Earnings Call: Q2 2021

Jul 29, 2021

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Veracyte Second Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I Relations. Please go ahead. Thank you, Sherry. Good afternoon, everyone, and thanks for joining us today for a discussion of our Q2 2021 financial results. With me today are Mark Stapley, Veracyte's Chief Executive Officer Rebecca Chambers, our Chief Financial Officer and Bonnie Anderson, our Executive Chairwoman. Veracyte issued a press release earlier this afternoon detailing our Q2 financial results. This news release, along with the business and financial presentation, are 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 that 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 filed with the Securities and Exchange Commission, including Veracyte's most recent Forms 10 Q and 10 ks. I will now turn the call over to Mark Staffley, Veracyte's CEO. Thank you, Tracy, and thanks, everyone, for joining us today. Before jumping into our strong quarterly results, I would like to acknowledge and thank our outgoing CEO and incoming Executive Chairwoman, Bonnie Anderson. Bonnie grew Veracyte from just a concept into a global genomic diagnostics company with a remarkable track record for bringing highly differentiated and clinically impactful test to market that improve outcomes for patients all over the world at every step of their journey. I have enjoyed working closely with Bonnie over the last few months I'm very excited to continue to partner with her and the team to grow Veracyte into a global cancer diagnostics leader. This has been a very encouraging Q1 for me. Our team delivered outstanding growth as we continue to execute on our compelling strategic vision. We reported 2nd quarter revenue of $55,100,000 an increase of 166% over prior years and 50% sequentially. Our total genomic volume at approximately 21,000 tests was up 215% compared to the same period last year and up 44% sequentially. This impressive outcome was driven primarily by our urology and thyroid businesses, Where strong commercial execution was bolstered by increased access to our physician customers. We believe that our accomplishments during Q2 set us up nicely for the second half of twenty twenty one and beyond. I would like to share an update on our progress during the quarter to drive commercial growth, evidence development, pipeline advancement and global expansion, including the integration of the Decipher and Hali ODX businesses. These are key areas that we are focused on as we build 1 global company under the Veracyte brand. Beginning with commercial growth and specifically Afirma, Our commercialization efforts have centered on driving this product to become the standard of care in thyroid cancer diagnosis. We estimate that the test has helped over 100,000 patients avoid unnecessary thyroid surgery since its introduction in 2011. We continue to see strong Afirma testing growth in Q2 with an approximately 120% revenue increase year over year as the business recovered relatively quickly from the pandemic effects and a nearly 10% sequential increase driven by customer growth and patient engagement. Adoption of the DECIPHER prostate test has been propelled by new Medicare coverage decisions received in late 2020. These managed care wins led in part to decipher prostate revenue of more than $18,000,000 in the quarter, a record for this product line. Additionally, in late Q2, we signed a new contract with a major national health plan to make the DECYFA prostate test and in network covered benefit for eligible patients among the plans approximately 20,000,000 members nationwide. Our pulmonology business also gained momentum in Q2. We added a number of new accounts, including several large institutions for the Envisia Genomic Classifier, which is used to improve diagnosis of interstitial lung disease, Including idiopathic pulmonary fibrosis, Percepta testing continues to recover although more slowly with our physicians still performing fewer lung cancer diagnostic bronchoscopies than prior to the COVID-nineteen pandemic. Our Prosigna breast cancer business continues to improve as well. We were pleased that Germany recently began reimbursing for Prosigna and are optimistic that other EU countries will similarly adopt coverage policies. The test reports intrinsic breast cancer subtypes in the EU, which can further inform treatment decision making. Additionally, its ability to be performed locally means laboratories do not need to send patient samples overseas. Our next strategic growth driver is evidence development, we also made significant progress across our portfolio of products. Highlights include the presentation of 5 Envisia abstracts of the American Thoracic Society or ATS Annual Meeting in May from prominent institutions such as UCLA. These abstracts demonstrated the test performance and clinical utility, also reflecting the test growing traction among interstitial lung disease or ALD thought leaders. At the ASCO meeting, researchers shared new data on the DECITA prostate test, further demonstrating that this prognostic information can help physicians tailor treatment decisions for men with prostate cancer. These included an oral presentation describing findings from the ongoing prospective VAN DAM study. Results confirm that our test predicts aggressive prostate cancer better than standard clinical risk factors and with the same accuracy in African American men as non African American men. This is an important finding given previous data has shown African American men to be more susceptible to aggressive forms of the disease. Additionally, in July, a retrospective analysis of patients in the SPARTAN study was published in JAMA Oncology, suggesting that the DECIPHER prostate test can identify those patients with locally advanced prostate cancer who are most likely to benefit from apalutamide, a 2nd generation androgen receptor signaling inhibitor in addition to androgen deprivation therapy or ADT. This is a population which consists of an estimated 165,000 men worldwide for whom physicians have previously lacked genomic biomarkers. The DECIPA Prostate Genomic Classifier is currently being investigated in 7 NCI sponsored Phase 3 prospective randomized controlled clinical trials as well as 13 additional prospective trials, many of which require DECYFA prostate testing for study inclusion. This prominence in clinical trials is driven by the quality of the site for prostate test and the massive amount of genomic data we collect on every sample in our grid biorepository. Moving to activities to advance our pipeline, our 3rd strategic growth driver. We made good progress in the quarter and remain focused on the launch of key new products. We are very excited to soon launch our Percepta nasal swab test to improve the early assessment of lung cancer as we believe this is a large unserved market. Today, physicians lack objective tools to confidently guide care for patients with suspicious lung nodules. We were very pleased to present pivotal multicenter clinical validation data at the ASCO meeting in June showing that our noninvasive perceptive nasal swab test will enable doctors to tell their patients with suspicious lung nodules They are low risk for cancer and can likely avoid further workup with very high certainty that they have not missed a cancer. At the same time, physicians can be confident in guiding patients who are high risk for cancer to further diagnostic procedures, while those classified as intermediate risk will remain a candidate current standard of care. We believe this test has the potential to be a game changer in lung cancer early detection, particularly among the approximately 15,000,000 people in the U. S. Who are now eligible for annual screening. We plan to begin making the Percepta nasal swab test available to a limited number of sites in the 4th quarter, which will enable us to assemble the data needed to secure Medicare and private payer coverage, which we believe will be granted 12 to 24 months post launch. Another key product in our pipeline is the Percepta Genomic Atlas, which is intended to help physicians make informed treatment decisions for the approximately 350,000 patients eligible for comprehensive genomic profiling each year. At the recent ATS and ASCO meetings, presented data demonstrating that this test accurately detects known lung cancer gene variants using the same small biopsy samples that are used for diagnosis. This ability can simplify the physician's workflow and accelerate time to appropriate treatment compared to other genomic profiling tests, which use samples acquired post diagnosis. We plan to finalize the Percepta Genomic Atlas in our clear lab by the end of the year with the commercial launch shortly thereafter anticipate receiving Medicare and commercial coverage of this test within 6 to 12 months post launch. We will offer our Percepta Genomic Atlas as part of our comprehensive lung cancer portfolio, will also include the nasal swab and genomic sequencing classifier. Our next new product is the DECIPHER bladder test, A genomic subtyping tool that helps physicians manage treatment decisions for patients with bladder cancer. We recently received final Medicare coverage policies through the MolDX program, including from Noridian Healthcare Solutions, which administers Medicare payments for our CLEAR lab. This decision ensures decitablatter covered benefit for the nation's more than 62,000,000 Medicare beneficiaries. In the United States, more than 80,000 individuals are diagnosed with bladder cancer annually, Approximately 44,000 of which will have the type of disease indicated in these policies. The test is available to And we plan to methodically drive the commercial launch during the Q3 now that Medicare reimbursement is fully in place. We're also working on the Envisia Genomic Classifier enabled on the nCounter instrument for use in international markets. We unveiled data at the ATS meeting showing the clinical performance of the classifier currently run-in our CLIA lab on our RNA sequencing platform is maintained when the test is adapted for the nCounter analysis system. Given our pending HALO Dx acquisition, we are revisiting our nCounter launch priorities, Focusing first on the manufacturing transition, while in parallel, we begin to advance other future products such as the Percepta nasal swab and Decipher prostate test in the same way that we have advanced Envisia. As you know, we believe that our Hali ODX acquisition and our key management hires solidified the foundation for scaling our business globally. With HALEO Dx, we expect to gain IBD test development and manufacturing operations in Europe, giving us end to end control of our IVD product business. Further, with the addition of the immunoscore colon cancer test, we will expand our scientific expertise into the emerging immuno oncology field as well as our reach into 8 of the top 10 cancers as defined by U. S. Incidents. Bonnie is leading the acquisition and the team has been diligently working on the integration planning, which is progressing well. We look forward to soon welcoming the talented HalyoDx team to the Veracyte family. We also made key hires to further strengthen our executive leadership team and position the company to scale globally. Rebecca Chambers joined us this month as CFO, Rob Braynan as CEO and Bill Zondler as CIO. With these key appointments augmenting the existing talented executive leadership team and the addition of the experienced leaders from HALO Dx, we are primed to advance our exciting global strategic vision. We are building a leading global diagnostics company that transforms care at every step of the patient's journey From the early detection of cancer and other diseases to diagnosis and treatment. And with our strong second quarter results, we are well on our way. I'll now turn the call over to Rebecca to provide a detailed overview of our results. Thanks, Mark. As Mark mentioned, we are very pleased with our 2nd quarter performance. We generated $55,100,000 in total revenue, an increase of 166% over the prior year quarter. Testing revenue equaled $50,800,000 with average testing ASPs of approximately $2,700 per test, roughly flat sequentially. Products revenue contributed $2,700,000 and biopharmaceutical partnership revenue equaled $1,600,000 These results were primarily due to strong commercial execution from our from our thyroid and urology businesses. Moving to genomic testing volume, we reported nearly 21,000 tests across our portfolio in the 2nd quarter. Afirma, Envisia and Percepta GSC approached 12,000 tests in total, an increase of 123% compared to the Q2 of 2020 12% sequentially, while the Cipher contributed approximately 7,000 tests to the quarter. Prosigna product volume was approximately 1900 tests or 50% growth year over year and a 12% sequential decline as we experienced typical seasonality given Q1 stocking orders. Gross margin equaled 68%, an increase of approximately 200 basis points sequentially, expenses excluding the cost of revenue decreased $25,000,000 sequentially to equal $45,100,000 R and D expenses grew $900,000 sequentially $6,200,000 driven primarily by the full quarter impact of the Decipher R and D organization. Sales and marketing expenses grew $3,400,000 to approximately $20,000,000 again driven primarily by the full quarter impact of Decipher. G and A expenses were $15,500,000 including approximately $3,400,000 of HalyoDx and Decipher acquisition related expenses. We recorded a net loss of $9,000,000 Additionally, the company generated $2,000,000 of cash from operating activities And we ended the quarter with $328,000,000 of cash and cash equivalents on hand. Turning now to our 2021 guidance. We are increasing our revenue expectations to $200,000,000 to $208,000,000 representing 69% 76% growth over the prior year. This guidance reflects our strong Q2 results as well as our expectation for continued momentum in the Decipher and Afirma businesses. Additionally, we expect to experience typical summer seasonality, Pleased with the quarter and remain confident in our position and ability to execute on our plans as we build on our success through 2021 and beyond. Thank you for your time. I will now turn the call over to Bonnie to say a few words. Thank you, Rebecca, and welcome to Veracyte. It's great to have you here. I would like to take a moment to thank the Veracyte team for their incredible focus that led to tremendous accomplishments in Q2. I am so proud of the team and could not be more pleased now to have Mark at the helm of Veracyte. Under his leadership with our existing team and the new leaders we've brought to Veracyte, I can't imagine the company being better positioned to deliver on the global vision that we put in place a number of years ago. That vision comes together with the final strategic puzzle piece, the HalyoDx acquisition. And I'm pleased to be working with that amazing team to complete the acquisition and plan the integration. I look forward to working with Mark thoughtful and deliberate transition of the company's leadership to achieve Veracyte's full potential as a global cancer diagnostics leader. And with that, I'll turn the call back to Tracy. Thank you, Bonnie. We will now go into the Q and A section of the call. Operator, please open the lines. Our first question will come from Brian Weinstein with William Blair. Please go ahead. Hey guys, thanks for taking the question and welcome to all the new people and Bonnie, good to hear your voice as well. So I guess just stand out here obviously is Decipher in the quarter. You highlighted some of the things that going on there? But can you just give us a little bit more detail on the growth drivers there? I know there's some sales force additions. Obviously, you talked about some of the reimbursement stuff, but Anything else that you can kind of point to? And then within that, Decipher business, as you think about your full year guidance, how much of that is made up of Decipher? How should we be about that ramping through the year. Yes. Thanks, Brian. So Decipher, as you can clearly see, has some good momentum. And yes, if you kind of go back to the decision we made to acquire the business, it was the perfect time to do that. The coverage decisions that the team was able to get late last year And then the expanded indications and then the continual publications based on the strong clinical data that they amass Really leads to good momentum in that business that I think helps drive it on a go forward basis, which is why we acquired it. If you think more specifically about momentum right now. Clearly, the DECIPHER has recovered very well from the early hit from the pandemic. A lot of that work is done in physicians offices, which are community based. And those procedures are continuing to take place as consults are happening. And so when we're getting access clearly to those offices, so that's helping to create a little bit of a tailwind for that business. But other than that, it's a phenomenal test with good momentum. And I think all of those factors lead into the strong performance that we've seen so far this year. In terms of what's in the guidance, as Rebecca said, the two key elements of what's driving our increase in our guidance is really Affirma and our prostate, DECYFIR prostate businesses. And just one thing to add to that, Brian. I would expect the DECYFIR business to follow the same seasonality trends that we're projecting for the entire portfolio of products. So, call it roughly flat to slightly up sequentially in the 3rd quarter and then Some growth from there in the 4th. And then maybe one more thing to add, Brian. I mean, it's not it covers DECIPA, but it really covers our entire business. The one thing that we thought about here a lot is What's going on with the COVID situation and the Delta variant? And we were assuming generally that that continues as is right now, but of if that has a significant impact, it affects everybody's business in the future. Yes. And I was going to kind of ask something around that. So Obviously, yesterday, Exact had some comments about access to clinician offices and that being kind of a factor and how they're thinking about the back half of the year. How are you factoring in access that your sales reps are having across your different call points? And can you give us any idea What that access kind of by call point looks like today? Yes. I think it makes sense to really go business by business There are some situations where there is an impact, but somewhere it's not. So like we just talked about the DECYFA business, the prostate business, that's Been very resilient. The firmer business, thyroid has also been extremely resilient and recovered quite quickly and we're getting good access. Again, a lot of community based physician work there. I'd say on the breast side, starting to come back quite nicely, Where we're still seeing a significant impact is on the lung side. And that's not really surprising given Really two factors. 1, it is a lot of hospital based procedures, obviously with the bronchoscopies. And secondly, the physicians involved are the physicians who are also very involved in The COVID cases and dealing with patients. Plus, I think one of the other factors is in terms of hospitals opening back up and patients returning themselves, Some of them are more reticent to do that, especially as we see what's going on right now. So our guidance has assumed that that business continues to be impacted by COVID, but The other businesses continue as they are. As I said, if the Delta variant causes changes in access more generally then that could affect the parts of our business resilient right now. Okay, great. I have lots of other questions, but we'll certainly let others jump in and We'll get you on the follow-up call later tonight. Thank you guys. Thanks Brian. Thank you. Our next question will come from Puneet Souda with SVB Leerink. Please go ahead. Hey, great guys. Thanks. So, Mark, first question, just tying it all Together with the number of tests you obviously have, Decipher is growing up, pharma is recovering. And so just putting it all together, is it Safe to say that prior to the pandemic, Veracyte was growing approximately 30 a slight over 30% As a top line grower, is that a profile that we ought to think or maybe even better going further out into sort of 22 and beyond. Is that a right way to look at the profile both in the Cipher, Afirma and number of other growth drivers that you have? One thing I'll start and Rebecca can add on. But one thing I would say is, obviously, we're not out of the pandemic yet, plus I haven't been here very long and Rebecca Even less time and one thing that we haven't done yet is continue to build upon the long term plan. What I would say is We're not changing the strategy. We love the strategy and that's what we're executing on. So that's not changed. But like I say, we're not out of the pandemic and we really had too much time to build on that yet. Rebecca, do you have anything to add? No, I think you covered it well. Okay. And then on the nasal swab, just trying to understand the sort of the trajectory that you're expecting here. This is obviously an important assay in the marketplace. So just trying to understand whether should we look at Afirma as an example that we're a trajectory that can potentially grow to, but just given the market opportunity, should it grow faster? And are you assuming any large scale trials here in order to drive adoption both U. S. And globally. Sorry, I missed the part that you said should it grow faster than what? Ed, will it follow the same trajectory that Afirma followed back at launch? It's a good question. And of course, Afirma was launched many years ago and has been very successful, Significant coverage at this point and penetration. But what I would say on the nasal swab, by the way, firstly, it's an incredible test we're really excited about it. It opens up a significant market, but more importantly, it really helps physicians and it really helps patients. There's a lot of uncertainty today for lung cancer patients and this really does help with the classification. Our launch of this test It's very deliberate and methodical. We're going to launch it in a limited number of sites, and that will help us gather the evidence that we need to drive reimbursement you would expect, that can take a while. It could take 12 to 24 months post launch to get reimbursement. So the way I think about the nasal swab is this is So we're building a portfolio here and layering all these different businesses on top of each other that have are at different stages of their life cycle, like Afirma that's very advanced, The cipher that's now taking off and then obviously the nasal swab several years and multiple years into the future. So I would think of it like that. It's a revenue driver much later than these other businesses that will continue to drive over the next couple of years. Got it. And if I could just squeeze in one more. In terms of the gross margin outlook, Rebecca, just wanted to make sure what you're baking in for this year. And Longer term, when nCounter kits come into the picture with the HALIO Dx manufacturing and ultimately manufacturing of the instrument itself. Where do you think those gross margins could be? And then more importantly, if you could layout for us the timeline for the nCounter kits and potentially the instrument manufacturing as well. Thank you. I'd be happy to Puneet. So on the back half of this year, obviously, we had some very solid gross margin performance in the second quarter At a very high level, not we didn't give formal guidance to this end, but I would expect gross margins in the mid to high 60s for the back half of this year given the mix of business that we're currently projecting. Going forward, specifically with Encronor, Obviously, the benefit of HalyoDx is that it will as we transfer manufacturing over to that facility in the future, That will benefit the gross margin profile of the nCounter placements in kits. That being said, as Mark just referenced, we're not ready Give long term guidance or even color at this point in time with regard to the trajectory of gross margins Beyond where we are in the second half of this year. On the timeline for getting all of that accomplished, I'll defer to Mark. But I think as we highlighted in the script, step 1 is completing the acquisition and that will be done this quarter. And I think we're being as proactive as is allowed from an integration standpoint and that's also going very well. We are on our way to meeting the timelines that Mark will share shortly, but at this point in time, that's all still news that we'll be excited to share with you at the appropriate point in time. Yes. Thanks, Rebecca. Let me add to that. So very happy with the progress that's been made on the haloDx integration, one of those key work streams, as you can imagine, is manufacturing transition, as Rebecca said. That really gives us control of our supply chain and gives us opportunities in gross margin in the future. Of course, those opportunities come to light when you've launched a lot of menu and you place a lot of instruments and you're driving a lot of testing. So that's going to be the key. The manufacturing transition is something we want to move as quickly as possible on and Bonnie is leading that. And Bonnie, I don't know if you want to say a few words about that in a moment, but it's something that is really important to us as a priority. And then getting that menu built By completing the development work and then the commercialization work of tests on that platform is next. I'll just say that In the early work of integration, what we're excited about is learning that we have picked a company with a team that's got tremendous experience doing this. They're lined up around the task, the timelines and execution plan and I think we'll have a lot of success getting it done. Thanks, Puneet. That's great. Okay. Thanks guys. Thanks Puneet. Thank you. Our next question will come from Sung Ji Nam with BTIG. Please go ahead. Hi, thanks for taking the questions and congratulations on the quarter. Thanks. Just a couple of questions. One on Decipher, we'd love to get your insight in terms of the competitive dynamics there. Obviously, very strong growth there in the quarter And also year to date, just kind of curious if you're taking share competitively or is it too early to tell? Yes. I mean, I think if I focus on really how we look at our DECIPROPROPSTATE test and its benefits and advantages, One point is it's a really strong test, in terms of its performance and that is supported by a lot of the clinical data that's been amassed. The fact that I think I mentioned in the script, the number of trials that DECIPR is in, in addition to the fact that many of those trials actually require the DECIPR test Viroan really demonstrate the performance of that test and gets it in the mind share of key opinion leaders and physicians. So we're very excited about the way that's growing. I think it's fair to say, our goal is to penetrate as much of the market as a lot of the market that's left unpenetrated. And along that journey, that may mean that some physicians move over to that test and that would be great. But our goal is to Put this in the hands of more clinicians and ultimately in the health records and decisions of more patients. Great. That's super helpful. And then my follow-up is just kind of around your pulmonology franchise and especially the new product launches slated for later this year. Given the limited channel access, just kind of curious in terms of how should we think about are there risks in terms of your launch plans, early access plans and whether or not you might have contingency plans in place. Yes. So I think there's a few pulmonology tests that are coming out, including the nasal swab and the genomic Atlas. And the way to think about that is, of course, COVID itself over the last year and a half has affected our ability To get clinical samples to some degree, but as you saw, not to a degree that it stopped us from being able to publish the data when we needed to And have those tests ready to launch very soon. As I mentioned on the nasal swab, we're going to launch in a limited number of sites. And I think it's fair to say we have sites that are excited to join us already. And so, yes, I don't see that as being a major barrier to getting that launched on time, which is our plan. And then the same on the genomic outlets, The work that we needed to do to get that ready to launch in our clear lab is almost done. I don't know if anyone has any. You're welcome. Thank you. Our next question will come from Matt Sykes with Goldman Sachs. Please go ahead. Hey, guys. This is Dave Delahunt on for Matt. Welcome, Rebecca. Congrats on a fantastic quarter. Great to see you guys are having a strong pass of the baton. Thank you very much. So you presented great data on Percepta at ASCO, Really exciting. Could you tell us a little bit more about the limited number of sites that you'll make it available to? Around how many subjects are you looking to reach to get enough data to submit to CMS? And longer term, how are you thinking about getting into guidelines at some point? Yes. So I'll start by saying The specific number of participants that we need is some part of the planning that we're still working on. In terms of the number of sites, It's really more about the it's probably 50 to 100 is what we've said before. I'd say on probably the smaller end of that. And we're looking at a diverse set of sites across the board here. What we want to make sure with this rollout is that All cross section of physicians, of offices are able to run the tests in the bronchoscopy suite or outside and ensure that the whole end to end process works really, really well. And that is the best way to ensure ultimately reimbursement and success of the test. This is one of the things that I think said before that has always impressed me and really impresses me now I'm here at Veracyte about the company is the muscles that we've built Around reimbursement and how to do these clinical utility studies and launch a product are really strong. And so we know how to do that. So there's people in our organization that are way smarter than me on that who have done an amazing job and that's what they're going to do with the nasal swab. Great. And so you guys have been really successful at corporate development. Could you tell us More about how you're thinking about build versus buy right now and what you're seeing in the market currently? Yes, I think the best way to talk about that is, look, we're trying to our strategy is to grow our business in 3 dimensions, geographically, which we're really Kick starting into a very high gear with the HALOdx acquisition across the care continuum where products like the nasal swab Really do help advance that by moving into earlier detection and then across indications. And now with HALO VX, we'll have 8 of the top 10 indications. So as far as that strategy is concerned, every one of those dimensions is moving forward at a rapid pace and execution on that is our key focus. Now in terms of going forward build versus buy, we will consider opportunities. I wouldn't say we're actively going out looking to do more, We'll consider opportunities and if they achieve one of those three objectives, geographic, advance our menu, or the care continuum, It might be something that's worth considering, but not an immediate priority. Yes. As Mark mentioned, right now, we're very much focused on the integrations at hand, more so than anything else. Great. Congrats on the quarter. Thank you. Thanks Dave. Thank you. Our next question will come from Thomas Flaten with Lake Street Capital. Please go ahead. Good afternoon, guys. Thanks for taking the questions. Just one on how we should be thinking about cash flow. There was some right at the end of 2019, I think there was a lot of excitement around going cash flow positive on the operating line and there's been some up and down since then. How should we think about that going forward? Are you guys feel pretty comfortable you're in a position to drive positive operating cash flow going forward or any thoughts on Yes. Thanks for the question and obviously we are very pleased with this quarter. I think as you look at the back half The year traditionally that is when the company has had the ability to generate cash flow from ops in a positive way and we would expect this year to be no different. On a go forward basis, I think we need to go through the 2022 planning and beyond. But I think our intention is to have The financial discipline to achieve that, obviously barring any one time investments here or there. So that is our intention, probably not willing to sign up for it fully today given we're still kind of digging through the strat plan, but our intention is To continue the torch of financial discipline and absolutely, have an eye towards cash generation over the longer term. And then reflecting back on the fact that nasal swab will launch here pretty soon and going back to the original Kind of key objectives when the J and J deal was signed a few years back was to get Percepta on the market or the GSC and then to get the nasal swab on the market. How do we how should we about the J and J collaboration going forward. Yes, I think really a couple of things. Firstly, we're building a lung portfolio here of products. You just mentioned 2 of them as well as the Genomic Atlas. And we put those Together plus of course our Envisia portfolio in lung as well. If we put all that together, we have a very strong lung portfolio across the care continuum. A lot of that has come from the company we've acquired and the work we've done with J&J and that collaboration has gone extremely well. The lung business is clearly important to them as it is to us and opportunities to collaborate further like we already are on future clinical trials is something that we're really going to focus on with them. Excellent. Congrats on the quarter guys. Thanks for taking the questions. Thank you. Thank you. Thank you. Our next question will come from Peha Sivan with Morgan Stanley. Please go ahead. Hey, guys. Good evening. Rebecca, it's good to be working with you again after all these years. Mark, maybe I'll start with you on the volume recovery here, good strength in the quarter. Can you parse out for us the degree to which it was catch up related to folks who had just pushed out visiting the physician? And how do you see that sort of trending forward? I would say in general, it's very hard to do that specifically, as you can probably imagine. But I would say there's a few indicators. I mean, one is, if you look at the there was some data recently around the number of prostate cancers that are expected in the United States this year. And I think it was 248,000, which is something like a 30% year over year growth. And that has been attributed in some papers and some journals to the effects of COVID and people not Being able to have access or not going to the physician. So I think there could be an element of that. I believe there's an element of that around pulmonology too. The incidences of lung cancer aren't clearly aren't going away and there are probably a backlog of visits That need to happen and will happen at some point. So hard to give you any kind of quantitative specific data on it, but anecdotally, it feels like there's Some element of that, but once we stabilize post COVID at some point, then it just settles to the normal growth. And at that point, it's really more about us driving our test into those physician offices versus any macro things that are outside of our control. Got it. Fair enough. And then I have a couple of questions on nasal risk here. You spoke about that 12 to 24 month timeline to get reimbursed. Is there anything you can do to accelerate that timeframe? And in terms of just further data releases on the assay, In terms of things like correlating performance with nodule size and length of smoking history, etcetera, that's I believe Julia has spoken about when the data dropped. And I'm just curious as to whether you have a timeline to share with us today around when that will happen going into the back half of this year and early next year perhaps? Yes. On the second part of your question first, I mean, we've mentioned before that we've Look to other attributes, for example, like nodule size and so on and stage of cancer. And we've obviously been gathering data on that and that will come out at the appropriate time When that's finalized. On that one, what was the first part again? Anything you can accelerate with regard to 12 to 24 months, MolDX? Yes. Back to obviously 12 to 18 months, what I'd like to do is be at the short end of that. There's so much of the process that's outside of our control. So what we're really focused on is one of the things that we control, let's get those done and get them done right, Get them done in the most optimal way, move as quickly as we can on that and we won't be shy about putting whatever resources we need to do on that because this an important product to get out there. And then we're in the hands of the reimbursement process. Like I said earlier, we've got the muscles to work through that, But there's so much of it that's outside of our control. Fair enough. And one final math question for Rebecca. I think you mentioned, Rebecca, that 3Q was expected to be flat to slightly up sequentially. And so if I do the math at the midpoint of the outlook, essentially calling for a flat to down sort of 4th quarter. And I'm just curious as to why the conservatism, what are the offsets that you're trying to sort of budget for here? And as a related follow-up, is there anything embedded in the guide for either the bladder test or perhaps the HALO Dx close or not yet? Yes. So let me take the last part of that first. The answer to both of those is effectively no. So you don't have to worry about that in the puts and takes. But effectively, Tejas, I think we are seeing the momentum in the Decipher and the Afirma businesses as cited. We did give the range as we have of 200 to 208 really to try and put Some sort of range in there with regard to COVID outcomes. Obviously, we can't perfectly control what COVID is going to look like in the second half. And I'm not saying even if it's awful, that's within the guidance range. But our thought is given where we are, given what the outlook looks like for COVID. We wanted to make sure at least a little bit of that COVID impact was baked into that guidance range so that We didn't have folks wondering what the business is going to look like, assuming the delta variant gets slightly worse. Now the delta variant gets way worse, that's obviously going to be a different scenario. But I think what you're looking at here is a midpoint To a high end that is reflective of the momentum of the business, as well as some kind of error bars, if you will, for COVID. Got it. Fair enough. Thank you so much. My pleasure. Thank you. Our next question will come from Mike Madsen with Needham and Co. Please go ahead. Yes, good afternoon. Thanks for taking my questions. Just a couple financial questions. Looking at your OpEx, it was around $45,000,000 in the quarter. Should we expect it to kind of stay at that level through the remainder of the year. And then R and D was around 11% of sales, a little lower than what we've been modeling and then Sales and marketing at like 36% of sales roughly? Yes. Thanks for the question, Mike. So With the impact of around $3,400,000 of acquisition related costs in the Q2 for Halyo and Decipher, if you take out that impact, You could expect that to be roughly equivalent to what we'll be spending in the back half, obviously with an Asterisk that will have incremental expenses tied to HALEO. We're not ready to quantify what those will be today. Obviously, we don't have HALEO anywhere in the P and L in our guidance for the reasons that the acquisition is not yet done Timing is such an important contributor to what that ends up being. So with the caveat, if you strip out acquisition from Q2 and don't include it in the back half, Plus or minus a bit, I think that's roughly fair. Okay. All right. Thanks. And then just as far as M and A goes, I heard Bonnie say something along the lines of Haliade X as sort of the final puzzle piece. So I take that to mean that we shouldn't expect any at least larger deals in the nearer term? I think, yes, I think the way to think about it is that's correct. And the final strategic puzzle piece means the strategy that was put in place that we're executing on really started in 2017. We've moved it through over the last multiple years. It will be completed in 2 years with the manufacturing transition. So that vision that is with 6 years in the making is completed with the HALO Dx transition. We've got a lot to deal with and we're doing that really well. And I'm very impressed with the performance this quarter, which clearly shows that we're able to continue To focus and deliver on the things that we've committed to deliver in spite of all the things that we've got to do. And in some cases, partly because of all these things that Taken on that are very positive. So, yes, our priority is not to go out looking for major acquisitions at this time. As I said earlier in the call, if there are that come our way, we of course would consider them, but we've got plenty to deliver on with this strategy. Okay, got it. Thank you. Thanks. Thank you. And our next question comes from Sandy Draper with Securities. Please go ahead. Hey, Sandy. Hey, how are you? Thanks very much. And a lot of my questions have been asked and answered. First, just congrats on a strong quarter and welcome to all the new team. And this question is probably for Rebecca. When I think about when I look at sort of revenue per test, it's been generally pretty stable, approximately say, dollars 2,700 plus or minus a little bit. With the growth in DECYFIR and the prostate and getting reimbursement there, the offset bringing on eCounter, there are other puts and takes. Is there anything meaningful that we should be thinking about that's going to either drive up because of better reimbursement as you get it Or down because you're going to be pushing out tests that you're not likely to be able to bill for yet. Anything notable we should be thinking about over the next 12 to 20 well, probably 12 months or so? Yes. Great question, Sandy. And at this point in time, I don't think there is anything that meaningful one way or the other. Obviously, depending on the mix portfolio in any given quarter, you're going to have puts and takes. Depending on commercial payer rates, you're going to have puts and takes. But as we sit here now, specifically for the back half, And I don't see anything that would change that trend in the first half of next year. It's going to be plus or minus a bit. Okay, great. That was my only question. Thanks. Thank you. Thank you. I'm showing no further questions in the queue at this time, I would now like to turn the call back over to Chief Executive Officer, Mr. Mark Stapley for any closing remarks. Thank you. Before closing, I would like to add my thanks to the Veracyte team for an outstanding quarter. I have been extremely impressed the progress made in a very short period and in the team that has been assembled. Bonnie has built an incredible culture of Veracyte, one that is steeped in innovation, scientific rigor, collaboration and accomplishment. These core values resonate deeply with me. As we advance our vision and scale the business globally across indications in the patient care continuum, I am committed to upholding them. I look forward to updating you on our progress on our 4 strategic growth drivers at our next quarterly update. Thank you. Ladies and gentlemen, this concludes our call today. Thank you for joining us. You may now disconnect.