His wife is not my cousin. My cousin didn't work at Veracyte, Shayla Gorman, though.
All right. You're good to go.
I must.
Okay.
Let's do it.
All right. Good afternoon, everyone. Thanks for joining us at the Stephens Conference. I'm Mason Carrico. I'm the diagnostics and medtech analyst here. It's my pleasure to host Veracyte. Joining us from the company is Rebecca Chambers, CFO. Great to have you. Thank you for coming.
Thank you for having us.
Maybe to start it off high level here, give us an overview of the Veracyte philosophy, what differentiates you guys from some of the diagnostic peers out there. Any high-level thoughts?
Yeah, of course. But before I get into that. I have to do my safe harbor, so here we go. So everything I say today will be covered by our safe harbor. You can find that on our website at veracyte.com. So please refer to that to obviously take into account the statements I'll be making that may be forward-looking today. So with that behind us, thanks for asking that question because I do think it's a meaningful point of differentiation for us, right? So when we think about our philosophy, we effectively the vast majority of the management team joined about three years ago. When we got to the company, there were some really solid products on the market, Afirma being one that had been launched in 2011. Decipher came in through an acquisition in Q1 of 2021.
HalioDx was an acquisition that was announced in June of 2021. And these three companies were really coming together. When we took a step back and looked at the portfolio, it was very clear Afirma and Decipher had a great runway of growth ahead of them. Afirma needed a little bit more investment because there was some reinvigorating to do on the product. Decipher was just at the very earliest stages of its growth curve. So effectively, what we did was we took those two, which could propel the company for quite a long period of time, and we looked at the rest of the growth drivers that were in the portfolio and then decided what were the highest priorities.
From that decision, started enacting our philosophy and our strategic planning process, which is moving towards a fully self-sufficient, from a funding perspective, diagnostic company that can grow quite nicely and deliver at Adjusted EBITDA margins at scale of around 25%. We have funded since that time all of our investment in those five growth drivers. The first two, which I mentioned, were Afirma and Decipher. The three longer-term ones are the European strategy for IVD, MRD, and nasal swab, a nd I know we'll get into each of those, so I won't spend time here.
But I really do think from a fundamental perspective, from a fundamental philosophy perspective, we did come at this at a sustainable growth profile organizationally. And that was differentiated at the time because nobody really had done that. Historically, diagnostics companies had been valued on volumes more so than the ability to achieve a sustaining profit.
Good old days.
I kind of like these days.
Maybe before we move to the metastatic opportunity, can you just remind us how big is Decipher's market today, where penetration stands, where share?
Yeah, so absolutely. So for those of you that are unaware, Decipher is our test that is a prostate cancer classifier. So today, there are 270 incidences of localized disease. There's 30,000 incidences of metastatic disease each year. Coming into 2024, the market, our share as well as the two competing tests' share, was around 35% penetrated. Over the course of 2024, we haven't updated that penetration. We'll do it off of a Q4 run rate just like we did it last year. But we've obviously gained quite a nice amount of penetration. One of the drivers to that this year was getting the NCCN level 1B guidelines, which effectively had an if-then statement. If you have a Gleason score of X and a Decipher score of Y, then do this.
And so what it really did was explain to physicians or demonstrate to physicians based on incredibly strong clinical evidence how best to treat a patient based on the combination of NCCN risk and Decipher score. And I think that has put us in a very strong position both to penetrate the market incrementally. I think we have had some tailwinds from a share perspective as well. Hard to quantify, but it feels that way if you just look at respective numbers across the space. And yeah, Decipher is a critically important product and test for patients and has been. That's our goal is to make sure that every man with prostate cancer has a Decipher test.
In terms of the call point, could you break down who is the call point? What's the target clinician population? How many of them have ordered or are familiar with Decipher? What reach does your current commercial team give you into?
Yeah, so I don't think reach is a limiting factor for us at this point in time based on our 50-ish heads that we have in Decipher. We add around a handful a year, and we're actually quite careful to not just blast that number higher because it effectively is more disruptive than it is additive. So the call point is kind of three-pronged, all of which are urologists. There's the community physician. There's what's called the LUGPA group, so large urology practice groups, and then there's the academic center. I would say roughly 30, 30, 20 across 40, 40, 20 across those four groups would be the right distribution of those types of docs. I don't think reach is a limiting factor, as I mentioned earlier.
I think there are docs that go from location to location, so it's hard to say the exact number. But between all of the medical scientific meetings that we attend, the combination of that, the guidelines, and our sales force is actually quite efficient at reaching that population. When the NCCN level 1B guidelines came out in February, we actually did a voice customer survey, which we talked about on the Q1 call to try and really figure that exact thing out, right?
And what came back was we talked to many different of those types of physicians, including we actually also did some med-oncs in there and a few interventional radiologists, which play a teeny bit. Those are kind of more of the tail, a nd what we found was 80% of them were aware of the NCCN level 1B and 75% plan to utilize the guidelines. And so that gave us a pretty clear demonstration that this change of having that if-then statement table in the guidelines was going to be quite impactful for the future growth of Decipher.
Where do you stand in the tech assessment process for the metastatic indications?
We're doing it.
We're doing it.
For those that are unfamiliar, we have the opportunity to go after the metastatic population, that 30,000-patient opportunity that I mentioned earlier. In August, there was a finalization of an LCD, a local coverage determination that would enable us to get paid to provide Decipher testing to the metastatic population. So that was finalized. The next step is to do effectively analytical validation in our laboratory and then submit that to MolDx, and then from there, MolDx would grant us reimbursement.
So we are in the stages of that. We would expect that to be done most likely at this point of late November, probably early 2025. The training would happen around the same time for the sales team. We have our sales meeting at the end of January. Excuse me. So we'll start rolling out some of that training then, double down on it in early Q2, and then we would expect to really see the contribution kick in in the back half of the year.
Can you unpack what that sales training looks like? Since they're selling Decipher, they're familiar with Decipher, what's the incremental training?
Yeah, so the incremental training is really around the clinical utility, very specific to metastatic, and it's a different report. So effectively, it's how does this report differ? How is a doc going to use one report versus the other? And then what are the kind of, without having guidelines, the if-then statements for different outcomes from a metastatic patient? STAMPEDE is a recent study that was highlighted at the ESMO conference back in September, specific for the metastatic population that was incredibly powerful. They obviously would highlight that. That has not yet been published. It will take a period of time to have that published. And so I think we'll be relying on the poster and the podium presentation for that until it's published.
Okay. How about any call point differences? Same call points? How much overlap is there? What are the differences?
Yeah, so it's pretty much the same call point. Especially LUGPAs have started very specific practices to maintain as much of the metastatic population as they can. There's three different treatment paradigms for a metastatic patient. Singular, combination, and then triple. It's really just the triples that go out. So I think when it comes down to it, we are pretty well-suited from a call point perspective. It's more about building the awareness about the full spectrum of what Decipher can offer. Not dissimilar to when we went low and high and built that awareness as well in the localized setting.
How do you think about reps splitting their time across? Is that the right way to think about it?
I don't think it's a splitting time. It's when you have a doc, you say, "Here's Decipher," and, "Oh, for your metastatic patients, don't forget about A, B, C, and D." I don't think about it as splitting time.
Okay. Got it. Where's physician awareness today on Decipher in the metastatic indication? I know you're not out actively promoting it or where are we?
Yeah, so I think ESMO was the first real obviously, with the LCD out there, I think there's awareness that it's coming. We've talked about it publicly as well. But our sales team is not doing anything to that end for obvious reasons. ESMO was the first kind of unveiling of the data behind metastatic for the STAMPEDE study. And so if they are attuned enough to see that or see our press releases, then I would say they're probably pretty aware. But I can't really speak to that beyond.
Okay. What are some of the gating factors then just around the initial launch? You train the sales team, you've got coverage in place. Doctors are at least aware of what Decipher is, how to utilize it. I get it's the metastatic indication versus the localized, but how do we kind of think about what gating factors could be once you're out promoting it?
Yeah, I mean, I think you covered them quite nicely. The only other gating factor I would put out there is reimbursement. And reimbursement is slightly more biased towards the Medicare population than the metastatic community or the metastatic patient population. And so if overall localized is 60%-65%, it's more like 65%-70%. So you'll have a little bit more coverage out of the gate. But I think that's the only gating factor that you didn't necessarily highlight.
Okay. And NCCN-wise, is there a different treatment algorithm for the metastatic indication that you work towards?
Yeah, absolutely. Absolutely. And they tend to meet in the spring and then publish guidelines six to nine, 10-ish months later, but it does require a publication. So I don't think what we have today is enough.
Okay. Got it. Are there specific parts of that target clinician population where you think it'll be utilized most heavily at the beginning, or does that not really matter?
I mean, your high utilizers, your very high utilization docs today would make sense, but that's just me drawing a natural conclusion versus having implicit data.
For Decipher in localized disease, from the time you got Medicare coverage to the time you got NCCN initially, and I know that's kind of progressed, what was that timeline?
So it's a little nuanced, so bear with me. So for radical prostatectomy, for a portion of radical prostatectomy, we first got Medicare coverage in 2015. That is, call it 15-ish% of the market. We then got low-risk biopsy coverage in 2019, and then we got coverage across the entirety of the risk spectrum from Medicare in 2020. So it's not a clear answer. It's not a black and white answer. We then got our first guidelines in September of 2022. It took about six months for us to get NCCN approval for marketing materials, educational materials, and then so really started to see the benefit in Q1 2023.
Okay. From a commercial coverage perspective, I would assume probably not, but do you think just because payers are paying for Decipher in the localized patient group that there's any possibility you could see some of the national payers start paying for the metastatic indication before NCCN?
I don't tie those two together in my mind. We had pretty solid contracts and coverage, albeit not everyone, prior to getting NCCN in 2022. So when we acquired the company, there was 125 million covered lives or so on Decipher. And now today, that's 200, and we've had obviously a great amount of success, but I don't think it's 100%. I don't think it's directly correlated, but not perfectly. And so I do think that for that 20% of the population, I think we will have to absolutely go through and make sure we add it. But some of our contracts do say if you add a new test, you will get paid, right? And so I don't think it's perfect, but it will be a grind, but we'll get there.
And then with 70%+ or 70% of the population being Medicare, it's kind of, there's plenty of white space to go.
Why do you think that is with Decipher i t seems like that's an outlier that it was getting paid by commercial payers prior to NCCN. Is that uncommon to you?
I mean, it's not perfectly uncommon. I think it's payer-specific. I think some payers are more favorable to go based on Medicare than others. And I think the other thing is some payers, the pre-authorization process, so if they see it's medically justified, it's pre-auth, and it's a Medicare-covered product, they're more likely to pay. So you might not be getting full contracted rate, but you're getting something.
Okay. And then from a competitive standpoint, how do you think about your head start in the metastatic indication?
I mean, I think our competitive position vis-à-vis the guidelines is pretty impressive on the localized point. On the metastatic point, to my knowledge, I don't know of others that have a test on the market. So they very well may be working on something in the wings that I'm unaware of, but until our head start is by definition however long it would take to get something out, get clinical evidence, etc., to be able to piggyback off of that.
Okay, and then with the pharma, it's been surprising to the upside, I think, for a while now. When you think about the reinvigoration, if that was the word.
That's the right word.
Versus whether it's disruptions with competition or, I don't know, scaling back on spend, I mean, how would you kind of break out the growth that you guys have seen and kind of the durability of it going forward?
Yeah, I think about it more in the offensive than the defensive perspective. That didn't make any sense, so I'll stop with sports analogies. I think it more has to do with the reinvigoration and the investing for a form of growth. So what has happened since 2021 is we have increased the number of publications that we have put out, including a meta-analysis of real-world data that was pretty powerful, and I think that came out back in 2022. We also have introduced the TERT promoter portion of the test, which doesn't have a high frequency, but when folks do have that mutation, it is very impactful for the aggressiveness of the cancer, so it's important to know. We have introduced a pharma grid, piggybacking off of the Decipher Grid product.
And what grid is, for those of you that are unaware, is for each of our tests that are on the market today, we do a whole transcriptome. And that whole transcriptome is RUO in nature, a portion of which is returned back clinical with the clinical answer. But the RUO portion is more used to generate new insights into the biological underpinnings of the disease. And that's obviously what attracts a number of KOLs to work with us. And so we launched a pharma grid this time-ish last year and have had some really solid progress on that and really solid interest on that. I think we're up to, I call it just slightly less than a handful of publications. So I think it's more what we have done versus what others haven't done.
We've also introduced, improved our customer service and introduced a customer service portal, which has been well received as well. So I would much rather be in control of our own destiny than relying on others' shortfalling missteps. So I think we're in good stead. There have been competitive publications that are not helpful to those competitors or one in particular, a nd so obviously, we can't count on those things, but that hasn't hurt.
Okay. And going back to Decipher for just a second, when we think about where market share is today, where market penetration is today, and moving forward, are there any patient groups, whether it's the NCCN risk group or probably more subgroups of patients than I appreciate, is there a reason to believe that penetration can continue to grow? I don't want to hold you to a growth rate, but at a strong pace before we see the market start to mature, even if it's not at that percent?
Yeah. Well, I think Afirma is a decent proxy. As I mentioned, it was launched in 2011, and so 13 years later, here we are, and it's obviously still growing quite nicely. When I think about drivers of growth, it's getting to 80% penetration, which there's still a long ways to go on Decipher definitively and still 20 percentage points on Afirma. It's market dynamic share gains, which continue to be opportunistically available for us, and then, unfortunately, both of these populations are growing at an incidence rate in the low single digits, right?
And so I think what we have said is Decipher and Afirma are both near-term growth drivers that will bridge us until the longer-term growth drivers, which I'm sure we'll get to, come to bear. That being said, we also view Decipher as a long-term growth driver because I think where we stand from all of those different factors, there's still a lot of room to go.
Okay. On a pharma, similar question to some degree, what is it that takes you to 60%, 70%, 80%?
Probably 60 at this point.
Okay. 70.
It's blocking and tackling.
That's it.
Blocking and tackling, making sure we don't go stale on clinical studies, being on the podium is critical, continuing to invest in the product where it makes sense if something like TERT were to come up again. And so, yeah, making sure the salesforce is armed with something you need to talk to the field about pretty frequently.
How much of a tailwind, how should we think about the tailwind from the Bethesda 5 coverage that you want as we look into next year?
I think it obviously is a tailwind. I wouldn't say it's going to be the largest of the growth drivers. So the Bethesda 5 population is around 30,000 patients. What we received coverage for is the Medicare portion of that, which would be 10,000 patients. So if you think about how much opportunity we have to go there, there's definitely some to get to our combination of penetration market share versus where we are today. So I do think about it as a tailwind. It's a volume tailwind, which will translate into an ASP1 from the perspective of those patients will start to get tested and pay it at the Medicare rate as opposed to not getting tested, and so it definitely doesn't hurt, but I think penetration, incidence, growth, and share gains will be the bigger drivers.
Got it. From a commercial standpoint for Bethesda 5, where does coverage stand there?
It's not that explicit. So it's not black and white is the way to say it. There are some policies where it is, and there are some policies where it isn't. And so I would say it would be more akin to the Decipher metastatic example I gave earlier.
Okay. And then on the pipeline, I think you plan on launching Decipher on qPCR as well as Prosigna on NextSeq in mid to late 2025. How's that progressing? Are you tracking those timelines?
Yeah, I think this time or so next year, we should be hopefully good to go. I think those programs are important, and I think when it comes down to it, we do expect this, specifically Decipher, to have to go country by country to get reimbursement while Prosigna is already reimbursed in many of those areas. In general, though, we view 2025 as a transition year for Prosigna. It has a challenging supply chain and a challenging manufacturability, if that's a word, and so I think we are at this point in time managing demand, and so we said on the call, we expected that product to be muted next year. I think consensus is down a couple million bucks, which makes sense.
Okay. Could you walk through what the incremental steps are?
Can I just finish one last thing?
Yeah.
Just both between the product business and the biopharma business, that is 5% of our revenue, and so I think the reason why I wanted to highlight that is we've just spent 20 minutes talking about incredible growth drivers of biopharma and Decipher, and that makes up 95% of the revenue at this point in time. Sorry.
No, that's good to highlight. Once you get Decipher commercially launched, what are the incremental steps until you start recognizing revenue? So we talked about getting it on a country-by-country basis, but what does that mean? What do you have to do?
We have a managed care team that has to go meet with each government and explain to them the clinical utility of the test, why it matters, how it can help their single payer systems in the cases that are the private systems in the cases where they are, and then it has to go through the kind of bureaucratic channels of any given government, which is going to vary pretty widely in terms of timeframes.
Got it. Is there a range, six months, two years? How do you think about it?
Yeah, I think that's probably fair-ish, but recognizing we're not going to hire 20 people to go out and go do those types of things. And so we're going to order of operations them. And so it'll be more rolling than we'll have full coverage in two years sort of thing.
Okay, and then any specific countries?
We'll go after the big five first.
Gotcha. How do you think about pent-up demand for a test like Decipher?
I mean, I think there's pent-up awareness, I would call it, more so than demand because demand's tied to incidence. So it's not like there's.
Right.
So I would say that, especially with ESMO highlighting STAMPEDE, as well as we're incredibly lucky to have a very talented team, specifically our medical director and many others over in the region that will be highlighting this to their KOL colleagues and friends. I feel very confident in the multi-year ability of Decipher IVD to be meaningful to the organization. I don't think we need it for a bit, and I don't think it's going to come for a bit, but I think eventually it'll be big.
What about competition in Europe?
Yeah, so there's two competitors here in the States, one of which has outsourced their IVD rights to a French IVD company. Haven't heard a lot about them since that point in time, maybe a quarter or two ago, so not specifically clear on both what their data specific to those populations would be or what their competitive stance would be. I do think, again, based on STAMPEDE being done in the U.K. and shared at ESMO, we have pretty solid footing.
Okay. Maybe we'll just wrap it up and say or ask, heading into 2025, any broad color commentary you're willing to give here?
Yeah, I'm only willing to give it here because I've given it previously on the call.
Fair.
But I think when it comes down to it, we highlighted product as a headwind. The other headwind we have is the biopharma business. Both of those are 5% of revenue. So obviously, things that we have managed through and will continue to manage through. We guided on the call to a pharma growth of high single digits in 2025. And we have a number of tailwinds, which we've covered today on Decipher. So we are incredibly confident and would be disappointed if we can't deliver to consensus. But I don't think our story is just about revenue growth. I think really what we'll deliver is 700 basis points this year of Adjusted EBITDA margin expansion. Next year, we're on our path to 25%, which we think is a sustainable level for the organization. And effectively, next year, we'll make more strides to that end.
It won't be as great as it was this year because there was significant outperformance that flowed down at a pretty nice incremental margin, but we want to make sure we balance investment for long-term returns with profitability, and we will continue to demonstrate that profile. On the cash side of things, we've guided to end this year at $280-$285. Next year, we expect to continue to have a pretty solid cash story. We do have $20 million of milestones potentially for C2i. We will have to start paying cash taxes, but I think all in all, we expect to grow our cash balance again next year and have a very nice profile.
Any questions from the audience?
What do you do with all that cash?
There we go.
I knew somebody would ask it if I ended on it. I think the sole purpose will be to invest in the long-term growth trajectory of the organization. I don't think there's anything in a five-year perspective, a five-year horizon. I do think this will be a consolidating industry. At this point in time, we have a ton of focus on our five strategic growth drivers.
So I don't necessarily see M&A being imminent by any stretch of the imagination. We are continuing to hold ourselves to a very high bar with M&A. You saw us do one acquisition in 2024 of C2i, and I think that gives a good example of the bar and kind of how we'll think about future acquisitions with cash. We don't have any plans to do a dividend or buyback or anything like that, as you would expect for the growth company of our size.
All right. We'll wrap up there.
Thank you all.
Thank you, Rebecca.