Good afternoon, ladies and gentlemen, and welcome to Veracyte's first quarter 2022 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star then one on your touch-tone telephone. If anyone should require assistance during the conference, please press star then zero to reach an operator. As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to Shayla Gorman, Veracyte's Director of Investor Relations. You may begin.
Good afternoon, everyone, and thanks for joining us today for a discussion of our first quarter 2022 financial results. With me today are Marc Stapley, Veracyte's Chief Executive Officer, Rebecca Chambers, our Chief Financial Officer, Dr. Tina Nova, President of our U.S. CLIA business, and Dr. Giulia Kennedy, Global Chief Scientific Officer and Chief Medical Officer. Veracyte issued a press release earlier this afternoon detailing our first quarter 2022 financial results. This news release, along with a business and financial presentation, is available in the investor relations section of our website at veracyte.com. Before we begin, I'd like to remind you that various statements that we may make during this call will include forward-looking statements as defined under applicable securities laws.
Forward-looking statements are subject to risks and uncertainties, and the company can give no assurance they will prove to be correct. Further, we are not under any obligation to provide further updates on our business trends or our performance during the quarter. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Veracyte files with the Securities and Exchange Commission, including Veracyte's most recent Forms 10-Q and 10-K. In addition, this call will include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures are included in today's earnings release, accessible from the IR section of Veracyte's website. I will now turn the call over to Marc Stapley, Veracyte's CEO.
Thanks, Shayla, and thanks everyone for joining us today. I am delighted to share an update on our strong first quarter results, which included revenue of $67.8 million, an increase of 85% year-over-year. We announced our new organization in January, and it is clear that this new structure is already enabling our team to execute and deliver impressive results. Veracyte's success is built upon our ability to answer important clinical questions that enable physicians to make better informed care decisions, helping patients avoid unnecessary surgeries or other interventions, and accelerating time to appropriate treatments. Our tests address 8 of the 10 leading cancers by U.S. incidence, as well as interstitial lung disease or ILDs, and have benefited over 350,000 patients to date. I recently had the privilege of speaking with one of these patients, Mr. Keith Boyle.
Keith is an idiopathic pulmonary fibrosis patient in Southern California whose story demonstrates the challenges in diagnosing ILDs, including IPF, and the important value our Envisia test provides. IPF is one of the most serious types of ILD and is often very difficult to diagnose with high-resolution CT imaging alone. This can lead to delayed diagnosis and treatment. In 2017, Mr. Boyle had a persistent cough, which led him to a medical clinic, marking the beginning of his diagnostic journey. After an initial incorrect diagnosis of pneumonia, Keith saw 5 pulmonologists and underwent additional tests and misdiagnoses over a span of 18 long months. Finally, his new pulmonologist at UCLA, an early user of Envisia, offered him our test. Keith was aware of Envisia and had been eagerly awaiting its launch, so this was welcome news.
Envisia confirmed an IPF diagnosis, giving Keith and his family the clarity they so desperately needed. I asked Keith why this clarity was so important, and he was extremely clear in his response. It not only validated his use of anti-fibrotic treatment that can be damaging in some other pulmonary conditions, but it also enabled him to join a lung transplant list, a list that he is still on to this day, hoping that at some point he will benefit from this important surgery. Keith is doing well at the moment and is enjoying extensive travel with his wife, Lorna. We wish them both well and thank them for allowing us to share Keith's story.
With patients like Mr. Boyle in mind, we were encouraged to see that an updated clinical practice guideline highlights the role of our Envisia genomic classifier in the diagnosis of IPF and other ILDs. Additionally, a review article and separate commentary on the Envisia classifier appear online in Annals ATS. All three articles are published in official publications of the American Thoracic Society and reinforce the intended clinical value of our test, which is to enable physicians to make a confident diagnosis of IPF without the need for invasive surgery. Having a confident IPF diagnosis can help patients like Keith Boyle obtain the treatment they need in a timely manner.
We look forward to continuing to engage with the pulmonology community to advance understanding of the role our test can play in patient care and to further reinforce the evidence supporting the test's ability to positively impact patient outcomes. Turning now to our first quarter results. We continue to execute well against our near and long-term corporate imperatives. Our Decipher Prostate test again outperformed our expectations as we continue to gain significant traction in a competitive market that we estimate is only about 20% penetrated.
We believe our continued growth has benefited from key publications, particularly of clinical utility data from a randomized phase III trial, which were presented at the recent ASCO GU Cancers Symposium and confirmed a key role for the test as a prognostic that can help physicians and patients make personalized treatment decisions in the intermediate risk setting. We are looking forward to the ASCO meeting in Chicago next month, where additional clinical utility data will be shared, characterizing the Decipher Prostate test usage and association with treatment decisions for men with prostate cancer in both the post-biopsy and post-surgery settings.
The findings are based on data for the Decipher Prostate Test, which were linked to the National Cancer Institute's Surveillance, Epidemiology, and End Results, or SEER program. Additionally, at the upcoming American Urological Association meeting, our KOL partners will share data that provide new insights into the genomic underpinnings of prostate and bladder cancers. These data are derived from analyses of our extensive and growing Decipher GRID database, which contains genomic profiling information from over 100,000 clinical samples used in the development and commercial use of our Decipher Prostate and Decipher Bladder tests. Turning to Afirma, our most established and highest volume diagnostic test, we were pleased with our test growth of almost 10% during the quarter and our ability to impact more patients.
We also added over 50 new accounts in Q1, further penetrating the long tail of endocrinologists who had not previously utilized Afirma. Our ongoing investments in our flagship product will ensure that we are able to continue to engage even more physicians. Moving to our lung portfolio, in addition to the new ILD guidelines, we're encouraged by early signs of recovery for our Envisia test, which saw a 27% increase in volume compared to the first quarter of 2021. In lung cancer, our team has done a tremendous job to prepare the Percepta Genomic Atlas test for launch.
Having carefully evaluated the optimal utilization of this test to address the unmet clinical needs for lung cancer patients, where time to result and precious tissue sample are key factors, and to optimize reimbursement, we have made the decision to explore novel channel opportunities for PGA that leverage its unique sample type, tissue from diagnostic bronchoscopy, directly into our preservative. This channel opportunity will take a number of quarters to evaluate, so we hope to share more about this at a later date. On the IVD side, we are looking forward to the ESMO Breast Cancer meeting this week in Berlin. Researchers there will present consensus findings from the Procure trial demonstrating European breast cancer experts' beliefs regarding the role of gene expression profiling tests, including Prosigna, to inform treatment decisions among women with early-stage breast cancer.
We also delivered very strong quarterly growth in biopharma, in tandem with further solidifying our offerings for biopharma partners, which are intended to leverage our robust multi-omics and immuno-oncology capabilities along with our extensive clinical data. At the American Association for Cancer Research, or AACR, meeting last month, we introduced our new Veracyte Biopharma Atlas, which we believe is uniquely positioned to help advance the next generation of precision medicine in oncology. This novel metastatic pan-cancer database is designed to be populated by leveraging our best-in-class assays to provide insights that help inform drug development efforts for participating companies. This template offering is modeled on bespoke programs that are already in place with major biopharma partners.
Of note, we are particularly excited by some of the novel immuno-oncology insights that we are uncovering through our biopharma and academic partnerships and look forward to revealing more in several abstracts being presented at ASCO and through other exciting publications that we anticipate in the coming months. Moving to our longer-term growth drivers, we remain very optimistic about our Percepta Nasal Swab test for patients who are facing a potential lung cancer diagnosis. As the largest cause of death among all cancers by far, lung cancer is a disease that particularly affects smokers or former smokers and one that can often be successfully treated when caught early.
While a highly sensitive imaging approach, low-dose CT, under an existing screening recommendation, is very effective at identifying patients with potentially cancerous lung nodules, physicians need a more objective, accurate tool to determine next steps for those patients. This is where nasal swab comes in. Already clinically validated, our test can be used to assess patient risk non-invasively alongside the CT imaging standard of care to help avoid unnecessary procedures for low-risk patients while accelerating time to treatment for high-risk patients.
We believe that Nasal Swab could help drive earlier identification of lung cancer among the 15 million people in the U.S. alone who are eligible for annual screening and the 1.6 million annually who present with an incidental lung nodule. We believe that the LDCT screening paradigm is here to stay given its high sensitivity, proven reduction in mortality rates, inclusion in USPSTF guidelines, and relatively low cost to the healthcare system. We encourage further screening for patients who qualify under guidelines beyond the very low 6% that we believe are currently being screened. With diagnostic tools like our Percepta Nasal Swab, we anticipate that more and more physicians and their patients will achieve greater confidence in annual screening.
We look forward to the presentation of new data at the American Thoracic Society meeting this month, which evaluate the ability of the Percepta Nasal Swab test to accurately assess lung cancer risk among current and former smokers with lung nodules, regardless of their smoking burden history. Meanwhile, I'm pleased with the progress we are making with enrolling sites for our clinical utility study and with our headway to date on our path to reimbursement. We are also making solid progress in our efforts to expand our IVD testing menu on the nCounter analysis system to fuel our global expansion for years to come.
Our IVD development and R&D teams are working closely together to launch our Envisia test as an IVD on the nCounter instrument in 2023, followed by our Decipher Prostate and Percepta Nasal Swab tests in each of the subsequent years, respectively. As we build this menu on the nCounter, we will be creating opportunities for labs in many countries to make these tests available to their patients. Meanwhile, our commercial and market access teams are working hard to pave the way for reimbursement of these tests country by country, and our scientific teams continue to build the body of evidence needed to support both reimbursement and adoption, leveraging the work that is already done for the U.S. market via our centralized CLIA lab model.
This is a perfect illustration of the flywheel effect that is enabled by our novel CLIA and IVD-based strategy. Finally, we are advancing the manufacturing transition of our IVD kits, beginning with Prosigna, to our facilities in Marseille. We are tracking ahead of our year-end goal of handling our own inventory management and global customer fulfillment. By the end of next year, we expect to be fully manufacturing the kits in France, enabling us to benefit from the end-to-end management of the supply chain for these kits. In summary, Q1 was a great quarter, marked by strong execution by our team. We're excited about our progress and where we are heading. With that, I will turn the call over to Rebecca to review our financial results for the quarter and expectations for 2022.
Thanks, Marc. As Marc mentioned, our strong first quarter performance exceeded our expectations with total revenue of $67.8 million, an increase of 85% over the prior year. We grew total volume to over 23,200 tests, a 61% increase over the same period in 2021, and a 4% increase compared to the fourth quarter of last year. We delivered over 8,800 Decipher Urology tests, which exceeded our expectations, leading in part to testing revenue of $56 million, an increase of 69% versus the prior year quarter. Testing ASP was approximately $2,650 per test, up slightly sequentially. Testing volume was approximately 21,000 tests, including close to 11,000 Afirma tests, up almost 10% year-over-year as Marc mentioned.
Due to a change in the billing code for Afirma in 2021, we have had some delays in collections that impacted ASP in the quarter. First quarter product volume was approximately 2,200 tests, resulting in revenue of $3 million, down slightly compared to Q1 2021 as volume growth was more than offset by a decline in the euro. Biopharmaceutical and other revenue equaled $8.8 million as growth in our immuno-oncology offering was bolstered by the timing of biopharma milestones and contract IVD activities. This timing impact, as well as better-than-forecasted urology cash collections, added approximately $2 million of revenue to our first quarter results. Moving to gross margin and operating expenses, I will highlight non-GAAP results, which exclude the amortization of acquired intangible assets and other acquisition-related expenses, but do include routine stock-based compensation.
We've chosen to call out select non-GAAP measures to provide useful supplemental information about the financial performance of our business and enable comparison of financial results between periods where certain items may vary independent of business performance. I encourage you to review the GAAP reconciliation of these non-GAAP measures, which can be found in today's release available on our website. Non-GAAP gross margin was 65%, a decrease of 100 basis points sequentially, driven primarily by the fourth quarter $4 million J&J nasal swab milestone. Excluding this impact, gross margin was 100 basis points higher sequentially. Testing gross margin was 69%, approximately flat sequentially, and product gross margin was 47%, higher sequentially, driven by lower start-up costs for the manufacturing transfer of our IVD kits compared to the prior quarter.
Biopharmaceutical and other gross margin was 49%, exceeding expectations given the timing of milestone and IVD development revenue, and lower sequentially due to revenue from the milestone recorded in the prior quarter. Non-GAAP operating expenses, excluding the cost of revenue, increased $2.9 million sequentially to $49.1 million, primarily driven by higher compensation-related expenses associated with annual merit increases and the timing of payroll taxes. Accordingly, sales and marketing expenses grew $1.4 million to approximately $22.5 million, and G&A expenses were up $2.6 million - $18 million. Research and development expenses declined by $1.1 million - $8.5 million, driven by the timing of clinical trial and project spend. Non-GAAP cost of revenue and operating expenses included $5.6 million of stock-based compensation.
We recorded a GAAP net loss of $14.5 million. Net cash used in operating activities was $8.9 million, and we ended the quarter with approximately $164 million of cash and cash equivalents. Turning to our 2022 guidance, we now expect revenue of $265 million-$275 million, or 21%-25% growth versus the prior year. This range, compared to our previous guidance of $260 million-$275 million, reflects our strong performance in the first quarter. For the remainder of the year, we are projecting slightly higher Q2 revenue, followed by a sequential decline in Q3 given summer holidays, before finishing 2022 with quarter-over-quarter Q4 growth. In closing, we are very pleased with our performance so far this year. We continue to have confidence in our financial position and remain focused on execution in 2022 and beyond. I will now turn the call back to Shayla.
Thank you, Rebecca. We'll now go into the Q&A section of the call. Tina Nova, President of our CLIA U.S. business, and Giulia Kennedy, Global Chief Scientific Officer and Chief Medical Officer, will join us. Operator, please open the lines.
As a reminder, to ask a question, please press Star then 1. If your question has been answered and you'd like to remove yourself from the queue, press the pound key. Our first question comes from Brian Weinstein with William Blair. Your line is open.
Hey, guys. Thanks for taking the question. Excuse me. Good afternoon. Hey, I was just hoping maybe Tina or somebody could just jump into some of the performance on Decipher, maybe get a little bit more information about, you know, what's continuing to drive that growth better than your expectations. You know, is it, you know, some sort of a utilization metric that's better? Is it deeper penetration inside of new accounts? Just any insights on Decipher would be great. Then the second question is, good to see Afirma up around 10%. That seems like that's also a little bit better than maybe you guys were thinking about there.
I think we were thinking kind of a mid, maybe mid to high single digits if things went well for kind of a growth rate for the year. The 10% is a little bit above that, above that. Can you just talk about kind of how we should be thinking about Afirma trends through the year as well? Thanks.
Sure.
Go ahead, Tina.
Sure, Brian. Thank you so much. We're very excited about the performance of Decipher, and it's just continued to improve and grow and, as you said, increase penetration into the market. For this last quarter, the sales team productivity was at an all-time high, and we've continued to bring sales reps in, as you know, and do a lot of very extensive training, and we're really making headway out in the field. The other thing is that we continue to build a lot of clinical evidence, which really makes it very nice for our sales team to go to physicians time and time again and share the new data from the studies that we have generated data from. That really makes a big difference. They really like that.
As Marc mentioned, we have an abstract coming out at ASCO soon. Just as a reminder, the market is still only 20% penetrated, so we still have a lot of room to grow in the future, which makes it a very exciting product. On the Afirma side, you're right. It was really great to see that 10%. Again, more training going on and just, you know, deeper penetration once again, and also starting to see a lift of being able to get into more hospitals. You know, January was tougher, and it got easier in February and almost back to normal by the end of March. Afirma was affected by COVID just on access more than anything else.
We're almost back to normal there, so it's great to see that increase in Afirma.
Brian, one clarification. Just, you know, so we saw a 10% volume growth, which I think is great, and our team's doing a really nice job there of getting new physicians and continuing to go after the long tail there. We did see some headwind on the ASP side that Rebecca mentioned in her comments and, you know, so we're gonna continue to focus on that. When you net it all out, you know, the revenue growth, I'd say, was roughly in line with our expectations, maybe a little bit lower, but, you know, doesn't really change our perspective for the rest of the year.
No, I think the trend that you saw this quarter, plus or minus a bit, is what we're expecting for the rest of the year. On a volume basis, I would say an expectation in the high single digits, maybe not all the way to 10. We are expecting volume in the high single digits, but that to be biased down slightly because of some of the ASP items that we're improving on a revenue basis. That more in the mid to high as you mentioned.
Okay.
Our next question comes from Matt Sykes with Goldman Sachs. Your line is open.
Hey, guys, this is Dave. How you doing?
Hi, Dave.
Any additional color you can give for a clearer idea of the contribution from HalioDx and Decipher that factored into the solid beat and raise you had?
Yeah, I'd be happy to. On Decipher, think about the organic and inorganic drivers of this business as being one. Happy to give the disclosure that you requested. Before we get there, you know, we are managing the business from a portfolio perspective and make resource decisions across the portfolio accordingly. We have a portfolio business that has different products. Each of them are in their respective portions of the life cycle. When you stack those, effectively what happens is in any given quarter, you have pluses and minuses across the board. That's exactly why, you know, the company was foreshadowing and did buy the Decipher and HalioDx assets and effectively gain the growth that they are offering here.
When it comes down to it, Decipher contributed the vast majority, not the vast majority, but the majority of growth on a year-over-year basis, just over $20 million. You can actually see the full year numbers in the 10-Q. I'm sorry, not the full year number, the total quarterly number is in the 10-Q. HalioDx was just over $7.5 million. You can parse out the bits and pieces there. This was very purposeful on our part, and the acquisitions recognize the strategy of the company and will aid us to that end, and we are pleased with their contribution in the quarter and our expectations for them going forward.
Yeah. Maybe. Thanks, Rebecca. Maybe something to add on the life cycle comment. I mean, you know, as you know, we talked about this before, that Afirma is, you know, very mature. We believe the market's over 50% penetrated by tests like Afirma. You know, so it's towards the latter part, but still growing, as you just heard, part of its life cycle. Decipher is a product that's an inflection point of its life cycle and really starting to go up that S curve and take some great share. Then we have the pulmonology portfolio and the IVD product portfolio that are much earlier stages of their life cycle. We've got pretty good coverage as a portfolio business across the various stages here.
You know, we're continuing to invest in all those different products to maximize the, you know, growth opportunity and return from them.
Great. That's helpful. Thanks. Really good to hear about the continued evidence generation for the Percepta Nasal Swab. Could you give us any additional color on the new data to be presented at ATS?
Well, we can't give any more detail than we've already provided because obviously it's gonna be presented. I don't know, Giulia, do you wanna spend any time on you know, the evidence development that we're doing and our philosophy and approach there and then, you know, what we've been able to provide so far as a teaser on ATS and how the study's going?
Sure, sure. For the Percepta Nasal Swab, I can say that, you know, the test has been clinically validated, and we continue to look at the data and provide more and more detailed information about how the test can be used in various populations. Specifically, some of the work that we're gonna be presenting at ATS is going to speak to how the Nasal Swab performs in people with varying smoking burden. I think that's an important factor in developing confidence in the test and we look forward to sharing that with you at the ATS.
Thanks, Giulia.
Our next question comes from Mason Carrico with Stephens. Your line is open.
Hey, guys. On the Percepta Nasal Swab, as we progress through 2022 and into 2023 and potentially get closer to that broader commercial launch, what are some of the incremental investments that still need to be made ahead of that launch, whether it's expanding your footprint, lab staff, sales reps, equipment, any color on how to think about that would be helpful.
Yeah. Thanks for that, Mason. Maybe I'll take a step back and just kind of talk about the long-term opportunity here. You know, I mentioned it in the remarks, but you know, nasal swab is really a first of its kind test in terms of it really is one of the. You know, it is a non-invasive test for people who are facing a potential lung cancer diagnosis. There are you know, 15 million people who should be screened in the U.S. alone, for lung cancer and you know, using a well-proven and very effective method. Then there's about 1.6 million a year of incidental findings. So that's the target market for this test.
you know, as Giulia mentioned, this test has been validated for people who have a lung nodule who are smokers or former smokers. That's the target market here. In terms of you know, the things that we need to do, we're gonna spend the time over the next couple of years continuing to build the clinical utility evidence that is needed, getting KOL support, you know, working our way towards guidelines and further evidence development, all those things. Tried and tested, well-proven paths to getting a test you know reimbursed, which clearly is the end goal here. you know, appropriately so. This test will make an incredible difference in the lives of many patients, and it'll.
It provides something extremely valuable to the physicians who are dealing with these, you know, patients themselves. You know, we wanna do this in exactly the right and thoughtful way, and that's what we're doing. In terms of actually operationalizing, I mean, as you know, because we have a broad pulmonology portfolio, we have the sales team already, and we'll add sales people as we need to. That's pretty, you know, straightforward. It's following the formula we're already deploying in and have deployed in Afirma and Decipher. The lab is, you know, primed and ready to go and again, it leverages a lot of the work that we've done for many years.
Really that's what we've got to focus on over the next, you know, period to get the test out to as many patients as possible, which is the ultimate goal.
Got it. Thank you. Maybe one more for me here. On Decipher Prostate, I'm not sure if you have this level of granularity, but is there any color you could provide on, you know, the proportion of growth from this test that's coming from maybe expanding the market, converting doctors from, you know, traditional methods to utilizing a genomic test versus taking share from competitor tests out there?
Yeah, I mean, you know, the data's actually hard to get at in terms of share, but we believe that, you know, Decipher Prostate is doing a very good job at, you know, gaining share, but also importantly, increasing the overall market. There's no question the market itself is growing in terms of the number of docs who, you know, number of urologists who are using molecular diagnostics. We think the majority are using, you know, a significant share of them are using Decipher. It's 20% penetrated, as we said. You know, if you think about, as I mentioned earlier, Afirma, which is one of the most successful molecular diagnostics launched, has gotten significant penetration. That overall market is around 50%.
If I use that as an analog, there's no reason that you know we shouldn't expect our prostate to get there and beyond, right? That's what we're working on. Yeah, I think you know it's a little bit of both, to be honest.
Got it. Thanks for that, Marc. That's it for me. Thanks, guys.
Thank you.
Thank you.
Our next question comes from Tejas Savant with Morgan Stanley. Your line is open.
Hey, guys. Good evening, and thanks for the time here. Maybe to kick things off, you know, as we think about your lung portfolio, can you just share with us, you know, how should we think about the relative contributions from Envisia versus Percepta? On the one hand, in Envisia, you now have these updated clinical practice guidelines, but there's, you know, relatively limited therapeutic options for IPF. On the other hand, you know, lung cancer screening adherence remains relatively low. As you think about the medium term here, any color you could share in the relative sizes of, you know, Envisia versus Percepta, and then, of course, eventually, Percepta Nasal Swab.
Yeah. I mean, honestly, Tejas, at this point, you know, the relative contribution from both of them in terms of revenue is relatively small because, you know, two reasons. One, they're at the early stage, and two, for the last couple of years, they were both severely impacted by COVID, given, you know, the physicians that we're targeting there and the procedures. You know, as I mentioned in the remarks, I mean, Envisia grew really nicely this quarter. So I'd say, you know, Envisia is starting to show good traction. Getting those guidelines out with so much extensive discussion around Envisia and, you know, such a significant number of respondents actually recommending the use of Envisia, I think that's a really encouraging sign for that product.
I think, you know, Envisia is gonna be a decent grower, as time goes on. You know, it's a little early to say post-COVID in terms of Percepta GSC, how that's going to perform. Of course, you know, Nasal Swab, I mean, if you think about it, that's by far the largest market that we're tackling with our pulmonology portfolio, and that's where we're putting the bulk of our investment in order to grow this entire lung portfolio.
Got it. Fair enough. Marc Stapley, I mean, just given the broader market backdrop here and the geopolitical uncertainty, et cetera, you know, even concerns of a recession, I mean, are you revisiting any of your expansion plans with a focus on perhaps sort of near-term revenue generating opportunities versus, perhaps something which is important, but potentially not going to move the needle for you for, you know, let's say like, you know, 2.5 or 3+ years? Similar question on the margin side as well, as you think about, you know, optimizing here for the near term.
Yeah. Let me answer the first part, and then Rebecca, you can answer the part around margin. You know, Tejas, I think, you know, coming in, obviously, I came here in the middle of last year and worked very hard with the team to put together the 2022 plan. Of course, we went out multiple years because we have, you know, so many large vectors of growth here for the business that are multi-year. You know, we already made a lot of those decisions around what we would invest in and what we wouldn't and allocated our resources accordingly. I'd say the current macroeconomic environment doesn't make us, you know, revisit any of those at this point in and of itself because of the work we've already done.
I would say, you know, by far the majority of our investment is going on those longer-term vectors of growth right now. But we're also not starving the on-market products investment, which is what you would expect us not to do. You know, those long-term opportunities for growth, I believe our goal is to move as quickly as we can to bring those products to market, whether it's nasal swab or the IVD products outside the U.S., make them available to patients. We know what it's gonna take to get there. I really, you know, short of something catastrophic, I don't see us revisiting those plans to do that.
Meanwhile, you know, we're making sure that Afirma, Decipher and yeah, the rest of our products are continuing to get the appropriate level of investment.
On the margin side, Tejas, not a dissimilar answer. You know, outside of wages, we haven't necessarily seen a large impact on our cost of goods. Obviously, we do have opportunities to increase efficiency of the lab, which we are actively undertaking, as well as increase efficiency of our collections process, which I commented on in the script. Those two things, you know, will benefit margin accordingly, and we're setting ourselves up for you know really having a nice profile on a go-forward basis, based on the activities we are working on in hand. Another important factor is that we also are decently very well capitalized. You know, we did burn a very small amount of cash in the quarter.
When it comes down to it, we're managing this business to be plus or minus break even. You know, we'll burn a little bit of cash this year as we go through some of the contingent consideration of the HalioDx acquisition. When it comes down to it, you know, we are very well capitalized. We have the cash we need in hand to invest in this business and to run this business to profitability, and we're excited to see where our products
Deliver for patients and shareholders.
Got it. Very helpful. Thanks, guys. Appreciate the time.
Thank you.
Our next question comes from Paul Knight with KeyBanc. Your line is open.
You know, you commented earlier on the increasing volume post January. With February, March, how was that trending? You know, should we kind of assume some sequential testing volume growth here in 2Q, 3Q?
Paul, maybe I can take that. We did, in my portion of the script, we did comment that we do expect to see sequential growth in the second quarter, and then to see a step back in the third quarter as we experience typical summer holidays and as the associated seasonality. You know, the area of our business where we see the most impact from COVID is in the pulmonology franchise. When it comes down to it, you know, whether that's growing gangbusters or impacted by COVID, it's really within the scope of our guidance range. Afirma, you know, we saw access improve throughout the first quarter.
You know, effectively, where access for our reps was a challenge in perhaps January, by the end of the quarter, we made it up. I would think about Afirma's growth being more driven by seasonal typical seasonality than really related to COVID at this point in time.
Decipher, what would you guide us to in terms of the organic growth on test volume at Decipher?
Yeah. You know, I think we've given a lot of disclosure on the Decipher franchise and the components of our portfolio. We're not gonna get in the habit of guiding each product line by product line. Decipher is, you know, contributing very nicely to the total company overall growth rate, and I would say is additive to it. But I wouldn't wanna go beyond that.
Okay, thanks.
Our next question comes from Mike Matson with Needham & Company. Your line is open.
Hi, guys. This is Joseph on for Mike. One question about the manufacturing transition. You know, obviously a year, or I guess more than a year out from that, but is there any biopharma services or IVD development services that you guys will be ramping up? Or is there. You know, are these tied down right now during the transition or at all? Or I guess is this you know purely manufacturing for the test kit? Then, I guess maybe just building off of that for biopharma services, can you maybe talk a little bit more about the interest from pharma in your immuno-oncology offerings? You guys have mentioned that a little bit in the prepared remarks.
You know, is there anything else with Immunosign, whether it be expanding into different countries or adding new services that you guys are looking at? Thanks.
Yeah. These are great questions. A couple of things. I would actually parse apart, break apart the manufacturing transition from the biopharma services offerings. They're really, you know. In many respects, very separate. Let's start with the manufacturing transition first. That is the work that we're doing to be able to, you know, make our own kits for the nCounter system at our facility in Marseille in France. That's the work that's going very well. We're doing it in several stages. You know, ultimately, we'll own the whole end-to-end supply chain. We have full continuity of supply during that time with our strong partnership with NanoString. You know, whatever we need to service that IVD business, which at this point is primarily Prosigna, next year will be Envisia. You know, we're able to get that. On the other hand, thinking.
Talking about the biopharma business, what's really great about biopharma now is we've put the biopharma organizations of three companies together into one global organization. Yes, absolutely, we're driving hard internationally in the U.S., outside the U.S. and in, you know, other parts of the world, and offering our services to biopharma partners who, you know, we're getting a lot of traction with those partners at this point. We announced, as I mentioned, the Atlas, and you brought that up. You know, that's one of the areas of, I think, strong interest that we're seeing in biopharma. I mean, using our proprietary assays, we're able to populate these databases with, you know, multi-cancer data, metastatic initially.
That's of great interest to biopharma partners as they're looking at their clinical trial development, their you know, their drug development, looking at clinically relevant biomarkers, trying to identify patients, et cetera. You know, lots of great work going on in our biopharma business and, you know, we'll talk more about that in the future. You know, one of the great things that comes out of those relationships actually is publications. You know, we're excited about some of the things that are going on there. Nothing we can really you know, talk about at this point too much. I think look for some really interesting potential opportunities in the future there.
Okay, great. Thank you. One more. Obviously, you guys just announced the inclusion of Envisia into those ATS guidelines. Maybe, you know, looking towards the future, the next year or so, is there any of your tests that you're hoping, expecting for clinical guideline inclusion, you know, whether it be, you know, a certain clinical guideline or I guess maybe the bigger one, the NCCN guidelines? You know, I know Decipher is already in there. I believe Afirma is also mentioned or included in the guidelines. Yeah, maybe any test in the future that could, you know, dramatically improve awareness or adoption.
Yeah. I mean, let me start with a kind of a macro point, and then Tina, maybe you wanna talk about the approach with Decipher, which I think is really a good illustration of the power of this. Typically, you know, what we're trying to do with the evidence development that we invest in is to gain KOL support, educate physicians, and end up in guidelines as well. That formula's worked very well for us in the past. You know, whether it's nasal swab in the future, which of course we think should be in guidelines and would like to get it there or, you know, continuing growth in the number of respondents who recommend Envisia, you know, or continuing on our other products.
Of course, you know, we're gonna wanna do this outside the U.S. as well, and we do this outside the U.S. as well with our IVD products. Tina, do you wanna talk a little bit about the success so far and what's. You know, you've got more room to go as far as Decipher.
Yeah. I don't think we ever stop thinking about guidelines. I think they're very important and continuing to work on trials and to produce more and more clinical evidence to strengthen those guidelines, that's something that we continually think about. You know, where Decipher is took several times to get to that point. We started out just with RP and then started, you know, getting more and more strength in biopsy, and that will continue. We will continue to do that over time. I think that fits in really well with what we just observed with Envisia guidelines. You know, they all have to start someplace. I think that the discussion that was highlighted on that was actually quite good. It just really, you know, focused on the key clinical value of our test.
That gives us something to go to the physicians and talk about, and they are very, very interested in those kind of discussions. You know, there's nothing better than talking to them about guidelines. You know, Envisia now has that start, and we will continue to do everything we can to strengthen that over time, just like the same approach we used with Decipher.
Great, Tina.
Yeah, absolutely. Makes sense. All right. Well, thanks for taking our questions.
Thank you.
Thank you.
Our last question comes from Puneet Souda with SVB Securities. Your line is open.
Hey, guys. All right. Thanks for the question. Maybe first one, I don't know if this was covered already, but in terms of labor costs, we're obviously seeing that labor inflation happening in a number of labs. Just wondering, I wanted to make sure I cover that with you first. Is that something you're seeing, and is that reflecting into the margin expectations this year?
Yeah. Thanks for the question, Puneet. Yes, we are seeing that to some extent, just like everyone else is in the industry. I would say that we are managing it, however. We obviously just delivered great gross margins in the quarter, and our outlook for the full year is, you know, in the low- to mid-60s% on a blended basis, depending on revenue mix in any given period. While we are expecting to continue to see that at its current state, it's not necessarily really biasing our margin expectations at this point in time. We are offsetting it, you know, with efficiencies in the lab as well as really honing in on our collections and ensuring we're optimizing those components of our business.
It's manageable, but it's there.
Okay. Okay, thanks. That's helpful. In terms of, I'm sure you know, you have provided some details on nasal swab, but I just wanted to, you know, sort of understand. I mean, we have seen different data sets on nasal swab from its inception. Maybe just help us understand, you know, how should we think about this upcoming data set versus sort of what you have presented and, you know, sort of from a, from a, in terms of the performance of the data or how meaningful it could be. Just help us understand where we stand in terms of the data here.
Yeah. Puneet, on that one, I mean, Giulia talked a little bit about this earlier on, but you know, I wouldn't. That data set isn't gonna replace the great data that's already been presented recently. It's another cut of the data that looks at smoking burden. You know, we'll continue to do that, like produce cuts of the data we have done in the past. That's why we launched a second set of data that showed the performance of the test when you took into account people with prior cancers and so on. You know, we're continuing to look at that. In terms of the overall performance of the test, I mean, remember, this is a test that is, you know, highly sensitive and highly specific.
It's good for ruling in and ruling out, you know, as I mentioned in the script. You know, the way we see it being utilized in the market is, you know, for any patient who's had a lung nodule found by LDCT, which as I mentioned earlier, is very sensitive to finding lung nodules. You know, we'll be able to use this test. I think it is. You know, the sensitivity and specificity make it very attractive for that situation, because, you know, we're gonna wanna build confidence in the diagnosis there. The classifier enables us to do that by the way that, you know, our team built it and the incredible work that they did.
you know, I think that's the right way to think about it. I don't anticipate necessarily new data that changes that perspective.
Okay. That's helpful. Decipher continues to obviously do well, but maybe. You know, this question is more about Afirma. I think you guys have pointed out a number of times that this is now a very maturing product. Maybe just can you sort of elaborate how should we be thinking about the growth rate on Afirma longer term given the, you know, sort of the magnitude of this, you know, it contributes to your revenue? Thank you.
Yeah. Thanks, Puneet. I think we did our best to address that question a little bit earlier on, where we shared that in the quarter, Afirma grew close to 10% from a volume perspective, albeit slightly less on a revenue perspective for the reasons that I stated in the script. As we look forward throughout the course of 2022, you know, I think the mid- to high-single-digit estimate that was thrown out there is not unreasonable. This is obviously later in its life cycle and we are excited about the contribution that the product does provide to the overall portfolio of our products from a growth perspective.
You know, that being said, we're all in the stage of having it be one of the most successful diagnostics out there, and therefore, obviously, the curve does start to flatten at some point, and we are there. I think the good news with Afirma, though, is that it is also an incredibly profitable product. To that end, it as well as Decipher really do help fund some of the great innovation work that Giulia and her team and then the broader R&D organizations are really offering to the overall portfolio, and offering to Tina and her team to commercialize so well.
You know, I think every product has its place and we love Afirma for that, and its overall financial profile, not just the revenue side.
Okay, got it. Just last one, if I can squeeze in for Tina. Great to see the performance here, and the momentum you have behind Decipher. Just anything that we need to know in terms of data, or anything that we'd be optimally watching out at AUA or ASCO? Thank you.
No. Yeah, as Marc mentioned, we definitely will be presenting at ASCO, and we certainly try to do everything we can to be at every major meeting and to have a presentation. Obviously, I can't go into the details of that, but we will be showing data that really demonstrates that Decipher increases utilization in the area of active surveillance, and that is an area that has been hard to show over the years. We're very excited about the study that we're doing in combination with Dr. Spratt from Case Western and with the NCI SEER program.
Okay, great, guys. Thank you.
Thanks, Puneet.
This concludes the question and answer session. I'd like to turn the call back over to Marc Stapley for any closing remarks.
Great. Thank you very much, Michelle. Appreciate it. In closing, I'd really like to express my appreciation for my leadership team and for all of our employees throughout the company. We introduced a brand new organizational structure in January, and through the collective team's hard work, dedication, and collaboration, we're already seeing the benefits, and that's reflected in our strong Q1 execution. The clear focus of our team and bright lines of accountability are ensuring that we're optimizing our near-term opportunities while delivering on those really important long-term strategic imperatives we talked about today. We're also investing in our corporate culture. We completed some important work during the quarter to define the culture we want to enable us to drive our performance and achieve our ambitious goal of becoming a global diagnostics leader.
Employees at all levels and across all of the geographies have enthusiastically embraced this opportunity to help shape our company's culture and our future. It's exciting to see their collective passion driven by their desire to continue to see patients like Keith Boyle and their families all over the world benefit from Veracyte's suite of diagnostic tests. I couldn't be prouder of our team or more excited about where Veracyte is headed, and I look forward to updating you on our progress in our next earnings call. Thank you.
Thank you. This concludes the conference call. You may now disconnect.