Earnings Call: Q4 2019

Feb 25, 2020

Good afternoon, ladies and gentlemen, and welcome to the Veracyte's 4th Quarter and Full Year 2019 Financial Results Conference Call. As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to Kate Kennedy, Veracyte's Chief Operating Officer and Chief Financial Officer. You may begin. Good afternoon, everyone, and thanks for joining us today for a discussion of our Q4 and full year 2019 financial results. With me today are Bonnie Anderson, Veracyte's Chairman and Chief Executive Officer Doctor. Julia Kennedy, our Chief Scientific and Medical Officer and John Hanna, our Chief Commercial Officer. 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 include those regarding our future plans, prospects and strategy, financial goals and guidance, product attributes and pipeline, drivers of growth, expectations regarding reimbursement and other statements that are not historical fact. Management's assumptions, expectations and opinions reflected in these forward looking statements are subject to risks and uncertainties that may cause actual results and or performance to differ materially from any future results, performance or achievements discussed in or implied by such forward looking statements, and the company can give no assurance that they will prove to be correct and will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. Please refer to the company's February 25, 2020 press release and the risk factors included in the company's filings with the Securities and Exchange Commission for discussion of important factors that may cause actual events or results to differ materially from those contained in our forward looking statements. Prior to this call, we announced our Q4 and full year 2019 results, which are available on our website atveracyte.com under Press Releases in the Investor Relations section. We also published a financial presentation, which I will reference during my remarks. This presentation is also available on our website under Events and Presentation in the Investor Relations section. Before turning the call over to Bonnie, I would like to explain some changes in our new GAAP reporting structure. With the expansion of our strategic partnerships and the acquisition of the nCounter diagnostic platform rights and products from NanoString, we expanded our revenue reporting to distinguish between testing, product, biopharma and collaboration revenue. Testing revenue includes our centralized CALIA testing services, which currently includes Afirma, Percepta, Envisia and Cytopathology. Product revenue includes the sale of kits and instruments, which currently includes Prosigna and nCounter Flex system sales. Together, testing and product represents our global diagnostics business. Revenue resulting from our strategic agreements for research and development and or commercialization services is comprised of either biopharmaceutical revenue, including the sale of services or data and other services for fixed consideration or collaboration revenue, including revenue recognized for the achievement of milestones and contingent or variable consideration earned during a period. Together, biopharma and collaborations represents our biopharma strategic agreements. I will now turn the call over to Bonnie Anderson, Veracyte's Chairman and CEO. Thanks, Keith, and thanks everyone for joining us today as we discuss our 2019 Q4 and full year results and provide you with our outlook for 2020. Veracyte had an exceptional and transformational year in 2019. We drove impressive revenue and genomic test volume growth, advanced our first of its kind non invasive nasal swab test for early lung cancer detection and made a strategic acquisition that positions us for global expansion on our own world class distributed platform and has added 2 new oncology indications to our portfolio. We have tremendous momentum entering 2020. This afternoon, we reported total revenue in and genomic test volume growth that grew to nearly 40,000 an increase of 25% over the prior year. Our net cash used in operations was $3,200,000 for 2019 and I am delighted to report that in the Q4 as predicted, we achieved positive cash flow from operations of $1,800,000 a milestone achieved by few companies in our space. We are guiding 2020 total revenue in the range of 138 $8,000,000 to $142,000,000 for the full year. Excluding biopharma and collaboration revenue, which approximately $4,000,000 plus or minus $1,000,000 this represents approximately 25% growth in our testing and product revenue at the midpoint of the range. We believe this revenue growth will be fueled by the increased adoption of our 4 revenue generating products. We are also guiding full year 2020 net cash used in operating activities of $8,000,000 to $12,000,000 This reflects our intention to invest strategically as we position ourselves to offer multiple advanced genomic tests to physicians and their patients internationally on our distributed platform starting in 2021. Now to our 2019 highlights. Our first metric for 2019 was revenue growth. We delivered strong growth across our testing portfolio and biopharmaceutical collaborations in 2019 and are benefiting from the layering effect of our multiple tests and sources of revenue. We continue to be pleased with the success of our multi product sales strategy. By the end of the Q4, more than 280 institutions were utilizing more than one of our genomic tests, nearly triple the number from the Q4 of 2018. We now have nearly 50 sites utilizing all three of our Afirma, Percepta and Envisia classifiers and we expect that number to grow as we expand Envisia Classifier promotion to all of our sales professionals in the second half Q2 of 2020, Including the build out of our international sales team, we expect to increase our field sales force by about 40 people in 2020. We are thrilled by the momentum of our pulmonology testing business, where we recognized over $2,000,000 in revenue for the Q4 and over $5,000,000 for the full year of 2019, more than double the full year 2018 results. We also doubled our reported lung test volume from 2018 to 2019 reporting over 3,000 Percepta and 7.50 Envisia test results for the year. We believe the success was driven in part by the introduction in June of our 2nd generation Percepta genomic sequencing classifier and by final Medicare coverage for our Envisia classifier for use in IPF diagnosis, which we announced in March of 2019. We grew Afirma test volume by over 5,500 tests for the full year 2019 and generated approximately $94,000,000 in testing revenue for the product exceeding the mid teens growth targets for both metrics. Physician adoption continues to grow for our Afirma GSC and Xpression Atlas and we expect to continue to drive further penetration into the market. We booked approximately $900,000 of product revenue in the Q4 of 2019 for the Prosigna breast cancer prognostic assay, the newest addition to our genomic portfolio, which we obtained through our transaction with NanoString in December of 2019. We expect to deliver about $7,000,000 to $8,000,000 of product revenue in 2020. And finally, we generated significant revenue in 2019 from our biopharmaceutical collaborations with Eli Lilly Loxo Oncology in thyroid cancer and with Johnson and Johnson in lung cancer. These collaborations produced over $12,000,000 in biopharma and collaboration revenue in 2019 with $11,000,000 of that received from Johnson and Johnson for achieving specific milestones in advancing our lung cancer pipeline. Our second major of success was evidence development. Here too, we delivered excellent results in 2019. In April, we published strong data in The Lancet Respiratory Medicine demonstrating both the clinical validation and clinical utility of the Envisia classifier suspected idiopathic pulmonary fibrosis get a clear diagnosis sooner. Since this publication, the number of institutions utilizing Envisia has increased more than 5 fold from approximately 35 to over 190 by the end of 2019. This published evidence is key to driving guideline inclusion and commercial payer reimbursement. The body of clinical evidence supporting Afirma testing continued to grow as well with 8 studies published in peer reviewed journals. These included 5 publications demonstrating the clinical utility and analytical validity of the Afirma genomic sequencing classifier and 3 studies supporting the Afirma expression atlas. Afirma and our pulmonary products were also showcased in 11 poster and other presentations at leading medical conferences. In addition, 11 abstracts were presented at the San Antonio Breast Cancer Symposium in December 2019, including data showing a benefit of Prosigna over other genomic tests in identifying patients' long term risk of developing distant metastases. Data were also presented showing the test's ability to identify patients with intrinsic breast cancer subtypes that may potentially benefit from CDK4 and 6 inhibitors in place of standard chemotherapy. These data offer exciting future expansion opportunities for the test positioning in global markets where these subtypes are reported in the test results. We also made terrific progress in our 3rd success metric pipeline advancement, which we believe will drive test menu expansion on the nCounter platform, a key to our international success. In December 2019, we announced our acquisition of the exclusive global diagnostic rights to the NanoString nCounterFlex analysis system along with the commercially available Prosigna breast cancer prognostic test and the in development lymphmark lymphoma subtyping test, which are intended for use on the nCounter system. We are already making great progress in transitioning the business. Our RNA whole transcriptome sequencing platform and machine learning capabilities continue to fuel our product discovery and development efforts using our comprehensive biorepository of patient consented clinical samples from across our indications. At the CHEST Annual Meeting in October, we unveiled preliminary data for our first ever non invasive nasal swab classifier for early lung cancer detection and diagnosis. Our findings showed that our novel genomic test can accurately classify lung cancer risk in patients with lung nodules found on CT scans with 95% sensitivity when it identifies a patient as low risk and with over 94% specificity when it deems the patient as high risk. So that these patients can be monitored non invasively or can obtain the prompt diagnosis and potential treatment they need. We estimate the remaining group of intermediate risk patients not classified to low or high risk can be reduced by 50% and that a bronchoscopy workup could be the appropriate next step toward diagnosis for these patients. We believe that use of our nasal swab classifier following the detection of a nodule by imaging has the potential to become a new standard for what today is a very ad hoc approach. Our nasal classifier is based on the same novel field of injury technology as our Percepta test and we believe will complement Percepta through its placement earlier in the diagnostic pathway. We look forward to advancing our machine learning algorithm and assay development of the test in 2020 and introducing the test commercially in the U. S. In early 2021 following the unveiling of clinical and analytical validation studies demonstrating its performance. We also announced a strategic collaboration with Acerta Pharma, the hematology research and development arm of AstraZeneca that will support the company's development of oncology therapeutics in lymphoma. This collaboration leverages through our NanoString transaction into additional oncology indications, including lymphoma, where we are developing novel genomic tests that leverage the genomic underpinnings of disease with the long term potential of further expanding our menu of diagnostic tests on the nCounter platform globally. And our final metric is financial discipline. We excelled here too reaching positive cash flow from cost of executing the acquisition. This reflects our continued bottom line discipline as we invest for long term top line growth. I will now turn the call over to Keith for a more detailed review of the financials and our guidance for 2020. Thank you, Bonnie. As I mentioned earlier, our Q4 and full year 2019 financial presentation is available under Events and Presentations in the Investor Relations section of our website. This afternoon, I plan to introduce our expanded revenue disclosures, speak to our Q4 and full year 2019 results and conclude with remarks regarding our 2020 guidance. As I mentioned at the outset of these prepared remarks, the table and footnotes on Slide 3, along with the details in our SEC filings, further explains how we recognize and report revenue under U. S. GAAP. For discussion purposes, we may combine testing and product revenue to describe our diagnostic testing business and biopharma and collaboration revenue to describe our strategic arrangements. Turning to Page 4 of the presentation, our performance against 6 key performance indicators or KPIs for each quarter and the full year 2019 compared to the prior year quarter and full year results are as follows. For the Q4 2019, total revenue of $29,700,000 increased $4,000,000 or 15%. Gross margin remained flat at 66%. Operating expenses, excluding cost of revenue, increased 7,700,000 dollars Net loss of $7,500,000 increased $4,400,000 and cash from operations of $1,800,000 improved 3,000,000 dollars and genomic volume increased 18%. Cash at December 31, 2019 was 159,000,000 dollars For the full year 2019, total revenue of $120,400,000 increased 28,400,000 or 31%. Gross margin increased to 70% from 64%. Operating expenses, excluding cost of revenue, increased 17,800,000 dollars Net loss of $12,600,000 declined 10,400,000 dollars Cash used in operations of $3,200,000 improved $10,300,000 and genomic volume increased 25%. The next page, Page 5, shows the revenue breakdown by quarter and for the full year 2019 against the respective prior year period. We recognized 108,000,000 dollars in testing and product revenue, which includes approximately $8,000,000 in cytopathology services and $900,000 in product revenue. We also recognized $12,000,000 in biopharma and collaboration revenue. We had another year of key events that positively impacted our quarterly results. In Q1 2019, we announced that Afirma GSE became a covered service for nearly 9,400,000 TRICARE members. We also recognized $4,100,000 in biopharma and collaboration revenue. In Q2 2019, we launched the 2nd generation Percepta classifier and our final Medicare coverage policy for Envisia became effective, accelerating lung volume for the remainder of the year. We also recognized $3,500,000 in biopharma and collaboration revenue. In Q3 2019, we announced new data for our nasal swab classifier for early lung cancer detection, which we believe will be pivotal to scaling our business and expanding to global markets. We also recognized 4,300,000 dollars in biopharma and collaboration revenue. In Q4 2019, we announced that we acquired exclusive global diagnostic license to the nCounterFlex system, which we believe enables global market access with our distributed platform, which we believe is a key to global success. We recognized $900,000 in product revenue principally for test, shipped post closing and prior to year end. We did not recognize a material amount of biopharma and collaboration revenue in this quarter. In all four quarters in 2019, we accrued on average between $2,800 $2,900 for the Afirma Genomic Classifier test, including expression Alice that met our revenue recognition standard, which was between 90% 95% of the reported Afirma Classifier test volume. The next six pages outline the sequential and year over year results underlying each of our KPIs. A few observations. 1st, turning to Page 6, new product launches and strategic partnerships resulted in acceleration in revenue. Our full year 20 19 revenue of $120,000,000 grew by $28,000,000 or 31% over the prior year. As shown in the bottom right of Slide 6, genomic volume for our testing business accelerated from 12% growth in 2017 to 22% in 2018 and 25% in 2019. Page 7 highlights the year over year and sequential growth trends of our testing business. Page 8 highlights our improvement in gross margins with and without biopharma and collaboration revenue. We continue to benefit from scaling our operations, offset by lung volume not at full scale reimbursement, which is a strategic focus of ours over the next 24 months. Turning to Page 9. During the 1st 3 quarters of 2019, we invested principally in revenue generating activities. In the Q4, we closed the NanoString acquisition and incurred approximately $1,600,000 in transaction expenses, dollars 400,000 in Prosigna operating expenses and $300,000 in incremental intangible asset amortization, resulting in a $2,300,000 increase to our operating expenses in the quarter, of which we paid $1,900,000 in cash, which lowered our cash flow from operations from $3,700,000 to $1,800,000 for the quarter. We made approximately 40 sales hires in the 4th quarter, including product sales hires made as part of the acquisition. Turning to Page 12 and our 2020 guidance, as Bonnie stated earlier in her remarks, we are guiding to total revenue of 138 to $142,000,000 and net cash used in operating activities of $8,000,000 to 12,000,000 dollars This reflects our plan to make modest strategic investments over the next couple of years to support the global launch of our lung products. Some additional color on 2020. We expect the following: testing revenue, excluding cytopathology, to grow from approximately $100,000,000 to $120,000,000 cytopathology revenue of approximately 8,000,000 dollars plus or minus $500,000 product revenue of approximately $7,000,000 to 9,000,000 dollars biopharma and collaboration revenue of $4,000,000 plus or minus 1,000,000 dollars The quarterly pacing of biopharma and collaboration revenue is not certain at this time, nor is the accounting experience in genomic volume for our testing business shown on Slide 7, we expect to continue to see seasonal trends across the business with a slower first quarter, an increase in the 2nd quarter, relatively flat volumes from Q2 to Q3 and a step up in Q4. We expect margins to be stable within the 64% to 66% range, excluding the impact of biopharma and collaboration revenue. We expect to increase our investment in sales and marketing to $17,000,000 to $19,000,000 per quarter and our combined R and D and G and A spend to stay within $1,000,000 band around the quarterly average spend of approximately $13,000,000 I will now turn the call back over to Bonnie to discuss our strategic and milestones for 2020. Thanks, Keith. Looking ahead, we believe we are forging an exciting pathway that will help redefine the genomic diagnostic industry, one in which using our own distributed platform, we can deliver an expansive menu of advanced genomic tests to physicians and our patients worldwide via local hospitals and laboratories. Until now, this capability has largely been the purview of specialty labs, putting novel genomic tests like ours out of the reach of many patients in international markets. Our strategic acquisition of the nCounter Global Diagnostic Business has positioned us to achieve this vision. Now we must invest wisely to turn our vision into reality. First, we plan to launch our Envisia classifier on the nCounter platform in international markets in 2021, marking the beginning of our menu expansion strategy. Following this in 2022, we will be the international launch of our non invasive nasal swab test for early lung cancer detection, which will help us further access the $40,000,000,000 global market opportunity for our tests. These initiatives will be key to us delivering shareholder value from our desired 25% compound annual growth rate over the next decade. Against this backdrop and with our strong momentum as we move into 2020, I want to highlight the key catalysts that we believe will drive our momentum through 2021. Turning to page 13 of Keith's presentation, these catalysts fall into 4 key areas of focus: product and testing revenue growth, collaboration revenue, evidence development and pipeline advancement and menu expansion. First is product and testing revenue, which is reflected in our full year 2020 total revenue guidance of $138,000,000 to $142,000,000 We aim to continue our steady volume growth for the Afirma GSC and Xpression Atlas and to double our pulmonology genomic test volume in 2020. Looking ahead to 2021, we will focus on guideline inclusion and commercial coverage decisions for our pulmonology products. 2nd is collaboration revenue. As Keith mentioned, we expect to generate about $4,000,000 in 2020 from biopharma and Acerta Pharma AstraZeneca in lymphoma. And Acerta Pharma AstraZeneca in lymphoma. We expect to achieve milestone related revenue from Johnson and Johnson in 2021 tied to commercialization milestones for our nasal swab classifier. 3rd is evidence development. We plan to continue to adding to our extensive library of clinical evidence in 2020 with the presentation and publication of new data further demonstrating the performance and utility of our Envisia Percepta and Prosigna tests. In 2021, we expect to unveil pivotal clinical validation data for a non invasive nasal swab classifier in lung cancer prior to launching the product in the U. S. And to share data for Envisia classifier on the nCounter platform prior to its commercial introduction internationally. And our 4th area of focus is pipeline advancement and test menu expansion. In 2020, we expect to add enhancements to our Afirma XA based on new genomic variants of importance in thyroid cancer. We plan to reveal data from the progress of our nasal swab test in lung cancer and to initiate our noble clinical trial through which we plan to build a comprehensive lung cancer biorepository that will help us use nasal blood and imaging data to potentially answer a range of clinical questions in lung cancer over time. We also look forward to advancing our LymphMark lymphoma subtyping test. These activities will all crescendo in 2021 with 3 product launches. Our nasal swab test in the U. S, Envisia ENCOUNTER International launch and the introduction of Percepta Atlas to inform treatment decisions in lung cancer at the time of diagnosis, a strategic move to streamline getting patients on treatments quicker to save lives. We are certainly excited about 2020 beyond. Wrapping up, I'd like to give a big shout out to all of Veracyte's employees, including our new very high caliber global team members. Our team's industry leading expertise, passion and focus on execution are the keys to our continued success and personally a source of inspiration for me every day. And finally, I'd like to thank you, our investors for your continued support of Veracyte and our mission. And now I'd like to ask Jeff to open the call up for questions. Thank you. We have one question from the line of Thomas Flaten. Sir, your line is now open. Thanks for taking my question. Congrats on the quarter guys. Thanks, Tom. A couple of questions. Let me start at the back of the presentation. So for the nasal swab test, are you going to be able to provide us with maybe some more granular guidance on timing? Is it earlier in the year, second half of the year? Yes. I think as the year goes on, we'll probably tighten that down. But we've been targeting to hit a launch of the first nasal swab test in the U. S. Market and what we've said early 2021. So maybe you can plan on that in the first half of the year. Great. And then there was a mention of the 40 hires on the commercial side. How many of those came from the NanoString acquisition? And could you comment on their distribution U. S. Versus global? We hired under 20 people in the NanoString acquisition. And go ahead, do you want to you should go ahead, Joe. Go ahead. So I'd say there's 12, 13 of those people are international. And there's 3 or 4 of those in non sales roles of the 20, the rest of them are revenue producing. Yes, Tom, part of the enthusiasm we have for readiness to launch new products into the European market is the strong team that came on board. It's a mix of 5 country manager level people who sort of manage the overall business in the territory sales, medical affairs and marketing. And so there is a great base and a foundation there as we think about moving Envisia over to the end counter and doing the market development work that we'll want to do in 2020 and into 2021 to prepare for that launch of that product that year. And we're really pleased that they all were able to join us in the acquisition. Great. And then just one more quick question if I might. On the Prosigna, the 900,000 that you booked in the Q4, I think you mentioned that was all Prosigna test related. And then if that's the case, that annualizes at a number substantially higher than the $7,000,000 to $8,000,000 you guided to. Could you provide some thoughts on that? Yes. I think you so it will take some time, but the cadence of this business will certainly be a little bit different than what the cadence of our current business is, where we basically have samples that are collected on the basis of patients hundreds of doctors sending us samples every day. This business is more geared towards shipments that go into laboratories that might buy a month, 2 months, even 4, 6 months worth of inventory until they place their next order. So I think as we were coming into December, there were probably some prior to the end of the year shipment stockings that did take place. And we were happy to take that 900 ks of revenue. But we don't think that that means that that revenue is going to be consistent on a monthly basis going forward. And I think for us we're we've reduced the size of the team. We've made some decisions on distribution channels that we're changing. We're obviously new owners of the business and we want to be prudent and conservative on what we believe is realistic as we carry that business forward. And we'll learn more and be able to update you as the year goes on. That's great. Thanks guys. Appreciate it. Thanks Tom. Thank you. Thank you. Next question from the line of Sung Ji Nam of BTIG. Sir, your line is now open. Hi, thanks for taking the questions. I apologize for the background noise here. Congratulations, first of all, on a fantastic year. My first question actually on behalf of an investor who is wondering when will you be in a position to submit for the nasal swab test? When will you be in a position to submit to the Medicare for reimbursement? And when do you expect to generate revenue from the test given that the data will be coming out or would be pivotal data is expected in 2021, if you could talk about that? I think the best way to guide people's thinking around this is to look at the timing that has taken us on our historical products. We'd love to say that you can be lined up to do the pivotal validation, launch the test on the back of that, but we all know that to get to Medicare coverage, you've got to have some basis of clinical utility that's proven once the test is available to patients. So what we'll be focused on is managing a very strategic launch of the product into the right accounts with good experienced users, perhaps those that have already been working with us with Percepta where we can continue to collect that utility data and package up all of the clinical validation, analytical validation and utility data that will need to be packaged, submitted and accepted for publication to get that Medicare coverage decision. I think we've got a team that's pretty darn good at executing on that. They've done it fairly flawlessly several times now. But it's going to take 18 months to 24 months potentially to get to that point. And it will need to line up the timing of the year around the Medicare ModDX process as well. But it will be a great starting point to do a launch and get into pilot sites where we can start to see the reality of how this test might be able to be used to guide better care around treatment patient diagnosis and treatment decisions. Great. Thank you for that. Bonnie, could I ask you a question about coronavirus? Obviously, the written notes might not be addressed. I understand that right now, I recognize that. And but could you maybe talk about your thoughts around that given just a lot of that seems to be obviously on everyone's mind right now. Maybe going back to when you had very severe flu season? And as you think about expanding internationally as well, do you know what I mean? Like what how are you kind of I know it's early. I know there are a lot of uncertainties, but could you talk about kind of what you're thinking, so we have some thoughts from you? Well, I think we're really kind of focusing in on what are the steps and timing around making this strategic acquisition become the basis of a global growth story. And we're going to take the careful steps one at a time to make sure we focus first on broad menu expansion. We think that the platform because of its incredibly sophisticated and simplistic design where you can run these tests from a cartridge with about an hour of hands on time, 2 day turnaround time, yet have a platform that has over 800 features that you can fill with genomic content. This platform is, I believe and I think we all believe a world class design product to do what we're trying to do. So we're going to take the existing test, Prosigna, LymphMark. We're going to move ours over 1 at a time very strategically. Envisia was chosen as the first test on purpose. We have experience with thought leaders that Julia and our R and D team have interacted with over the years that want to see Envisia made available in Europe and that made sense to start with that. And then it's always nice to take a test that's already been developed and proof of development on our sequencing platform and then move that to the nCounter platform. So, Coronavirus will probably run its course like many of these other things we've seen over the years. It will hit a point and probably not become the major threat it is today. I think that our planning is going to spread over the next 2, 3 years to really execute well in this menu expansion. And I don't expect that the issues of today and the coronavirus and travel is really going to have a major impact on what we're trying to do. We're not planning to be in China anytime soon. We don't currently have distribution there. And while certainly there are threats in other parts of the world, we have 1 to 2 people in each of these markets looking after the maintenance and growth of Persigna, while we focus our investments on building out this menu. So I think we have a very targeted plan and it won't happen overnight, but it's a pretty exciting pathway forward to see where we're going to be in 2, 3 years. And I'd say for our testing business, our existing testing business, we don't have as much visibility into what's happening in terms of patients visiting facilities, whether or not the fear is distributed among the population and people going to the doctor less, we generally see a slower Q1 in our U. S. Genomic testing business. So that can be down 300 to 400 samples sequentially over the Q4, for example. But it's not as we don't see a major impact from that currently, but it is obviously possible that if they were to continue with the coronavirus in the United States, that people would react and not go see their doctors, we have not forecasted that in our numbers at this point. Okay, great. And then if I could squeeze one more question for Keith. Would you be able to break out for your biopharma collaboration revenue? Obviously, it's too early to talk about pacing. But will there be a step up with the Loxo Lily collaboration this year? Or is the majority of that coming from the AstraZeneca collaboration? Thank you so much. Yes. So Bonnie, you can probably talk about We're setting continuation and stability right now in Loxo and the remainder of that is anticipated from our new collaboration. And I'll just reiterate what Bonnie said in her prepared remarks. To J and J, the $9,000,000 in remaining milestones that we have under our agreement, we do not have any of that in our forecast for 2020. We have that lined up with the achievement of milestones that Bonnie laid out for 2021. Thank you. Next question from the line of Brian Weinstein from William Blair. Sir, your line is now open. Hey, guys. Thanks for taking the questions. As it relates to 2020, can you help us out with a little bit of detail on your expectations on the molecular testing side, just more specifically on price versus volume that you expect there? And is it corollary to that? You're adding over it sounds like just over 20 reps to the field on this side of the business. So why couldn't this growth be higher than what we've seen in the past? I know 20% is certainly very, very solid, but with the added reps there, is it possible that that number could be a little bit better? Sure. Yes, it is obviously possible. We don't guide to the street exactly what we're going to pay John Hannah for, but we're definitely pressing our commercial organization, and we hope to deliver on what we say we're going to do. In terms of genomic volume, we'd expect to do implied in our revenue guidance here of $120,000,000 for testing, excluding cytopathology, about 48,000 tests and that would be around $2,500 for that 48,000 tests and that gets you to $120,000,000 Probably do an incremental $5,000 in a perm. Again, I'm not giving guidance. I'm just trying to help you sort of think through the math of how you build your models. So it's 41 about 41,000 tests in Afirma. Our lung products will do probably a combined 7,000. And on Afirma, the 41,000 genomic volume, it's probably about 2,650 net of how much we accrue. So we accrue between 28,200 and 2,900 and we accrue about 90% to 95% of those. So the math of that is around $26.50 and that rate has been consistent throughout the whole year. So I'd say it's $41,000 times $2,650 gets you to about $108,000,000 $109,000,000 in revenue for Afirma. Our lung, about 7,000 tests at about 1600. That's up a couple of $100 versus prior year and that gets you about $11,000,000 in revenue, over $5,000,000 So you take, call it, dollars 109,000,000 plus $11,000,000 you get to $120,000,000 in revenue for the molecular side. And in terms of the pacing, I would expect that we do somewhere in the sort of 10,300 tests in the Q1, somewhere in that area. And then we'd step up as we do in the second quarter and then a small step up, maybe 500 tests from Q2 to Q3 over the Q2 number and then we have a step up in Q4 to get to the 41,000 tests. All right. Thank you for all that. Okay. And Bonnie, one for you, just talking about like the strategic value of the partnerships here, can you just refresh us on that strategic value? What they're really adding for you today and in the future? And then what's the likelihood of you guys doing additional signing additional strategic partnerships in 2020? Do you have a pretty full pipeline of things that are relatively close? Obviously, you wouldn't put them in guidance because they're not signed, but is that something that we should be expecting to hear more about from you in 2020? So there are a couple of things. I think first, we never wanted to build the nucleus of our growth story in the foundational core of the business around pharmaceutical collaborations, because they can come and go, right? So what we focused on was really building out our engines, especially our R and D engines capabilities in machine learning. And what we've learned over the course of the last couple of years is that when we have a leading position commercially in an indication and we have the foundational biorepositories, the richest data you can collect and all of that data generated from thousands of patient samples that we're testing in our lab, there are opportunities to leverage that position and create more value for Veracyte out of what we're already doing or what we've already done. So I think what is really cool about our collaborations to date is that we are getting paid for value that we have either already generated or that we would have been generating anyway. And we're just getting paid and building more value in Veracyte because that data and information is valuable to someone else. I think with the move to take this nCounter platform and think about globalizing the local distribution of testing, what happens is we open up a new avenue for collaborations with companies that want to be able to pick partners where testing for either clinical trial enrollment or for other purposes can be done in local markets around the world. And I do think that we are set up quite nicely to be able to continue to expand these collaborations. And our first focus will be on indications that we're already in as a business. So we've done that with thyroid cancer. We've now done that in the area of lymphoma. We've done it in lung cancer in a big way with J and J. I think we have the potential to expand those collaborations, but certainly have the potential to bring on more as well. Great. Thank you, guys. Thank you. And I just want to go back. And Brian, one of the things we've talked about in the past is our intangible. We've always we did the Allegro deal. We had about $14,000,000 intangible. And when we did the deal now, with NanoString, we had about $65,000,000 I think as everybody is thinking about our amortization going forward, that number is going to be about $5,000,000 a year. So we're going to have an incremental $4,000,000 of non cash charges associated with that. So again, it's going from $1,000,000 to $5,000,000 per year around the intangibles. Great. Next question from the line of Paul Knight of Janney. Sir, your line is now open. Hi, Bonnie. On the 7,000 tests you're guiding to on the lung, is can you give us any color on IPF versus Percepta on which kind of getting into the strength behind each? Yes. We think both. They're both doing really well. John, maybe you want to talk a little bit about how those 2 are working together commercially? Yes. Thanks, Bonnie. I think we've really unlocked a synergy here between 2 pulmonary products where we have really a common call point within the institution. And between our territory specialists, our pulmonary specialists, we're able to drive a significant amount of adoption among those products within a single institution that are treating both patients with pulmonary nodules and interstitial lung disease. And as we talked about earlier, we've really ramped up here over the course of 2019, the number of sites submitting Envisia samples to be fivefold what it was at the beginning of the year due to that synergy where we already had the installed base of the Percepta product being utilized in those institutions. We had approval through the value analysis committee to be offering our testing services. And so we're able to bring Envisia straight in and provide immediate value in terms of the management of patients in those practices. So we see both of the products growing really nicely throughout 20 20 and a doubling of the overall pulmonary volume. Okay. Thanks, John. Yes. With Envisi, it just seemed like there was less embedded doctor practice. Are you finding that market more accepting of the test than perhaps lung cancer? Go ahead. No. We think the interest and adoption of the product is consistent across both. And I think what you see in lung cancer is the diagnosis of the disease is relatively concentrated in few pulmonologists that do bronchoscopy procedure, whereas with interstitial lung disease, general pulmonologists, pulmonologists that don't do advanced bronchoscopy procedures still treat and manage interstitial lung disease. So, it's a broader number of clinicians within that practice that are treating the disease, but still the commonality within a pulmonary practice of doing both lung cancer and ILD is pretty common everywhere we go. Okay. Thank you. Thank you. Thank you. Next question from the line of Puneet Souda of SVB Leerink. Sir, your line is now open. Hi. This is actually Wesley on for Puneet. Thanks for taking my questions. Most of what I've had has been asked, but I wanted to follow back up on the genomic volume growth cadence throughout the year. I know in 2019, we still posted a solid or very good 25% growth for the year, but saw some sequential step downs in growth throughout the year. Just wondering the kind of the puts and takes between or that you experienced throughout the year and how we can expect this to play out heading into 2020. Wes, great question. We 2018, you almost have to go back and you look at 2019 and look at what happened in 2018 because you're comparing you guys were ramping these kind of things. You have to recall, we only had essentially one test in the Q1 of 'eighteen. And so by the time we get to sort of the second, Q3 of 'nineteen, it became significant comparative quarters because we had a lot of ramp in the half of twenty eighteen. And so even though it appears to be, it looks like it's coming down in terms of the percentage, The numbers are going up dramatically. And so what we've seen is just around 5,000 incremental tests in Afirma. So what I was trying to build to you for you earlier is we'll probably go about 5,200 tests, up to about 41,000 this year It'll probably start around 10,000 probably 9,000 in the Q1, about 10, 10.5, 11.5 kind of thing for Afirma throughout the year to get you to 41,000 and our long haul sort of start out at 1300, got the 16, 19, 2,200 kind of thing throughout the year sort of pace up. And so you just those percentages just work out how they fall out. But what we're really trying to figure out is how do you build Afirma at 5,000 plus a year, you keep the rate at 2,650, we're building lung volume at 80% growth implied at 7,000 lung test incremental this year over last year is an 80% growth in volume. And if we can take the rate up 200 percent and then Julia and the team are working on the publications and the coverage with John, what will happen is you'll install a big base. And as you get Aetna, United, Cigna and Blues, our revenue we're leaving half our revenue on the table on those products, right? So there's I understand from people's point of view that they feel like that's not maybe growing fast enough, But the volume you want to embed and see that in the market and then a revenue tailwind will happen just like what we saw on Afirma. So we're pretty happy with it. Yes. I think just looking at the numbers in Chief Stack, the first quarter genomic volume of 9,100 going to 96, 99, and 10.8, that's exactly the kind of layering effect. And in 2018, it was the year that we introduced the GSC for Afirma. And then a couple of months after the year started the Xpression Atlas. So the beginning part of that year was pretty low performance to compared to in early 2019. And because of those new product introductions, we had an acceleration of that in 2018 and then with the new lung products coming off. So we're actually very pleased. I think we've been talking about an Affirma cadence of 5,000 additional tests a year. We delivered 5,500 in 'nineteen. So we've been very pleased with the product with its time on the marketplace having that level of continued growth is really, really great. Great. Thank you. And then just one more quick one on the physician base. Can you just provide a little color on whether you've been seeing more growth from existing physicians or from new physicians? And how do you expect that to play out with the sales force expansion? Yes. John? Yes. I think are you referring to Afirma or to the pulmonary products? Yes. For Afirma, sorry. Yes. For Afirma, it's a mix of both. As Julia and the R and D team and our clinical affairs team continue to publish evidence around Afirma and demonstrate its efficacy in new areas like, hurtle cell nodules, the value of our Xpression Atlas assay to provide insights on both surgical selection as well as targeted therapies. We see greater adoption within existing accounts of the product for additional patients that they previously perhaps didn't test with the assay. And then we have, through the demonstration of the value of the extension of the product, picked up new accounts along the way that, for whatever reason, perhaps didn't use Afirma in the past, used a local homegrown solution and then decided to switch over to the Afirma assay. And so we're having a lot of success in both areas in a very targeted way. Great. Thank you very much. Thanks, Ross. Thank you. And for the last question I already asked mine. I'm good. Okay. Yes. Thanks, Brian. I thought you were coming in for another take. Thank you. And there are no further questions at this time. Please continue. You can now conclude the call. Thank you, everyone. Ladies and gentlemen, this concludes our call today. Thank you for joining us. You may now disconnect.