Earnings Call: Q2 2019

Jul 30, 2019

Good afternoon, ladies and gentlemen, and welcome to Veracyte's 2nd Quarter 2019 Financial Results Conference Call. As a reminder, today's conference call is being recorded. I would now like to turn the conference over to Angie McCabe, Veracyte's Vice President, Investor Relations and Corporate Communications. You may begin. Thank you, Dawn. Good afternoon, everyone, and thanks for joining us today for a discussion of our Q2 2019 financial results. With me today are Bonnie Anderson, Veracyte's Chairman and Chief Executive Officer and Keith Kennedy, our Chief Operating Officer and Chief Financial 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 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 July 30, 2019 press release and the risk factors included in the company's filings with the SEC for a 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 Q2 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 Keith will reference during his remarks. The presentation is also available on our website under Events and Presentations in the Investor Relations section of our website. I will now turn the call over to Bonnie Anderson, Veracyte's Chairman and CEO. Thank you, Angie, and thanks everyone for joining us today for our Q2 2019 earnings call. We had another terrific quarter in which we continued our strong momentum and delivered exceptional results across the business. We generated record revenue of $30,100,000 an increase of 32% and genomic test volume of 9,663 tests, an increase of 26% over the Q2 of last year. In tandem with this growth, we improved our net cash used in operating activities to $2,500,000 an improvement of 21% over prior year. Based on these results, which exceeded our expectations and our increased visibility into the rest of the year, we are raising our full year 2019 revenue guidance to a range of $119,000,000 to 100 and $22,000,000 We are also improving our outlook for net cash used in operating activities to a range of $2,000,000 to $4,000,000 for the full year and remain on track to reach operating cash flow breakeven before the end of 2019. I will now provide updates on the key metrics we are using to measure our success in 2019. The first is revenue growth. Starting with pulmonology and specifically with idiopathic pulmonary fibrosis or IPF, Medicare coverage for Envisia genomic classifier went into effect in the Q2 and we began to ramp commercial expansion. We increased Envisia test volume as well as the number of institutions ordering the test by more than 100% sequentially from the Q1 of 2019 to 130 tests and 76 sites respectively. And Envisia test volume represented approximately 15% of our total pulmonary product volume in the quarter. We remain on track to report Envisia test volume of 500 to 1,000 tests for the year. In lung cancer, we achieved over $1,000,000 in revenue for our Percepta classifier in the 2nd quarter, which is nearly 160% increase over the prior year's quarter and a significant achievement. This pairs with other exciting news in the quarter, the commercial launch of our Percepta Genomic Sequencing Classifier or GSC, which was developed using our RNA whole transcriptome sequencing platform. Now in addition to down classifying patients with inconclusive bronchoscopies to low risk, so they may avoid unnecessary invasive procedures with a slightly higher sensitivity than the original test, this next generation test up classifies patients to high risk to help guide next intervention steps, providing expanded clinical utility that aligns with current guideline recommendations. Adoption of our Percepta classifier is going really well. Test volume in the second quarter increased 142% from the prior year's quarter to 744 reported results and in only 6 weeks after its launch, we have already converted over 80% of our Percepta orders to the Percepta GSC. Additionally, biopharma services revenue of $3,500,000 in the quarter was primarily the result of achieving key milestones related to the launch of the Percepta GSC through our collaboration with J and J. Our Afirma business also delivered a strong quarter where a wealth of positive clinical performance data helped further drive robust adoption of the Afirma genomic sequencing classifier. The Afirma GSC volume was 8,789 test for the Q2 and 19% increase over last year. We also experienced significant growth year over year in Xpression Atlas orders for thyroid cases deemed suspicious for cancer by the Afirma GSC. This increase was driven by physicians growing interest in using gene alteration data to tailor surgery and treatment decisions for their patients using information we can provide from the same minimally invasive fine needle aspiration sample and at the same time as diagnosis. Our continued strong revenue growth reinforces the power of our integrated sales strategy through which our sales reps are leveraging common stakeholder relationships to drive adoption of multiple products in institutional accounts rather than us building a dedicated team for each product. For example, from the 1st to the second quarter of this year, the number of sites using our 2 lung products, the Percepta and Envisia classifiers more than doubled and the number of sites using all three products nearly tripled. We believe the sufficient highly effective approach is key to achieving long term profitable growth. I'll now turn to our 2nd metric of success, evidence development, where we made meaningful progress during the Q2. This includes the 3rd recent publication of an independent clinical utility study showing that use of the next generation Afirma GSC significantly reduced the number of surgeries among patients with indeterminate thyroid nodules. In this case by 2 thirds at the Ohio State University compared to the original Afirma test. Additionally, data presented at ASCO showed the potential of the Afirma expression atlas to guide targeted treatment selection for patients with medullary siren cancer or MTC, a rare but aggressive form of siren cancer from the same fine needle aspiration sample used in diagnosis. In the MTC cases, the Afirma XA was highly effective in identifying gene mutations that are the focus of new targeted therapies under development. In fact, positive clinical trial data for 2 treatments targeting the RET fusions in MTC were already were also presented at ASCO. The role of Afirma testing in helping physicians overcome a range of challenges in the diagnosis and treatment of fibrin cancer also appears on the June cover of the highly regarded journal Cancer Cytopathology, which is a publication of the American Cancer Society. In lung cancer, we unveiled clinical validation data for the Percepta GSC during the American Thoracic Society meeting in May showing the next generation's test ability to down classify lung nodule patients to low risk of cancer while up classifying patients to high risk with strong performance results that are consistent with guideline recommendations for next steps. And finally, the adoption of the Avinzia classifier is being fueled by the publication of positive clinical validation and clinical utility data in the Lancet Respiratory Medicine in early April. The findings demonstrate that the test helps physicians distinguish idiopathic pulmonary fibrosis or IPF from other interstitial lung diseases without the need for surgery and that when paired with high resolution CT results in patient clinical history, the test provided physicians with a higher level of confidence in making an IPF diagnosis. The extensive rigorous clinical evidence that we continue to build to support our test validity and utility is driving our success across all three clinical indications and is further establishing our scientific and medical leadership. Our 3rd metric of success is pipeline advancement where we also made solid progress during the quarter. With the launch of the Percepta GSC on our RNA whole transcriptome sequencing platform, we are now in a position to advance our pipeline to inform treatment decisions concurrent with diagnosis in lung cancer, addressing additional questions across the clinical care continuum just as we have done with the Afirma expression atlas in thyroid cancer. We are also advancing our pipeline to address unmet needs earlier in the clinical care continuum in the fight against lung cancer. Specifically, we are excited about our progress in developing the first genomic test to detect lung cancer in non invasive samples collected from the nose. Our nasal swab test will utilize the same proven field of injury science that powers our Percepta GSC whereby lung cancer can be detected in current and former smokers by evaluating genomic changes in the epithelial cells lining the respiratory system. We believe our nasal swab test that is in development has the potential to significantly improve the early detection of lung cancer, which in 2018 was estimated to kill approximately 1,800,000 people globally. Our development efforts are facilitated by our collaboration with J and J through the combination of our robust biorepository of patient consented well curated clinical cohorts as well as their medical and clinical expertise in the early detection of lung cancer. We look forward to sharing early data for our nasal swab test along with our plans for positioning the test in the clinical pathway of care before the end of this year. Our 4th measure of success is financial discipline. Here too, our team has continued to excel. Our net cash used in operating activities for the Q2 of 2019 was $2,500,000 a 21% improvement over the Q2 of last year. Through our continued strategic investment in activities that fuel the business, along with our careful spending, we remain on track to achieve operating cash flow breakeven before the end of this year, an accomplishment that very few in the genomic diagnostics field have attained. More importantly, our goal is to achieve long term profitable growth. Finally, we continue to strengthen our leadership team and we're thrilled to name Keith Kennedy as our Chief Operating Officer in addition to his current role as Chief Financial Officer. Together with Doctor. Julia Kennedy, our Chief Scientific and Medical Officer and John Hanna, our Chief Commercial Officer, we have a top tier executive team that is prepared to lead us in the next phase of growth. We also announced 2 key hires during the Q2. First, Doctor. Sangeetha Baradi joined Veracyte as our new Medical Director for pulmonology. She was previously a Professor of Medicine and the Medical Director for the Lung Transplant Program at Northwestern University's Feinberg School of Medicine. Also Doctor. Freddie Bowie joined us as Vice President of Corporate and Business Development, bringing significant experience most recently at Foundation Medicine. Lastly, I'm thrilled that in June Veracyte was awarded a San Francisco Bay Area Top Workplace 2019 Honor for the 6th consecutive year. This recognition reflects the dedication of and contributions by our more than 300 employees who come to work each and every day with a focus on making a real difference in the lives of patients and are key, a key driver of our success. I will now turn the call over to Keith to go over our financial results for the Q2 of 2019. Thank you, Bonnie. As Angie mentioned earlier, our Q2 2019 financial presentation is available under Events and Presentations in the Investor Relations section of our website. Turning to Page 3 of our financial presentation. Our performance against 6 financial key performance indicators or KPIs for the Q2 of 2019 as compared with the prior year's quarter, including select highlights for each metric at the bottom of the page are as follows. Revenue of $30,100,000 increased 32%. Excluding $3,500,000 of biopharmaceutical services, revenue of $26,700,000 increased 20%. Genomic volume of 9,663 reported tests increased 26%. Gross margin of 71% increased 700 basis points. Excluding biopharma services, gross margins increased 400 basis points from 63% to 67%. Operating expenses, excluding cost of revenue, increased 20%. Net loss of $2,500,000 improved 60%. Net cash used in operating activities of $2,500,000 improved 21 percent. And at June 30, we had cash and cash equivalents of 193,000,000 dollars Turning to Page 4 of the presentation, our performance against these 6 KPIs for the year to date period ended June 30, 2019 compared to the same prior year period show strong comparable performance. The next six pages outline the sequential and year over year results underlying each of the 6 financial KPIs. A few observations. As illustrated by the revenue and genomic volume trends on Slides 56, we continue to see positive momentum across the business. Our lung portfolio represented approximately 875 tests or 9% of our genomic volume this quarter. Turning to Page 12 and our 2019 guidance. As Bonnie stated earlier in her remarks, we are increasing our revenue guidance to a range of 119,000,000 dollars to $122,000,000 At the midpoint of the range, this represents a 31% increase over last year. We are tightening the range of our previous guidance for annual net cash used in operating activities to $2,000,000 to $4,000,000 At the midpoint of the range, this represents a 78% improvement over last year. Generating positive operating cash flow remains a key goal for us and we expect to achieve operating cash flow breakeven before the end of this year. Our loss from operations in the second quarter was $3,100,000 which included $3,500,000 of depreciation, amortization and stock based compensation expense. To add some color on our outlook for 2019, we expect the following. Our revenue and operating cash flow guidance includes $10,000,000 in service revenue, dollars 9,000,000 from J and J and $1,000,000 from Loxo Oncology. We expect gross margins, excluding the impact of biopharma services revenue to be within the 65% to 67% range and up from our previous expectations of 64% to 66%. We expect our average quarterly spend for sales and marketing stay within $1,000,000 band around the average quarterly spend of $13,000,000 and our average quarterly spend for our combined G and A and R and D spend to stay within $1,000,000 band around the combined average quarterly spend of $10,500,000 I will now turn the call back over to Bonnie. Thanks, Keith. In summary, we had a terrific quarter in which we continued to execute, driving revenue and genomic test volume growth across the business. Our first to market Medicare covered genomic classifiers and biopharma collaborations are contributing to strong revenue growth and our multi product sales strategy is enabling us to drive this growth cost effectively. We also advanced our pipeline launching our next generation Percepta classifier in lung cancer while progressing our nasal swab program for early lung cancer detection. Our world class scientific capability and technology are positioning us to answer additional clinical questions along the clinical care continuum and our recent capital raise gives us strategic flexibility as we make the promise precision medicine a reality for patients. I would now like to ask the operator to open the call up for questions. Your first question comes from Sung Ji Nam from BTIG. Your line is open. Sung Ji? Sorry, I was on mute. I apologize. Thanks for taking the questions. Maybe starting out with Envisia, I'd love to hear any feedback you're getting, seeing a nice growth there initially. And then, as you look at the number of sites using both Envisia, what's the overlap between the sites that are using both tests versus using each separately? And then also curious about what your strategy is in terms of selecting sites for Envisia given that are you targeting kind of the IPF major IPF centers there or are you taking more of a kind of a broader kind of community type of settings that might benefit more from might realize the value proposition more for the test? Well, Sung Ji, thanks for joining us and thanks for that very rich question of multiple levers. We'll try to work through all those. Envisia is definitely getting off the ground very well. This test addresses such a big unmet need because other than surgery when HRCT is not confident for diagnosis, recognizing that UIP pattern, which really only happens in general 25% to 30% of the time, there is no alternative. So bringing this test to market we knew there would be high demand and high unmet need and we're very pleased to see the level of interest. We also always anticipated that we would get sort of that extra leverage in pulmonology. And in fact, if we go back to the strategic rationale of doing our Allegro acquisition when we did in 2014, it was partially the result of the fact that our next pipeline product to bring to market was also in pulmonology. So we've always seen that that synergy would be there. Nevertheless, as you also point to, there are different often clinical specialists that focus on one disease area versus the other. And so we recognize that as well. And I have to point to in fact I'm going to ask John Hannah who's here in the room with us today, our Chief Commercial Officer to speak briefly to this at the field level. But we've actually designed the structure of our sales team to include specialists and levels of people that can address these both collectively unifying the pulmonology call point but also at a specialist level as it addresses unmet needs that are slightly different and perhaps different specialists that treat IPF ILD patients versus lung cancer. John, do you want to add a little bit of color to that? Yes, I'm happy to. Thanks so much, Bonnie, and thanks for the question. We're seeing a tremendous amount of synergy at the field level inside these pulmonary practices where they're performing lung cancer diagnostic bronchoscopies, but their colleagues are also treating and managing interstitial lung disease in the practices. And so once we're within the account, we have a relationship and our specialists can expand the business beyond lung cancer into ILD. It becomes a really effective way to grow. And as Bonnie shared, we grew by over 100% quarter over quarter in the Envisia volume and a lot of that is due to the ease of us kind of getting into those practices and then expanding the use of our product portfolio across that pulmonary practice once we're there. Great. Thank you very much. Thank you. And then just one follow-up. It's nice to see that Veracyte continues to focus on operational and financial discipline. But given the recent strengthening of the balance sheet, we'd love to hear your thoughts and kind of what the cash deployment strategies or priorities are over the next, I guess, few years. Thank you. Yes. I mean, I think as a $1,400,000,000 company, we have the right level of cash on our balance sheet for the market cap of the company. Things can always come up and you want to have the strength there. And we certainly used a portion of it to pay down the debt essentially, so we're debt free. So that's all good. And I think also, we're in a really great position having executed so well across these multiple clinical indications and with a strategy that is working very well sort of not just in gaining leverage at the field level and how we're structuring and now executing on that, but also the leverage of our scientific approach, the building up of clinical cohorts, all these things that can be repeated. So we think we're in a great position if strategic options would come along. We now have the cash to take advantage of that as well. So it just positions us I think as it should in the marketplace with lots of opportunities and options that we can act on. Great. Thank you so much. Thank you very much for joining. Your next question comes from Puneet Souda from SVB Leerink. Your line is open. Yes. Hi, guys. Hi, Bonnie. Congrats on the quarter. So first, and obviously to Keith as well for having the additional new role. Now I get to ask him maybe twice the questions. I like that. If I could ask Bonnie just on in terms of the biopharma collaborations that's been a positive driver for you and then obviously put in the guide for the year as well. So I wanted to get a sense of potential leveraging of these biorepositories of lung and thyroid into more broader collaborations and sort of what efforts are you doing there and how should we think about that opportunity longer term for you? Right. Well, it's an excellent question. I think as we, maybe unlike others in the space, we did not expand into biopharmacist services specifically to drive a new segment of the business unto itself. We were very much looking at taking the indications that we're in and leveraging our assets, our capability, our position in clinical diagnostic testing and leverage that into relationships with biopharma that would bring additional value. And that value can be created as you can see in many different ways. In our Loxo collaboration, it's being driven by the fact that we are a clear market leader in the thyroid cancer testing space, the mere volume of the doctors we touch every day, the samples we bring in through our laboratory, coupled with the fact that every sample we run is run on our whole RNA transcriptome platform allows us to gain more knowledge around those fibroid cancer samples and fibrin cancer in general than anyone else out there. So their interest in targeted therapies as it relates to these rare variants that often would be more difficult to find, we were a great stopping point given the mere volume of our commercial sample repository. In the case of J and J, it was really tapping our joint interest in tackling the issue of people dying with lung cancer. Both companies focused on early detection, J and J looking at early detection and intervention therapies that can impact disease and the strong collaboration that we built through the acquisition of course and then onwards into the work we're doing with them today around their work in field of injury and how we can advance less invasive sample collection tools to address broader and broader and broader market opportunities over time. So I think the collaborations can take on different shapes and sizes, but it all comes back to us building something here at Veracyte that is another value creation lever for the business. We believe that Envisia is another opportunity as we go forward. I mean, it's very early with Envisia because we're just now getting ourselves established in the marketplace. But there's no question that there's going to be many stakeholders looking to improve the diagnosis of IPF, whether it be in early drug trials, in patient enrollment in trials or just better management of patients and prescriptions of therapy for those cases. And we are really the only company and very nicely positioned to have an impact there. And so I think as we go forward with Envisia over the next 12, 24, 36 months, we will be gaining a lot of credibility as a market leader in really changing the whole diagnostic paradigm for this disease in these patients. And we hope we can help get them diagnosed earlier, on treatments earlier and help to advance better therapies to market and it will all be win win for everybody. Great. Thanks for that. And then maybe a broader question. Now you have 3 products on the market. Just if you could share your thoughts about sort of product expansion and how you're sort of thinking about that and maybe how potentially Veracyte could look potentially like 3 to 5 years from now, anything you can share there would be helpful. Yes. Thank you, Puneet, for the question. I appreciate it. Yes, I think that our strategy we're really only 11 year old company. We were very focused for many of those years around building out a base of products now with 3 clinical classifiers. We've actually brought 5 of those products to market because 2 of them are already 2nd generation tests, but building a strong hold at the point of diagnosis of disease. We think that entry point into the marketplace is very attractive because it allows us to be working with doctors and health systems and specialists alike to improve on the diagnosis of disease. And then with technology that we're tapping, be able to answer other clinical questions, downstream clinical questions at the same time of diagnosis. So the fact that we have built all of our clinical biorepositories and all of our knowledge around the broad based disease at the stage of diagnosis, We've got patients with the disease, without the disease, suspected of having the disease, early disease, late disease, metastatic disease, you name it, that's all in our arsenal. And then combining that with the richest whole RNA transcriptome data and having the capability scientifically and machine learning and all of that pipeline development that we've had on the data side, we've been able to show that entering in the thyroid space in the diagnostic space has allowed us to answer downstream questions at the same time a diagnosis that is now impacting surgery decisions and treatment decisions for these patients. And fibrin cancer is not the poster child for targeted therapy and early decisions around treatment, but other indications that we're in are. And so we believe this strategy is really powerful and the tools that we're using allow us to do that. And so as we expand in lung cancer with our 2nd generation Percepta test, our plans there as you know are not only to move earlier with earlier detection, but also help inform aggressiveness of disease and stage and treatment decisions as well. And this is all laid out. This is not new, but it's all laid out in our value chain pipeline story that we often talk about. And with Envisia, I think the minute we brought the product to market to make a diagnostic decision, physicians immediately ask us, can we help them answer the prognostic question as well? Can we discern which patients are likely to progress faster than others because that will guide interventions and aggressiveness of interventions? All of these decisions are now really within our reach because we are sitting on a very comprehensive technology. We've built a lot of technology disciplines and we have a proven track record and a playbook to follow as we go about doing that. So I think there's a lot of you'll see a lot of these tests advance. And as you do, you'll see us move up and down the clinical care continuum and potentially change the timing of and the way that these kind of decisions are answered over the next 3 to 5 years, I think we'll be a very different company. Okay. That's very helpful, Bonnie. Thank you. Thank you. Your next question comes from Brian Weinstein from William Blair. Your line is open. Hey guys, good afternoon and thanks for taking the questions. So just we start out with something on pricing. Can you just give some directional insight into your expectation for recognized revenue per test by product and how that is how you expect that to trend through this year? And then also kind of longer term, just how those reimbursement or how the pricing is going to trend up and how we should be thinking about the pacing of that for Envisia and Percepta, if there's any kind of new thoughts on that as that continues to grow? Great. Absolutely. Thanks for joining and asking the question. Keith? Yes. Thank you, Brian. As I talked about last quarter, look at the revenue rate per reported test just at a high level. And on Afirma, our underlying guidance implies $2,700 revenue per reported test and $1300 for each Envisia and Percepta. Those are plus or minus, but those are round numbers that get you to the midpoint of that range. And I would expect that obviously, Afirma, we've completed the journey on the managed care side. We still have obviously last quarter we had TRICARE that we added. We continue to add things. But as you're already got 270,000,000 covered lives, It doesn't move the needle as much when you add 3 or 4 plans, but we are continuing to make progress on Afirma. Percepta and Envisia, we're going through the journey there. We got coverage or effective coverage, as Bonnie mentioned, on Envisia for Medicare in April 1. We've had coverage for Percepta. So we're covered on all three products on Medicare, but those commercial journeys will happen over the next couple of years as we develop clinical evidence and adoption at the facilities and physician level. Yes. We all have always believed that the evidence will drive guideline inclusion and guideline inclusion is the biggest lever at driving the rest of the commercial payer coverage. We're in a unique different position with the 2 lung programs given that those patients are roughly half Medicare and so there's a lower volume distributed amongst all of the commercial payers. So the timing of when we actually lean in on a given payer to request and work with them on coverage, you just want to make sure you have enough members using the test in those regions before you approach them because you don't want them to reach out to their provider base and not have more than one doctor aware of the test. So when it's early, that's always a little challenge. But I think we are on track to continue. We continue as we have this quarter to proliferate incredible evidence. We continue to get our evidence published in top tier journals and that will continue. And I would expect over the course of the next 12 months to 24 months we will begin to move the needle meaningfully and the coverage of Percepta and Envisia at the commercial level and that will start to march that average reimbursement price up the ladder. Our reimbursement from Medicare on Visio is a little bit higher than where the other products are. I think we've said publicly that sort of at the high end of that 3000 to 4000 range we had given. But ultimately as these tests all reach their peak in reimbursement, we'll be in a terrific position of expanded margins and a great financial story as a result. So Brian, as you're thinking through this, we have done a really nice job on the cost of revenue side. So our cost of revenue for these tests have come down around $700 and that was $800 close to $900 in the not too distant past. So when you're thinking about $1300 in revenue for these new products, there's going to be this period here where we're going on that commercial journey as we get up to the Medicare rate of $3,000 to $4,000 for these tests, where we're going to spend more on OpEx than we are in total net profitability like we have in Afirma. But we do believe that will be a defined period of time and we'll talk more and more about that as we move through the quarters and into next year's guidance. Okay, great. That was a great detailed response. Thank you for that. I don't think that you specifically said this, but kind of backing into everything else that you kind of talked about. There's no change to the expectation for the year genomic custom volume growth of 20% to 25%, correct? That's right. That's right. So that should imply somewhere between 39,000 to 40,000 tests. We have about 6 we have 2 less days in the next quarter than we had this quarter. So that's probably about 300 tests or about 4% on a sequential quarter basis. If you're looking on a days basis, but we're looking at around 10,000 to 10,500 tests a quarter, sort of average the rest of the year. Okay, great. And then last one for me. With where you guys are in your sales force right now, do you think that there's any need to expand the sales force in any way over the next kind of 6 to 12 months? Are you guys happy with where things are today? Thank you. Yes. Thanks for the question. Brian, as we've always said, I mean, we have a model that will we will continue to expand our sales team. But what we're doing is expanding the sales team in cadence with how we want to drive revenue growth to volume growth, test volume growth which will drive revenue growth with a little bit of tailwind. And then doing that at a pace where we can keep the operational spend in check. And that's actually the model and the recipe we're following to get to the positive results on cash flow. And we think it works very well. John actually has a very And we always build that in as we're building the hiring plan in a and we always build that in as we're building the hiring plan in advance of delivering the future growth. But it's a pretty home model and John's done a terrific job of leading all that. So thanks for the questions. Your next question comes from Steve Anker from Needham. Your line is open. Great. Thanks. Hi, everybody. Hi, Steve. Thanks for joining us today for your, I think, first call. Thank you. And just to start off, I was just curious if you could give us a little bit more color on the ordering trends for Xpression Atlas. It sounded like you're starting to see that populate most or even the majority of Afirma ordering? And then could you just give us some color as to with the new Percepta GSC, how would that product inform treatment? Yes, very good question. So I'll start with Xpression Atlas because whether Xpression Atlas is today that's an Afirma product because the variants that are curated and validated and reported off of the Xpression Atlas tests are all done as part of the Afirma testing portfolio. And so there some of the variants actually can drive decisions around extent of surgery. So not everything that is a variant informs a treatment of course. But now that we can inform on all of these at the same time that we're moving 70% of the patients to a benign call, We're finding that our solution is resonating with more doctors out there and that more of the patients that they are testing, they are willing to send for a firm testing because just our portfolio of answers has grown and the 2nd generation test has certain subtleties of performance improvements over certain subtypes of cells. So that's all going very well. But the Xpression Atlas was launched last May. These new products that aren't answering a very specific clinical question sort of take some time to resonate. We came off of the early meetings this year, ACE and Endo, where I think for the first time probably at ATA last year in the fall, we had the first ever focus on targeted therapies in thyroid cancer. So you have to keep in mind that this whole field is still very young in fibrin cancer because we've had the silver bullet of radioactive iodine that has been predominantly the treatment of choice. These new therapies though that are pan cancer therapies are being tested In terms of Percepta GSC and In terms of Percepta GSC and where we will head there in informing treatment decisions, it's really going to be a repeat of the strategy that was played out with Afirma. It's taking the platform that we're running the Percepta GSC on, be able to curate the targets that are interested in targeted for lung cancer therapy and see how we might be able to package our diagnosis. It's really about shortening the timeframe, eliminating the follow on procedures to get more samples and being able to do it all quickly to get the patients on the best treatment that they can get on as fast as possible. And now that where the Percepta is moved over to the next generation platform, we have the opportunity to start that journey as well. Got it. Great. And then as far as the biopharma services milestone payments from J and J, It looks like you got the Percepta milestone. What is the next milestone that you've added to guidance? What is that related to and what quarter do you expect that to hit the P and L? Our milestones were driven across 2 products, the Percepta GSC, which you might imagine are the ones that have accelerated. Given that we did accelerate that program when we announced the collaboration being a part of all of that. And then we have other milestones that relate to the advancement of the nasal test. And I believe one of those milestones I believe is what we're targeting to achieve this year. And then there will be additional milestones yet to come that will relate to the nasal program moving along. Did I hear that correctly, Keith? That was the Q3 you expected? Yes. So we expect to recognize $2,000,000 in the Q3 from J and J. We do not currently expect to recognize any revenue in the Q4, but we'll see how things develop. And we expect because these are milestone driven, this revenue in the biopharma side can be very lumpy and unpredictable. So we'll be continuing to keep our focus on the product growth areas, the growth of our key clinical products and then we'll try to give you some specifics like Keith just did on when these boluses of revenue could fall from services side. And then I would add just because you sort of knew the story, we're recognizing $250,000 in service revenue from Loxo each quarter and we will expect to recognize that in Q3 and Q4 and into next year as well. So just keeping that since we're talking about Johnson and Johnson separately, just don't leave that off the table either. Right. Understood. Understood. Okay. Yes. Thank you. Thank you very much for joining us today.