Yahoo Finance Veracyte, Inc. (NASDAQ:VCYT) Q4 2023 Earnings Call Transcript
Veracyte, Inc. (NASDAQ:VCYT) Q4 2023 Earnings Call Transcript February 22, 2024
Veracyte, Inc. misses on earnings expectations. Reported EPS is $-0.39 EPS, expectations were $-0.07. Veracyte, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to the Veracyte Fourth Quarter and Full Year 2023 Financial Results Webcast. At this time, all participants are in a listen-only mode. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to pass the call over to the Senior Director of Investor Relations, Shayla Gorman. Please go ahead.
Shayla Gorman: Good afternoon, everyone, and thanks for joining us today for a discussion of our fourth quarter and full year 2023 financial results. With me today are Marc Stapley, Veracyte's Chief Executive Officer; and Rebecca Chambers, our Chief Financial Officer. Veracyte issued a press release earlier this afternoon detailing our fourth quarter and full year 2023 financial results. This release, along with the business and financial presentation is available in the Investor Relations section of our website at veracyte.com. Before we begin, I'd like to remind you that various statements that we may make during this call will include forward-looking statements as defined under applicable securities laws. Forward-looking statements are subject to risks and uncertainties, and the company can give no assurance they will prove to be correct.
Further, we are not under any obligation to provide further updates on our business trends or our performance during the quarter. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Veracyte files with the Securities and Exchange Commission, including Veracyte's most recent forms 10-Q and 10-K. In addition, this call will include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures are included in today's earnings release accessible from the IR section of Veracyte's website. I will now turn the call over to Marc Stapley, Veracyte's CEO.
Marc Stapley: Thanks, Shayla, and thanks everyone for joining us today. I'm pleased to share that 2023 was a record year for Veracyte. Our high value tests improved care for more than 125,000 patients and their physicians, enabling better diagnosis, prognosis and treatment decisions. I'd like to thank the entire Veracyte team for their hard work and dedication to our mission of transforming cancer care. Over the course of 2023, we grew revenue 22% and generated $44 million in cash from operations to deliver our second consecutive year of positive cash flow. This is a significant proof point that our philosophy to drive cash generation, while investing in our strategic growth drivers is paying off, and we expect to achieve positive cash flow going forward.
I am extremely proud of our strong financial profile, allowing us to further expand the impact we are having on patients' lives. Our successes attribute attributable not only to the dedication of our employees to our mission, but also to the Veracyte diagnostics platform, which refers to our unique approach to launching and driving adoption for our diagnostic tests. This is driven by broad sets of genomic and clinical data deep bioinformatic and AI capabilities, a powerful evidence generation engine, which ultimately drives guideline inclusion and durable reimbursement for our tests as well as proven commercial excellence. The platform creates a flywheel for the generation of novel insights that in turn drive innovation and pipeline development toward future test expansion in a way that is extensible and repeatable across multiple indications.
Decipher prostrate continues to be a clear example of this platform in action, over the course of 2023 we added eight publications and 16 abstracts to the clinical evidence library for Decipher Prostate, and then additional 12 abstracts and seven publications from our Research Use Only or RUO Decipher grid offering. During Q4, data from multiple studies were presented at the annual meeting of the Society of Urologic Oncology or SUO. Highlighting the ability of Decipher Prostate to identify patients whose prostate cancer is likely to progress. This focus on evidence generation reinforces the test status as the only molecular test to receive Level 1 evidence designation in the National Comprehensive Cancer Network or NCCN prostate cancer guidelines.
The backbone of clinical evidence supporting Decipher Prostate is clearly resonating with physicians as we delivered approximately 15,500 Decipher test results in the quarter. We now estimate that the market for molecular tests in prostate cancer is approximately 35% penetrated with plenty of headroom remaining for growth, as we believe penetration could get to 80% over time. Looking to 2024, we have focused on bringing Decipher Prostate to even more patients. We believe this will occur through indication expansion, additional payer coverage and even more clinical studies, some of which will utilize Decipher GRID to further accelerate the flywheel of data generation and claims expansion. One example of this, we anticipate the current draft of Medicare's local coverage decision policy for patients with metastatic prostate cancer, to become final later this year or early next year.
As a reminder, we estimate there are an additional 30,000 patients annually, who could benefit from the prognostic and predictive inflammation. Decipher delivers to clinicians a pivotal moment in their journey to treat cancer. Moving to Afirma, this was another record quarter for tests delivered. We reported approximately 15,200 Afirma results with growth driven by new and existing accounts including competitive wins. Over the course of the last two years, we have continued to enhance the Afirma offering, adding TERT promoter mutation testing, enhancing the online physician ordering portal and introducing the Afirma GRID RUO tool. While GRID for Afirma has only been available for a short period of time, the promise of advancing science and developing prognostic signatures has been well received by customers focused on research.
Many have proactively reached out and are interested in collaborating, to publish and fully validate new signatures. These launches and enhancements led to increased popularity and adoption of Afirma over the course of 2023, which represented a record growth year for a product which launched more than a dozen years ago. Looking to 2024, we expect Afirma to deliver solid growth through three key mechanisms. First, continued execution to further drive penetration into both existing and new physician accounts. Second, engaging with MolDX on that draft LCD to cover the decipher patients who could also benefit from insights provided by Afirma and lastly, scientific engagement empowered by GRID and an enhanced customer experience to ensure that we maintain and grow our community of dedicated physicians.
Decipher and Afirma great illustrations of the Veracyte Diagnostics Platform in action. This proven approach will enable our long-term growth across three vectors Global Expansion, Solving New Cancer Challenges and with the acquisition of C2i Genomics earlier this month serving more of the patient care journey. With our Percepta Nasal Swab test we are focused on tackling new cancer challenges. We believe the test will benefit patients and physicians as a non-invasive option to help guide clinicians next steps for patients with potentially cancerous lung nodules. During the quarter we made significant progress, publishing the clinical validation data for the test in the journal CHEST and bringing the number of sites enrolling for the NIGHTINGALE clinical study, close to 100.
NIGHTINGALE is designed to demonstrate clinical utility and support reimbursement for the test and remains a key focus in 2024, as we expect to complete patient enrollment in the summer. For a level of interest demonstrated by the large number of sites that have engaged in NIGHTINGALE, it gives us optimism in the value that Percepta Nasal Swab test could bring to physicians and their patients. Shifting to our focus on global expansion, our strategy to deliver IVD versions of our tests to physicians and their patients outside of the United States is another key long-term growth driver. Over the last quarter we have largely completed the transfer of kit manufacturing for our Prosigna breast assay from NanoString to our Marseille France location.
With this transition, while we maintain some near-term dependency on NanoString for component supply and instrument service, we have worked through mitigating most of the supplier issues we began experiencing in the second half of last year. As a result, Q4 Prosigna volumes were ahead of our prior expectations. Looking forward, we're monitoring the situation and doing our best to ensure continuity wherever we remain dependent on single source suppliers. As we shared previously, we are now executing on a multi-platform IVD approach, where we leverage the quality of our Diagnostics and the level of evidence supporting them to differentiate us. We are focused on key product and market development activities that will help drive a steady cadence of IVD Test kit launches over the coming years.
We will soon submit our existing processing test for approval under the IVDR framework which is a key step to catalyzing launches across our oncology IVD portfolio. From there, we expect Decipher Prostate to launch in mid to late 2025 on PCR and an updated NGS-based per second test around the same time to be launched on NextSeq Dx. And we continue to expect Percepta Nasal Swab to be commercially available in 2026 on NGS. Turning to serving more of the patient care journey, we recently closed our acquisition of C2i genomics and I'm thrilled to welcome the C2i team to Veracyte. This acquisition enables us to enter the minimal residual disease or MRD market and expand our role across the cancer care continuum, building from our position in early diagnosis and risk assessment to treatment monitoring and disease recurrence testing.
C2i is novel whole-genome sequencing approach to MRD fits well into the Veracyte diagnostics platform, making it the Eidos ideal solution for us to address this portion of the patient journey. First, the assay requires less than four mil of blood, much lower than many competing tests. Second, the rapid generation of patient-specific signatures available almost immediately after the whole genome assays performed faster than bespoke panels that take weeks to develop. Third, the approach takes the widest possible view of the tumor genetic landscape to deliver performance that we believe enables early detection versus imaging and other molecular tests. By identifying the effectiveness of the treatment almost real-time, the physician can rapidly tailor the care plan for a patient which we believe will lead to better outcomes.
And because C2i technology use whole genome sequencing, we get more data for evidence development, giving us a rich view of tumor biology that allows for more collaborations and will catalyze further discoveries. As we mentioned when we announced the acquisition, we will commercialize MRD first in muscle-invasive bladder cancer, where we expect to launch a test in the first half of 2026, leveraging the same strong urology channel that has delivered continued growth in decipher. I'm excited about our trajectory and even more by the impact we are having on physicians and their patients. With that I will now turn to Rebecca to review our financial results for the quarter and expectations for 2024.
Rebecca Chambers: Thanks, Marc. Q4 was another record quarter with $98.2 million in revenue, an increase of 22% over the prior year, higher than our pre-announcement due to the finalization of cash collections which benefited ASP. We grew total volume to approximately 34,000 tests, a 21% increase over the same period in 2022. Testing revenue during the quarter was $90.4 million, an increase of 29% year-over-year, driven by higher than expected Afirma volume, Decipher growth and strong prior period cash collections. Total testing volume was approximately 31,000 tests. Testing ASP was approximately $2900 as we've resolved and collected over $4 million of out-of-period payments. Adjusting for this impact, testing ASP would have been approximately $2750.
Fourth quarter product volume was approximately 2600 tests and product revenue was $3.7 million, up 13% year-over-year as the team did a tremendous job eliminating the patient impact of the supplier issues Marc mentioned. Biopharmaceutical and other revenue was $4.1 million in line with our expectations and down 39% year-over-year, given overall spending constraints across the industry. Moving to gross margin and operating expenses, I will highlight non-GAAP results which exclude the amortization of acquired intangible assets, other acquisition related expenses and restructuring costs but does include routine stock-based compensation. Non-GAAP gross margin was 70%, up approximately 340 basis points compared to the prior year. Testing gross margin was 73%, up 90 basis points compared to the prior year, benefiting from higher lead volume and over $4 million of out-of-period collections.
Product gross margin was 52%. Biopharmaceutical and other gross margin was 15%, down year-over-year due to lower fixed cost absorption. Non-GAAP operating expenses excluding cost of revenue were up 28% year-over-year at $65.6 million including $3.5 million technology access fee to develop or IVD kitted tests on the NextSeq Dx NGS platform. Research and development expenses increased by $7.6 million to $18.7 million due primarily to the tech access fee and increased costs related to our NIGHTINGALE and Decipher clinical studies. Sales and marketing expenses increased by $1.8 million to $25 million. G&A expenses were up $5.1 million to $21.9 million, driven by higher personnel costs and infrastructure related investments. We recorded a GAAP net loss of $28.3 million which included $32 million associated with the impairment of Helio Dx biopharmaceutical intangible assets; $7.6 million of stock-based compensation; and $6.3 million of depreciation and amortization.
We increased our cash position by $14 million from the prior quarter and ended 2023 with $216.5 million of cash and cash equivalents, 21% higher than the balance of $178.9 million at the end of 2022. Turning now to our 2024 outlook. We are maintaining our total revenue guidance of $394 million to $402 million. This reflects year-over-year testing and product revenue growth of 13% to 15% and a decline of approximately 50% in biopharma and other revenue as we have not seen evidence yet of an improvement in the market. We expect non-GAAP gross margin to be in line with 2023 as tailwinds from operational testing efficiency efforts and fixed cost leverage roughly offset the annual supplier list price increases merit and the benefit of more than $10 million of out-of-period collections in 2023.
We are also maintaining cash guidance and expect to end 2024 with between $230 million to $234 million in cash, cash equivalents and short term investments including $8 million of one-time acquisition related items. As always, our cash commentary is barring potential M&A. Moving to the first quarter, we are forecasting a sequential decline in total revenue given the impact of cash collections in the fourth quarter and typical seasonality. Additionally, we expect non-GAAP operating expenses to be higher sequentially given the impact of the C2i acquisition and the annual reset of taxes and merit. For the quarter, excluding the benefit of acquired cash and customary closing considerations from the C2i acquisition, we are forecasting a slight usage of cash due to the usual timing of compensation payments.
I am excited about the momentum we have heading into 2024 and our commitment to executing on our strategic priorities over the course of the year. We'll now go into the Q&A portion of the call. Operator, please open the line.
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