Good afternoon, everybody, and welcome to the 42nd Annual J.P. Morgan Healthcare Conference. My name is Dan Delfico. I'm one of the associates on the healthcare banking team here. Today, it's my pleasure to introduce you to the Veracyte team, Marc Stapley and Rebecca Chambers. Just a reminder that we'll do a Q&A session at the end of the presentation, and we'll have a mic coming around to be passed. With that, I'll turn it over to Marc.
Great. Thank you, Dan. Appreciate it, and thanks for having us. Hi, everyone. It's a pleasure to be here with you at this year's J.P. Morgan Healthcare Conference. My name is Marc Stapley, and I joined Veracyte as CEO in 2021. It's been an honor leading the team over the past two and a half years, and I'm proud of what I believe is a very transformative approach to diagnostics in cancer. We have a demonstrated track record of strong execution and prudent financial management, creating exceptional value for all stakeholders, from investors to employees, from physicians to health systems, and most importantly, for patients. It is through this focus and discipline, that we will continue to innovate, drive new tests, and ultimately transform cancer care.
First, what I'm going to share today will include some forward-looking statements, which are intended to be covered by our safe harbor, as detailed on this slide. Now, on with the Veracyte story. At the center of everything we do is the patient who is at risk of or who has recently been diagnosed with cancer. This is an emotionally devastating time, and Veracyte is dedicated to bringing clarity and confidence so that every patient can have a personalized plan to optimize outcomes. We are doing this not just here in the U.S., but all over the world. Through our industry-leading portfolio of comprehensive molecular diagnostic tests, we are focused on transforming care across the cancer continuum, moving from the current standard to a more individualized approach, leveraging each patient's unique cancer biology to improve their outcomes.
Our tests provide clinicians with the information needed to help make decisions about whether a patient has a disease, the prognosis for that patient, and whether specific interventions are required once a diagnosis has been made. We have come a very long way with a portfolio in thyroid, prostate, breast, and lung cancers from our single product focus in endocrinology more than 15 years ago. We have served over 450,000 patients worldwide, with tests offered in more than 35 countries, and our tests are currently being used in 35 clinical trials and are featured in over 500 publications. At Veracyte, we have a very good understanding of what it takes to robustly launch successful diagnostic products. Our market has unique challenges.
In life science tools or non-healthcare markets, such as consumer products, once you've created and tested your product, you launch, and then you focus your resources on driving adoption, confident that adoption leads to revenue. High-complexity diagnostics is very different. Creating the assay is just the first step in a multi-year journey. Developing evidence and demonstrating clinical utility for reimbursement is a key part of a robust diagnostic product launch. But clinical evidence generation continues far beyond assay development, well into the life cycle of the product. This evidence is required to ensure that the road is paved for guideline inclusion, as well as for durable and sustainable reimbursement. From our perspective, many diagnostic companies underestimate these important extra steps, launching prematurely. This results in low ASPs, negative or low gross margins, and significant cash burn.
As a result, capital markets have traditionally taken on those binary reimbursement risks over many years. Given our deep understanding of these challenges, we have assembled all of the components of a novel platform, which we have used to drive the successful launch and adoption of our diagnostic tests. We start with a whole omic approach. We believe fundamentally that more data, both genomic and clinical, initiates the flywheel and fuels insights, evidence, and utility down the road. We have applied this in our transcriptome-based approach to each of our existing CLIA tests, and we'll do so again in our whole genome approach to minimal residual disease, or MRD, which I'll talk about shortly. We then develop a high-performing and robust test, which we generate from the whole omic assay that we run in our centralized CLIA labs, spawning an ever-increasing repository of data.
Applying our deep bioinformatics and AI capabilities leads to broad insights that not only support delivery of patient results, but also provide a research capability, which we call Grid, that helps us to land and expand within an indication or into whole new indications. Our experienced clinical and medical teams work together with our scientific and commercial teams and KOLs in each indication to drive repeated cycles of evidence development. With both prospective and retrospective studies over time, we focus on evidence that allows us to answer key clinical questions and provide the proof needed to drive adoption and guidelines. With our years of experience in market access and reimbursement, we work closely with MolDX and commercial payers to leverage this evidence and meet their requirements to demonstrate both the clinical benefit and clinical impact of our tests, together, the clinical utility.
The final piece of the puzzle, once we feel we have de-risked reimbursement, we launch the test, deploying our talented commercial team with the ample evidence to drive adoption.... but it doesn't end there. Our market-leading real-world utilization continues to drive more data, which leads to more insights, more proof, and more utility, all of which provide additional support and confidence in our tests, furthering increased adoption and ultimately guideline inclusion. Let's talk about how. Both Afirma and Decipher, our tests in thyroid and prostate cancer, are the leading tests in their respective markets. While we were first to market with Afirma, we were not with Decipher, yet this robust approach has led to broad adoption and market leadership in both cases.
We can also use this same platform to serve more of the cancer care continuum around a specific indication, and to fuel our growth across indications to drive more clarity for more patients. Here's how we're doing that. With Percepta Nasal Swab, we will move upstream in the care continuum to provide a non-invasive test for patients with lung nodules. We expect our pivotal Nightingale study to provide the clinical utility evidence supporting our decision to launch the test and drive reimbursement. With Decipher in prostate cancer, we have expanded beyond prognosis into prediction of therapy response, to treatment selection, and avoidance of radical prostatectomy, where applicable, and soon to metastatic advanced prostate cancer. With the addition of MRD testing to our portfolio through our acquisition of C2i Genomics, we can now expand downstream.
This will allow us to move into monitoring therapy response and testing for recurrence, supporting patients from diagnosis to treatment, across remission, and hopefully to a cure. All of this is driven by the same Veracyte diagnostics platform, which creates a flywheel of data, insights, proof, and utility around an indication. Zooming in now on one of those indications, thyroid cancer. Since 2011, our Afirma test has been used by physicians to help hundreds of thousands of people with thyroid nodules, enabling more than 175,000 patients, approximately 60% of those tested, to avoid an unnecessary surgery when facing an uncertain cancer diagnosis. The original prospective multi-center clinical validation study was published in the New England Journal of Medicine in 2012, and the clinical utility study was published in the journal Thyroid that same year.
As a result of continued cycles of evidence generation and growing data, we, together with others, have meaningfully furthered the clinical evidence since that time. Today, more than 140 studies have been published on Afirma, including a key meta-analysis of 13 studies in 2022, that demonstrated performance is even stronger than the original publication suggested. With this market-leading test now utilized for over 10 years, a key question is: How much more room is there to grow in thyroid cancer testing? And how do we extend the life cycle of such a mature and well-penetrated diagnostic? Which brings us back to the Veracyte Diagnostics platform. The broad data from our whole transcriptome for every patient, combined with the insights and proof that we have invested in generating, has led to increased utility and adoption. For example, in 2023, we launched TERT promoter testing.
We also recently launched Afirma Grid, a research tool that can be leveraged within the endocrinology community for additional insights, discoveries, and for us, novel tests to be developed. Those launches, combined with a number of customer experience enhancements, have led to a strengthening in Afirma's popularity and adoption, and the best year ever for Afirma in 2023. This included approximately 15,000 tests in the fourth quarter, our highest Afirma quarter to date by some margin, and more than 54,000 tests in the full year. Despite this strong performance, we expect to deliver Afirma growth for the foreseeable future into a market that we now believe can grow to at least 80% penetration. This will be achieved through three key focus areas. one, continued execution to further drive penetration into both existing and new physician accounts.
two, engaging with MolDX on their draft LCD to cover the first of five patients who can also benefit from insights provided by Afirma. Three, enhancing test functionality empowered by Grid and the customer experience to ensure that we maintain and grow our community of physicians. Next, moving to Decipher. We are seeing the benefits of utilizing our platform in prostate cancer, where our Decipher genomic classifier is now the market leader, and to date, has helped guide treatment decisions for close to 200,000 patients with prostate cancer. Decipher has more than 100 publications on clinical validity and utility, and an additional 73 discovery publications leveraging Decipher Grid. The clinical evidence generated to date has led to Decipher being the only prostate gene expression test with level one evidence in the NCCN guidelines, a material distinction from other tests on the market.
But we still have work to do to ensure that every patient with a prostate cancer diagnosis is able to receive a Decipher test. In 2023, we made great progress to that end. For the full year, we provided results to more than 58,000 patients, including approximately 15,500 in Q4 alone. But despite strong execution in 2023, there is still plenty of opportunity to help even more patients and drive penetration to what we think should be 80% of approximately 300,000 patients per year. We're focused on three key areas. One, deepening penetration of the Decipher Prostate Test through market development, physician awareness, and ongoing communication of the NCCN Level One guidelines. Number two, growing the market through coverage expansion and adding the metastatic indication, where there are an estimated 30,000 patients annually who could benefit from Decipher.
And three, continue to utilize Decipher Grid and other efforts to further the flywheel of data generation and claims expansion. We are helping physicians to better personalize treatment for their patients, increase utilization of active surveillance, and identify those who will experience greater benefit from hormonal and radiotherapy. We are developing new markers to help predict response to therapy as a result. While our near-term focus on growing Afirma and Decipher is top of mind, we have prioritized additional strategic growth drivers that utilize our proven platform for developing, launching, and commercializing tests. As always, we are focused on geographic expansion and solving new cancer challenges. Now, with our acquisition of C2i, we can serve more of the patient care journey. First, I would like to talk about our approach to global expansion.
As we shared on our Q3 call, we are now executing on a multi-platform IVD approach, where we believe the quality of our diagnostics and the level of evidence supporting them differentiates us. As we've seen in the U.S. market, this approach lends itself to establishing a leadership position. We have largely completed the transfer of manufacturing of our Prosigna assay from NanoString to our Marseille, France, location, and this is already having a positive impact. We're also focused on key product and market development activities that will help drive a steady cadence of IVD test kit launches over the coming years. First, we will soon submit our existing Prosigna test for approval under the IVDR framework, which is a key step for launches across our IVD portfolio. From there, we expect Decipher Prostate to launch in mid- to late 2025.
We also plan to launch an updated Prosigna test around the same time using NGS instead of nCounter. And we expect to launch Percepta Nasal Swab in 2026. As these products are ready to launch, we will be driving reimbursement and adoption country by country, leveraging our existing commercial team, at which point we expect to see revenue start to ramp. Our second long-term growth driver is to solve new cancer challenges, a task that we're already tackling with our Percepta Nasal Swab test. As many of you know, across all cancers, lung cancer is the leading cause of death worldwide, and it is well established that early detection and diagnosis can reduce mortality. In the U.S., approximately 15 million people are eligible for annual screening, and 1.6 million lung nodules are found incidentally each year.
Percepta Nasal Swab is a novel, non-invasive genomic test for those patients with identified lung nodules who have a smoking history. I'm pleased to share that we recently published the clinical validation data for this test in the CHEST Journal. As that data shows, this test improves risk assessment, which will help avoid unnecessary diagnostic procedures, time, and stress for low-risk patients, and support timely diagnosis and treatment for those who are high risk. The next critical, critical step to launching the product is finalizing our clinical utility study, NIGHTINGALE, which will support reimbursement. We have signed up our last site and will complete enrollment around the middle of this year. From there, we will start tracking results in an effort to be able to report out clinical utility in a year or two after the last patient is tested.
Now, moving to our focus on serving more of the patient journey. Today, we announced that we have signed a definitive agreement to acquire C2i Genomics, a company with novel whole genome sequencing capability in MRD. With this announcement, we're entering the minimal residual disease market, one which we believe we're uniquely suited to serve. MRD is a large emerging market, one that has been estimated at $20 billion. Our entry into this market will enable us to 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. To start, we will focus on markets where we have a strong commercial channel and relationships, and expand from there to drive our success. I call this an inside out approach to MRD.
When we assessed our options to enter this market, we set out to acquire a company with best-in-class capabilities and a clear path to commercialization in our specialty channels. We wanted a technology that interrogated as much information as possible to expand the Veracyte diagnostics platform further and generate even better answers for patients as they move forward in their cancer journey. And for this reason, we selected a test with a whole genome approach as this was the best fit for our platform and would technically allow us to offer a best-in-class test for patients and their physicians. We believe C2i's technology meets our high bar and offers a number of benefits that together make this the best solution for Veracyte. First, the assay requires less than 4 ml of blood, much lower than many competing tests. Second......
the rapid generation of patient-specific signatures available almost immediately after the whole genome assay is performed, compared to bespoke panels that take weeks to develop. Third, an approach that takes the widest possible view of the tumor genetic landscape to deliver sensitivity that we believe enables earlier detection versus imaging and other molecular tests. And this, we believe, will lead to better outcomes. By identifying the effectiveness of a treatment almost real time, the physician can rapidly tailor the care plan for the patient. And because C2i's technology uses whole genome sequencing, we get more data for evidence development. Delivering a rich view of tumor biology allows for more collaborations that catalyze further discoveries. It's a build one, supply many times approach.
With the whole genome approach, we believe there is a path to move from tumor-informed to tumor-naive, if desired, based on the extent of real-world data that will be generated over time. The performance I've described is supported by publications and presentations from C2i in multiple indications, with data shown here for bladder and lung. We will commercialize MRD first in urologic cancers, specifically muscle-invasive bladder cancer, where we expect to launch a test in the first half of 2026. With our established urology channel and relationships, we can partner from diagnosis on and benefit from a well-defined path to reimbursement. In addition to our exciting news on C2i today, we also shared our preliminary unaudited Q4 and full year 2023 results. But before I get into these results, I want to take a minute to remind you where we started this year.
Our initial 2023 revenue guidance was $325 million-$335 million. Over the course of the year, we repeatedly delivered results above expectations, despite facing increasing headwinds in our biopharma business as the year progressed. This context, I believe, is critical to demonstrate how strongly 2023 ended, thanks to our team's diligent and near flawless execution. As a result, our preliminary and unaudited full-year revenue is projected to be $358 million-$359 million, an increase of 21% versus the prior year. This includes fourth quarter revenue of $95 million-$96 million, an increase of between 18%-20% versus the prior year. We ended the year with more than $215 million of cash on hand.
I would like to thank each of our employees at Veracyte for their outstanding contributions and dedication to patients in 2023. While we're incredibly proud of these results, we are focused on doing more of the same. We will drive profitable growth on a cash basis, leveraging the Veracyte diagnostics platform with a focus on strategic growth drivers, as I've shared during this presentation. Given this, we are excited about our ability to continue this trajectory into the new year. We're currently projecting 2024 testing and product revenue growth of 13%-15% versus the prior year. Given continued challenges in the biopharma and services business, which we're managing closely, we're projecting this revenue line to be around 50% of 2023. As a result, our total company revenue growth projections are for 10%-12% year over year.
There will be no revenue from C2i in 2024, given the timing of our bladder launch. Regarding cash, we continue to manage that closely. Even with our acquisition, we will absorb the R&D expense associated with MRD through ongoing portfolio prioritization, so we can still deliver positive cash flow in 2024. Consequently, we will grow our ending cash balance 10%-12% versus 2023, before the impact of approximately $8 million of one-time acquisition-related expenses and in line with revenue growth. I'm excited about our trajectory and even more by the impact we are having. I believe our success will continue to hinge on three core pillars of strong execution. Number one, meaningfully expanding the markets we serve, utilizing our established Veracyte diagnostics platform across geographies, indications, and the care continuum.
two, embracing the best technology, adding new capabilities such as MRD and AI to the world-class scientific expertise that we have. And three, driving revenue growth with a discipline and a focus on profitability and continued positive cash generation. These focus areas will allow Veracyte to continue to build a strong foundation for growth while achieving our vision of transforming cancer care for patients all over the world. Thank you.
Thank you, Marc. We'll open it up to Q&A now for anybody. Maybe to get the ball rolling, then. Congratulations again on the C2i acquisition. Can you maybe talk a little about little bit about how the C2i fits within the broader Veracyte M&A strategy? And should we expect more of these types of deals moving forward?
Yeah. Thanks, Dan. That's a good question. You know, we've been thinking about, you know, expanding the markets that we're addressing for a number of years, you know, as we continue to grow. And MRD has always been something that you know we've looked at as a potential large market. You know, clearly, Veracyte today, we're very strong in, you know, risk prediction, prognosis, diagnosis, and so on. You know, we really wanna be able to take care of the patient after treatment and during and after treatment, and that's where MRD really fits in and fills out that part of the care continuum for us. So it's a very, very natural extension for Veracyte.
The timing was right, in terms of, you know, we've built a track record here of demonstrating, positive cash generation and strong balance sheet, and the timing was right for C2i, and C2i is the right company. And so everything came together, you know, in a, in a kind of a perfect storm of, making this the right acquisition at the right time in the right market areas. And we're excited about absorbing, the company into Veracyte and becoming, you know, even broader in the way that we, help patients with cancer. So that's really our key focus right now, is integrating that, acquisition and continuing to move on and delivering on the things that I've outlined today.
Absolutely. With the first test coming in 2026, as you mentioned, what should investors look to gauge progress on the acquisition and the integration?
Yeah, so muscle-invasive bladder cancer test being launched in the first half of 2026, in MRD. And so, you know, the things to, I think, track between now and then are, firstly, us closing the deal this quarter. And then, you know, our successful integration of that, and then we're gonna have to go through a, you know, the tech assessment process in order to get lined up for reimbursement, which we see as a fairly straightforward step for us to go through, and then we'll launch the test. So, you know, those are the kind of updates that we'll probably provide over, you know, the coming quarters.
Great. Thank you.
Oh, yes.
So whole genome is, it can be an expensive approach to doing MRD relative to some other methods. How are you thinking about the economics of that, over the long term?
Yeah. So the question is whole genome and the economics, are they compared to other methods? I mean, there's really a couple of methods that are being applied in MRD. One is a targeted panel, but deep sequencing approach, which uses, you know, quite a lot of real estate. Same thing with whole genome. It uses real estate, but it's broad, not so deep. And then as we've looked at it, you know, given all the other benefits I outlined in the presentation around whole genome, our expectations of the COGS and the trends of that going forward, we're very comfortable that this makes complete sense, for us from a, you know, absorbing that test and a gross margin standpoint going forward. So we're comfortable.
A lot of that's based on the incredible work that the C2i team has done to really create, frankly, what is an excellent MRD test using whole genome.
That's even before we contemplate, you know, the declining sequencing cost curve over time. You know, I think there's only upside to that expectation.
You also showed... Oh, yes, in the back, actually.
You said that the prostate cancer test is the only one with NCCN level one guidelines. Can you just speak to why that is, how the test is differentiated from others on the market?
Yeah, I mean, great question. The NCCN level one guidelines for Decipher Prostate are really based on the large plethora of evidence that's been generated for Decipher, particularly prospective-based evidence over many, many years. There is so much evidence for our test. It's the reason why Decipher has really gained leading market share and then gotten the NCCN level one guidelines, and we're not done. We're continuing, we and others are continuing to generate evidence. What's great about this model is, you know, there's really three ways the evidence gets generated. Studies that are, you know, set up and funded by Veracyte, studies where we provide some support, and actually many where we have no involvement at all, and they just happen based on the extensive utilization of the test.
In addition, our Grid platform, which I've talked about, now we've launched for Afirma as well, gives some access to the entire transcriptome of data for the patient on a research-use-only basis, that it leads, as I outlined, to more discoveries as well, that, that again, leads to more evidence, more proof, which is what drives guidelines as well as adoption, and ongoing durable reimbursement.
Marc, you showed a slide on your incredible financial performance. Can you maybe talk about how you've been able to be one of the few advanced diagnostics companies to achieve cash flow generation and that push towards profitability while also investing in future growth?
Yeah, it's a great question. There's a couple of ways, and I refer back to the Veracyte diagnostics platform that I outlined, that is really the collection of those core steps, applied to every diagnostic, that ensure that the test is launched at the right time with the appropriate level of evidence and reimbursement, that leads to adoption. And so when you think about it in that way, our Afirma and Decipher tests have been very successful now, you know, achieving that kind of status of adoption and reimbursement and market-leading tests. That helps fuel us to invest in and fund the rest of our portfolio. And one of the things that we've done, and Rebecca and I and the entire team have been focused on, is portfolio management, right?
Really being focused on the key drivers of the business, both those short term, Affirma and Decipher, growing them. The longer term drivers I've laid out with our IVD strategy and our change to multi-platform is a key part of that, our nasal swab test, and now our MRD investments as well, and just having a portfolio that is focused and disciplined and managing the business that way. Anything you want to add?
Just the benefit of the specialty channel in the approach. Effectively, given the targeted approach that we can undertake, the ability to have sales force productivity that is unwarranted across the rest of the industry has also benefited us. So absolutely echo Marc's sentiment, and just add in that one little one.
Yeah, it's excellent point.
Maybe one more from my end. With biopharma revenue being a headwind to growth in 2024-
Mm.
Could you touch on how key this segment is to Veracyte's success? And then any views you have on the evolution in that segment going forward?
Yeah. We've been pretty successful in the past in terms of biopharma as, you know, a part of our business, but it's not necessarily driving direct synergies with the clinical business. What I will say is the clinical business, especially the data approach we've talked about, provides some, you know, utilization and synergy into the biopharma business and creates opportunities for us to work with more biopharma companies over time. So we're excited about that. But on the other hand, when the biopharma industry goes through the kind of changes that we've seen in the last year or so, particularly with investing in early stage, kind of discovery type of projects, which is where we mostly focus our biopharma business today, then it really does have a sizable impact on that business.
Now remember, that business is 5% of our total revenue, give or take. You know, so it's not driving a significant impact on us. But, you know, it is something that we're very focused on. I'm hoping that we're getting to the bottom end of the macroeconomic environment around biopharma, and we'll start to see more investment in the kind of projects that we support going forward. And I think as we continue to build out our portfolio, it gives us more opportunity to work with biopharma in different ways. But for now, we're being very cautious and prudent about how we think about the growth going forward.
Yes. We have a mic coming. One second.
I'll speak up.
Okay.
How are you expecting the impact of FDA LDT regulation on the business?
Yeah, it's a great question. So we're all watching the FDA LDT regulation process closely. I've been watching it closely for the last, call it 15 years, too. We've had a number of steps along the way here. We're very engaged and very focused on the current process that they're going through. And the way I feel about it is, Veracyte is poised, prepared, and ready to respond to whatever the guidelines and you know regulatory process ends up being. Given our ability to move to IVD for our OUS expansion, we have full optionality around IVD in the U.S. as well, and given the level of evidence around our tests, I clearly have confidence that you know our tests would be able to go through whatever the IVD bar is in the U.S.
What I would say is our tests already go through a very, very rigorous, CLIA bar, New York State bar. I mean, you know, we're already held to very high standards in clinical testing, and so I don't really see having to go through the FDA process, whatever it ends up being, as a, you know, a major milestone for us to have to climb over.
Well, if no other questions, Rebecca, Marc, thank you so much.
Thank you.
Thank you all. Hope you have a great rest of the conference.
Thank you. Thanks, Dan .
Thanks.