. This is Ben on for Mason here. Thanks for taking the question. I'll just keep it to one here. Could you talk about the training that you've done with your Salesforce for the metastatic indication for Decipher. What are your thoughts on when these reps are going to be fully productive for that indication? And then talking about the synergistic call point here, when you think about MRD coming online next year, how do you see reps prioritizing their time between MRD, Decipher, and localized, and then the Decipher metastatic?

Yeah, excellent question, Ben. So on part one, we've started the training and those discussions at our national sales meeting in January. We just held an advanced training in the last couple of weeks. That was full day of both content and tactical training. These are, in general, the call points that they are already calling on. So these are, for the most part, are large urology group practices. They routinely handle and manage patients with metastatic disease. So this is a natural extension of the discussions that they're having with those physicians in those group practices. For part two of your question and how we're managing and balancing our time, it is, again, it is an extension of the call points. We pride ourselves in training our sales reps to have meaningful and educational discussions in those practices. This would be a topic that they would rotate in as part of one of their visits into those practices.

Got it. Thank you.

Thank you. This concludes the question and answer session. I'd like to thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.