Good day, and thank you for standing by. Welcome to the Veracyte Third Quarter 2026 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kelly Gura, Director of Investor Relations. Please go ahead.
Good afternoon, everyone, and thank you for joining us today to review Veracyte's third quarter 2026 financial results. Joining me on the call are Marc Stapley, our Chief Executive Officer, and Rebecca Chambers, our Chief Financial Officer. Dr. John Leite, our Chief Commercial Officer, will also be available for Q&A. Earlier this afternoon, we issued a press release detailing our third quarter financial results, and we posted an accompanying presentation in the investor section of our website. Before we begin, I would like to remind you that statements we 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. The company undertakes no obligation to update any forward-looking statements except as required by law.
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 the most recent Forms 10-Q and 10-K. In addition, this call will include certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP financial measures are included in today's earnings release accessible from the investors section of Veracyte's website. I will now turn the call over to Marc Stapley, Veracyte's CEO.
Thank you, Kelly, and thank you all for joining us today. Third quarter revenue increased approximately 15% year-over-year to $151.8 million, and we delivered another quarter of strong profitability and cash generation. Afirma exceeded expectations, while Decipher Prostate volume was lower than we expected. Today, I will share our observations regarding these trends, the steps we are taking to support future growth, and why we remain confident in the long-term opportunity for all of our tests. First, I would like to highlight some of the exciting momentum we are seeing across our portfolio. We have made good progress advancing our breast and bladder strategies over the last few months with the launches of Prosigna LDT for breast cancer and TrueMRD for muscle-invasive bladder cancer, or MIBC.
In September, we strengthened our urology portfolio through the acquisition of Convergent Genomics, adding a urine-based technology platform that complements our tissue and blood-based capabilities across the bladder cancer continuum. We also advanced our market access strategies in breast, prostate, and bladder cancer, helping preserve and expand access to our valuable tests for Medicare-eligible patients. Now I will walk through our performance across each of our growth drivers. Starting with Decipher Prostate, we delivered nearly 30,000 tests in the third quarter, representing 12% year-over-year growth, with volume approximately 1,000 tests lower than we expected. We are disappointed by that shortfall, but believe we have identified the underlying drivers and are taking action to address them. Firstly, we now believe that the higher favorable guideline updates developed by NCCN for the 2023 and 2024 practice guidelines drove a temporal acceleration in physician adoption, resulting in two years of outsized growth.
Physicians who began or increased ordering following those updates remain engaged, and their order volumes are still growing. However, we believe that growth is now normalizing. Secondly, as discussed last quarter, the 2026 NCCN low-risk guideline change impacting genetic classifiers and MMAI tests, as well as a shift to more low-risk patients choosing active surveillance without undergoing further testing, has moderated growth in that setting to single digits. Thirdly, novel technologies such as digital pathology have drawn attention as physicians consider how to incorporate those tools into their patient care pathways alongside the Decipher test. This requires our commercial team to spend more time discussing the clinical utility of molecular information, the strength and differentiation of Decipher's broad evidence base, and the complementarity of digital pathology and AI-based tools, taking time away from core selling.
To address this, as well as our expanding portfolio of urology products, we are taking a multi-pronged approach, beginning with greater investment in the channel. Rather than our typical handful of sales hires annually, we plan to expand the urology team by approximately 30% next year across field representatives, medical science liaisons, and sales leadership. This will enable our representatives to focus on core selling while continuing to grow the commercial channel to deliver high-value transcriptome and MRD testing with Decipher Bladder, TrueMRD, and over time, UroAmp. We are also expanding our efforts to generate and articulate new predictive and prognostic claims for Decipher, as well as other important tumor molecular features. Decipher is the most widely validated test in prostate cancer, with growing evidence for broader uses in both localized and metastatic disease as care standards and treatments evolve.
We will strengthen our evidence generation flywheel by adding additional bioinformatic capabilities to capture real-world evidence of Decipher's benefit and support analysis of key ongoing clinical studies. While we believe these investments will support broader adoption and deeper utilization, helping sustain Decipher's growth, given the factors mentioned, we are resetting our incremental annual volume growth expectations to 12,000-15,000 tests, with the low end as a reasonable floor for now. Several catalysts could help us reach or exceed the high end of this range, including new predictive evidence further validating Decipher's use across the cancer continuum, key phase III trial readouts spanning all risk categories, and continued evolution of our offering with new molecular and digital pathology insights to help inform patient care. We have advanced these catalysts, generating three new predictive claims in recent months.
At ASTRO, an analysis from the phase III NRG/RTOG 0815 trial provided new predictive evidence for Decipher in intermediate-risk prostate cancer, the largest market segment, where treatment intensity remains uncertain. The data shows that Decipher can help identify patients more likely to benefit from the addition of short-term hormone therapy to radiation, extending its evidence in this setting from prognosis to prediction. Last week at the ESMO World Congress, new predictive evidence from the phase III STAMPEDE trial further expanded Decipher's evidence in clinically very high-risk, node-negative non-metastatic disease, demonstrating the test's ability to help identify which patients may benefit most from adding abiraterone to standard hormone therapy. This builds on Decipher's well-established role in high and very high-risk prostate cancer, including prior STAMPEDE prognostic data that were recently incorporated in the NCCN 2027 Prostate Cancer Guidelines for the first time.
Earlier this summer at ASCO, data from the ENZAMET trial provided predictive evidence for Decipher in metastatic hormone-sensitive prostate cancer. Continued investment in new claims is essential to build evidence across the risk continuum. Potential catalysts, if positive, include readouts from the prospective NCI-sponsored phase III GUIDANCE and PREDICT-RT randomized trials, which are now fully enrolled. They are evaluating treatment intensification and de-intensification in intermediate and high-risk disease, respectively, using Decipher as an integral biomarker to determine eligibility or treatment assignment. As discussed last quarter, phase III low-risk studies, including Jenny Space and G-MAJOR, are evaluating Decipher's role in active surveillance decisions and could begin reporting preliminary findings as early as next year.
Finally, one of our key differentiators is the combination of GRID and our collaborations with the academic community, which enables us to continually expand the insights we can deliver to physicians as prostate care becomes increasingly complex. We are bringing clinically validated signatures, including PORTOS, P10, and PAM50, into our molecular features report to provide additional insights. DPAI represents another opportunity to build on this strategy by bringing molecular and digital pathology insights together to better inform prostate cancer care. We expect our first publication on our DPAI algorithm in the next few quarters, building on the data presented at ASCO GU last year and fueling further research in this important area. We believe this will lead to multiple publications supporting the complementary use of DPAI alongside molecular testing in settings where it can add clinical value to the Decipher result.
In summary, our confidence in Decipher's long-term opportunity is unchanged. The franchise is growing across all risk categories, gaining share and penetration, with ongoing prospective studies designed to generate level 1 evidence across low, intermediate, high risk, and metastatic disease. Notably, many of these trials were started more than a decade ago and are anticipated to read out over the next few years, efforts that, to our knowledge, have not been replicated. As evidence standards rise, we believe this depth and breadth will further differentiate Decipher, expand adoption and utilization, and help address the approximately 334,000 men diagnosed annually in the U.S. We continue to view 80% market share and 80% penetration as appropriate, achievable long-term targets, supported by Decipher's differentiating evidence base and expanding evidence pipeline. Turning now to Afirma.
We delivered another exceptionally strong quarter, driven by approximately 19,000 tests, 12% year-over-year, fueled by deeper utilization among existing physicians and continued share gains. With the strongest sequential Q3 volume increase since 2020, this performance underscores our data-driven evidence generation approach and our leadership in thyroid nodule molecular diagnostics. Further, our V2 transcriptome workflow significantly reduced the no-result rate, helping more patients receive results and contributing approximately 300 basis points to year-over-year volume growth this quarter. We increasingly use the Afirma GRID to support academic and industry collaborations that could yield new signatures, molecular insights, and use cases, fueling further publications and presentations that expand Afirma's evidence base. At this week's American Thyroid Association, or ATA, annual meeting, Afirma will be featured in no less than 10 posters and abstracts, including two oral presentations, our strongest podium presence in recent years.
The studies build on Afirma's established diagnostic role and explore how gene expression data can illuminate cancer risk and biology. We are very pleased with Afirma's year-to-date performance and believe share gains, market growth, and deeper penetration position the franchise for continued growth in 2027 and beyond, supported by ongoing clinical evidence. Moving on to Prosigna. We launched the test in the U.S. a few months ago following the prospective phase III OPTIMA readout, which provided practice-changing level 1A evidence for treatment decisions. Prosigna identified more than two-thirds of clinically high-risk women who could safely avoid chemotherapy, one of the most consequential decisions in early-stage breast cancer. OPTIMA builds on an already substantial body of evidence, including 157 publications to date featuring Prosigna, and more than 1,200 featuring the PAM50 classifier on which the test is built.
That evidence has already supported Prosigna's inclusion in NCCN guidelines for node-negative patients, as well as those with one to three positive lymph nodes, based on its prognostic ability to assess risk of recurrence. Looking ahead, we believe the OPTIMA data will, once published in early 2027, expand Prosigna's role in guidelines by supporting its ability to predict chemotherapy benefit in higher-risk patients, including premenopausal women. A late-breaking health economic analysis presented at ESMO showed Prosigna-guided treatment can deliver meaningful cost savings for the U.K. health system, potentially reducing chemotherapy-related costs by millions of pounds annually. Quality of life analyses for patients within the OPTIMA trial, expected at the San Antonio Breast Cancer Symposium in December, will add evidence on clinical utility and patient impact. We also have more than 20 studies that are either ongoing or have completed and are pending publication.
These studies will strengthen our prospective and retrospective data, including head-to-head comparisons across pre- and postmenopausal patients, and for those that are node-negative and node-positive. Together, the strength and breadth of this evidence reinforce Prosigna's ability to help predict chemotherapy benefit beyond what can be determined by clinical risk factors. This differentiation gives us confidence in Prosigna's ability to address the significant market opportunity ahead, where approximately 225,000 patients are diagnosed with ER-positive, HER2-negative breast cancer in the U.S. each year. We are seeing encouraging early demand following the launch, particularly in patient populations where the OPTIMA data are most differentiated. Physicians have also responded positively to the intrinsic subtype information provided with every Prosigna result, which offers additional insights into the underlying biology of a patient's cancer.
We also recently secured Medicare reimbursement for postmenopausal women with early-stage ER-positive breast cancer who meet the applicable Medicare criteria, including stage I or II disease and zero to three positive nodes, further supporting access for eligible patients. We are on track to grow our dedicated medical oncology commercial team to 15 representatives by year-end, doubling our original goal. As we move into 2027, we plan to enhance the customer experience and ordering workflows to make Prosigna easier to incorporate into routine practice. During the quarter, we also saw significant momentum outside the U.S., where Prosigna is already well-established as an IVD test. Product revenue grew 40% year-over-year, driven by strong adoption of Prosigna IVD, primarily in the U.K. and Nordic region, following the OPTIMA readout.
We continue to expect Prosigna to drive meaningful share gains over the next two to five years and become an important growth driver for Veracyte, while helping more physicians make better-informed treatment decisions for patients with breast cancer. Turning now to bladder cancer. Our recent acquisition of Convergent Genomics strengthens our position by adding UroAmp, a differentiated urine-based tumor DNA platform. Together with Decipher Bladder for tissue-based risk stratification and TrueMRD MIBC for blood-based recurrence monitoring, we are building a portfolio spanning non-muscle invasive and muscle invasive disease to inform bladder cancer care from diagnosis through post-treatment surveillance. Approximately 85,000 patients are diagnosed with bladder cancer each year in the U.S., including 65,000 with non-muscle invasive bladder cancer, or NMIBC. Urine is particularly well-suited for testing in NMIBC because it comes into direct contact with bladder tumors, while localized disease may shed limited tumor DNA into blood.
UroAmp addresses this critical unmet need with our initial focus on three applications: informing the post-induction maintenance decision, monitoring response to therapy, and post-treatment surveillance. UroAmp has a strong evidence base, with nine peer-reviewed publications and more than 40 abstracts and posters. Four additional abstracts have been accepted for the upcoming Society of Urologic Oncology, or SUO, annual meeting, including data from the prospective Insight trial evaluating the clinical utility of UroAmp for our first application, informing the post-induction maintenance decision. This data has also been accepted for peer-reviewed publication, helping support the technical assessment for reimbursement and representing an important step toward commercialization. We expect to launch our first UroAmp application in late 2028 with Medicare reimbursement, with additional applications to follow. Earlier this year, we launched our first commercial TrueMRD test after securing Medicare reimbursement for recurrence monitoring in patients with MIBC following radical cystectomy.
TrueMRD uses whole genome sequencing for both the landmark test and longitudinal monitoring, providing a broader view of tumor biology and the ability to track tumor evolution over time. We believe this is an important differentiator, with potential to extend to additional tumor types and clinical applications. We expect the bladder opportunity to build over time, beginning with broader adoption and expanding clinical utility for Decipher Bladder in 2027, followed by more meaningful contributions from the portfolio in 2028 and beyond, as UroAmp applications launch and additional TrueMRD indications gain reimbursement. Together, these tests will uniquely combine to determine risk of progression, predict response to therapy, monitor for occurrence, and track the genomic landscape as the cancer evolves while also determining the time point that localized disease becomes systemic. In closing, we remain confident in our business and opportunities ahead.
Our consistent growth over the past several years reflects the strength of our portfolio and the scale we have built. We believe we are well-positioned to build on that momentum with exceptional Afirma performance and expanding Decipher evidence base to support its long-term opportunity and strong investment in our growth drivers. I am particularly proud that during the quarter, we served our one millionth patient, a milestone that reflects the impact we are having and the reach of our tests. I would like to thank the entire Veracyte team who made this milestone possible. With that, I will turn the call over to Rebecca.
Thanks, Marc. Third quarter revenue grew 15% year over year to $151.8 million, and total volume increased 15% to approximately 52,700 tests. We generated $40.3 million of cash from operations and ended the quarter with $370.5 million in cash equivalents, and short-term investments after a $150 million cash payment for the acquisition of Convergent Genomics. Testing revenue grew 15% year over year to $146.4 million, driven by 12% Decipher Prostate and 19% Afirma growth. Testing volume increased 13% to 49,498 tests, and ASP increased 1% to $2,960, including approximately $2.5 million in prior period collections, or PPCs. Excluding PPCs, normalized ASP rose 2% compared to the prior year to approximately $2,900, reflecting sustained pricing gains from operational improvements implemented over recent years and managed care wins. Turning to gross margin and operating expenses, I will focus on our non-GAAP results.
Non-GAAP gross margin was 73.7%, up 90 basis points year over year, driven by strength in our testing business. Testing gross margin increased approximately 70 basis points to 74.7%, reflecting operational efficiencies from our V2 transcriptome workflow and higher ASP. Non-GAAP operating expenses rose 24% year over year to $72.9 million. As discussed, we moved software development and project management costs from G&A to R&D to reflect their full focus on product development. R&D increased $15.2million to $29.2 million, with approximately $6 million from the realignment and the remainder from increased product investment. Sales and marketing rose $3.5million to $25.9 million, with approximately half of the increase funding our new Prosigna sales team. G&A declined $4.5million to $17.8 million, reflecting primarily the movement of cost centers. GAAP net income was $31.5 million.
Adjusted EBITDA reached $41.2 million, or 27.2% of revenue, exceeding our 25% annual long-term target. Turning to our 2026 outlook, we now expect full-year revenue of $590 million-$593 million, up 14%-15% year over year, versus $590 million-$596 million previously. We expect testing revenue of $571 million-$573 million, up 16%, as compared to our prior expectations of $576 million-$582 million. We expect approximately $10 million in other testing revenue from cytology services and Decipher Bladder, with minimal contributions from recently launched tests. As Marc noted, early U.S. Prosigna demand is encouraging, and the patient mix to date suggests only a modest portion of volume will translate into fourth quarter revenue. Our guidance assumes approximately 16% Decipher Prostate revenue growth, with full-year ASP slightly above 2025, reflecting year-to-date PPCs and stronger-than-expected ASP performance.
Quarter-to-date trends are encouraging versus Q3, but with two fewer selling days in the fourth quarter, we expect volume to be roughly flat sequentially. For Afirma, we raised revenue growth guidance to approximately 16% from 12%-14%, reflecting Q3 outperformance, favorable year-to-date prior period collections, continued ASP improvement, and an expected approximately 3% full-year no-result rate benefit. In the fourth quarter of 2025, the V2 transcriptome improved the no-result rate by approximately 200 basis points. We expect continued benefit this year, though with a smaller year-over-year impact compared to what we've seen year to date. Strong year-to-date profitability supports maintaining our adjusted EBITDA guidance above 26%. It also creates a reasonable possibility that a potential partial release of the valuation allowance could favorably impact our effective tax rate on a GAAP basis within the next 12 months.
Looking ahead, we would like to share our preliminary view of 2027, starting with key headwinds and tailwinds, most of which have been discussed previously. We currently expect Decipher volume growth near the 12,000 incremental test floor Marc outlined, allowing time to assess how the catalysts discussed affect the business over coming quarters. We expect approximately 5% Afirma volume growth as we lap the no-result rate improvement from the V2 transcriptome transition. PPCs contributed meaningfully to growth in 2026, with approximately $6 million for Afirma and $4.5 million for Decipher recognized year to date. Given PPCs have uncertain timing and magnitude, we typically exclude them from guidance, creating a tougher 2027 comparison. Much of the Afirma 2026 PPCs result payments related to last year's LBM issue, so we do not expect that outsized level to reoccur.
Excluding PPCs, we expect the strong ASP gains this year to persist in 2027 and beyond, supporting underlying revenue growth. Our Prosigna and TrueMRD revenue expectations remain modest, reflecting typical first-year adoption timelines and limited coverage for our current Prosigna sample mix. Despite encouraging reimbursement progress, establishing commercial payer contracts and collection history takes time. Given these factors and our volume mix to date, we expect Prosigna ASP to be similar to our cost per test in the near term. As a result of these dynamics, we expect approximately 10% total volume growth and mid-single-digit total revenue growth next year, with prior period collection dynamics and revenue mix accounting for the difference. We expect approximately 22% adjusted EBITDA for the full year, with Q1 representing the low point due to expense timing before margins improve to approximately 25% as we exit the year.
This outlook reflects continued investment in growth, including expanded Decipher sales and marketing, while our long-term adjusted EBITDA goal remains unchanged at 25%. As we move through 2027 and into 2028 and beyond, we believe that growth will accelerate due to expanding evidence for Decipher Prostate around all risk categories, as well as increased momentum surrounding our newer growth drivers, namely breast and bladder, which will contribute in 2027, but to a greater extent in 2028 and beyond. We expect our differentiated financial profile to sustain strong profitability and cash flow while funding long-term portfolio opportunities. Reflecting on this profile of favorable long-term trends, strong cash generation, and confidence in our outlook, our board authorized a share repurchase program of up to $100 million. In closing, despite our moderated near-term expectations, we are confident in the long-term trajectory of our business.
Our vision is to transform cancer care for patients all over the world, and we continue to do this with our growing portfolio of tests spanning bladder, prostate, thyroid, and breast cancer. We will now move to the Q&A portion of the call. Operator, please open the lines.
Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Puneet Souda from Leerink Partners. Your line is now open.
Yeah. Hi, guys. Thanks for the questions here. First one, look, Decipher is your largest revenue product. It has very strong clinical evidence that you have built with NCCN inclusion, and the volumes have been strong. I am trying to understand. I mean, look, you missed the volumes slightly last quarter, lowered the volume expectation, and this is another miss, which comes as a surprise to us. Just trying to understand, why is this not a structural bleed in volumes that could accelerate further? Why is 12,000 an annual volume increase that you are talking about for Decipher the right floor when just one quarter ago, 20,000 was the right number in your mind? And I have a follow-up.
Yeah. Thanks, Puneet. That is a fair question. Let me take you through. I mean, we cited on the call three factors that we have analyzed for this quarter. Last quarter, we talked about the low. That was clearly the first impact we saw, and that is continuing this quarter. But to your point, as you mentioned, the NCCN guidelines and the strong evidence drove what we now believe is two years of outsized growth. In fact, it fueled growth very strongly for late 2023 into early 2024 and then 2025. It feels like we are now coming off the back of that and getting to a more normalized level of growth. So what is that new normalized level of growth?
If you think about the second half of this year, based on the guideline that we've given you in the Q3, the guidance that we've given you in the Q3 results, we're running at about, call it a run rate of 12,000 tests a year. We've also done a lot of internal forecasting and analysis of what that range should be, that normalized range, and that's where the 12 to 15 came from. We feel as a team very confident in the 12. We think it's prudent and important and transparent to build our business around that 12, including how we think about resourcing, how we think about profitability, how we align and focus our teams, rather than on a higher number. As the year progresses, that gives us an opportunity to revisit that.
We also felt it important to share that today so that you all have some sense of what we're thinking. I'll be clear, our budget isn't done yet. It hasn't been approved by the board. We'll continue to work through that as we normally do during this cycle of Q3 and Q4. We feel very confident in that 12,000 number at this point. I don't anticipate that changing between now and Q4, to be clear. That's why we're giving it to you now.
Okay. On the competitive front, I think you talked about digital pathology. Just wanted to understand, look, there's a competitive digital pathology assay that saw a step-up in promotional activity from a peer, from a competitor through 2Q. Just trying to understand, are you seeing an impact from that? Also wanted to gain an understanding of how are you seeing any competitive impact from the AI tests that are also in NCCN now and competing with Decipher?
Decipher is still growing, right? Which means we're adding new customers, and existing customers are expanding use. What we're seeing here is the accelerated growth we had has moderated, but we're still growing in Decipher, right? So we're still growing into the white space, and we're still taking share. What we are seeing is activity. You mentioned it, promotional activity around DPAI is one good example of a recent new product that is getting some attention from physicians, and that requires our sales teams to spend quite a lot of their time effectively talking through the difference between molecular testing and digital pathology, the evidence base for Decipher, how to interpret guidelines, and so on. That's clearly a distraction that means that they're not able to spend as much time on core selling activities.
To target that, Puneet, what we are doing is, as I mentioned on the call, we are increasing our resources on the sales side by 30%, which is significant. The customers are going to feel it, the other players in the market are going to feel it. That is a significant increase, but we are going to do it thoughtfully and appropriately and not rush into it. We do not want to change our quality and our culture around our sales team. They are very high performing, and we want to keep it that way, but it will certainly be felt out there as well. That is how we think about that. Do not think about that as we are not losing share. There is some mindshare that needs to be regained.
Got it. Last one maybe for Rebecca. You are hiring more reps in 2027. OpEx is going to be higher. You talked about adjusted EBITDA being lower. I am just trying to understand how are you thinking about any offsets to that? I think you called 22% adjusted EBITDA in first quarter being the low and then improving from that. I am just trying to understand, but TrueMRD and Prosigna still are 2028, so what are some of the things that can help you offset and continue to improve profitability?
Puneet, thanks for the question. Just to clarify, 22% was for the full year and exiting the year at 25%. Q1 will actually be below that 22% given the timing of spending. What could take that number higher is prior period collections. As you know, we do not guide to prior period collections, and so those tend to flow through quite nicely. Then just operational efficiencies. We have gone through the organization with a fine-tooth comb at this point in time, obviously given the revenue delta over the last couple of months versus our prior expectations, and have succeeded in getting to that 22% number, which I think, given the revenue delta, is, I think, quite powerful and quite a powerful statement for the profitability of our business overall.
You always have things that could be timing in nature or prior periods in nature, better ASP, ex-prior periods as well could help profitability, and then just vacancy. I think we tend to budget to a certain number. That number for next year is 22%, and that is what we are aiming for at least, and hopefully the board will align with that. Then from there, hopefully we will underspend and outperform, but that is not for today's call. That is for the future.
Okay. I'll hop back in the queue. Thanks, guys.
Thank you. Our next question comes from Subbu Nambi from Guggenheim. Please go ahead.
Hi, this is Ethan on for Subbu. Thanks for taking our question. On Prosigna, Medicare coverage follows the original LCD, so it's limited to postmenopausal patients with zero to three nodes, but OPTIMA's strongest data is in premenopausal patients and those with four to nine nodes. We're just wondering, what's the timeline for asking Medicare to expand the LCD, and how far along are commercial payers for premenopausal patients?
Yeah. By the way, obviously, we were very happy to get that coverage, and to your point, it was absolutely tied to the original LCD, and there is a process we'll need to go through to get the four to nine nodes covered, of course, but that is a small part of the market. I think it's also the hook that will bring some customers to Prosigna, but not the only one, and I think it'll take a while to get that included in the LCD. Of course, premenopausal is more commercial coverage, and we have some commercial coverage and plans to get into contracts around that as well, and we expect the OPTIMA data when published to be a key component of getting that done. Anything you want to add, John, on the reimbursement side?
Not on the reimbursement side, but just on the OPTIMA data itself, it is important to remember that most importantly, aside from the clinical impact that OPTIMA had on premenopausal patients and on patients with higher node burden, is the fact that it found that nodes of themselves are not predictive of chemo sensitivity. We believe the opportunity is far broader than just the premenopausal population with high node burden.
Then just one last thing to call out, and this is effectively one of the factors in the delta between the volume and revenue guide for next year. Effectively, what we have assumed for Prosigna ASP is that it is roughly approximating cost, and that is exactly for the reasons, Ethan, that you highlighted, vis-à-vis the Medicare policy as well as commercial.
Thank you, guys.
Thank you. Our next question comes from Doug Schenkel from UBS. Please go ahead.
Hey, good afternoon. You are increasing commercial investment to address the challenges facing Decipher while also pursuing the Prosigna opportunity. How are you going to sequence those priorities and allocate resources so that strengthening the core and expanding Prosigna reinforce each other rather than compete? Specifically, what can leverage the existing commercial infrastructure? What requires incremental investment? What milestones will guide and gate the pace of expansion? Because it does seem like, given the current situation, you are taking on a bit more than I think most of us thought you were going to be taking on as we turn to 2027.
Yeah. Thanks, Doug. Great question. So, a couple things. Firstly, on the Decipher, the urology sales team, let me talk about that. One component of that is giving small resources out in the field to help with the messaging, as I talked about, around other emerging technologies, and to bolster the sales team there. Also, and this is important, a key component of adding our resources there is we built a urology portfolio that is extensive and broad. Between prostate, bladder, with TrueMRD, and then obviously our acquisition of the UroAmp product line, with tissue, blood, and urine-based testing, we have to make sure that we have sufficient resources to cover all of that, and while maintaining the— in fact, maintaining and increasing the focus on our core Decipher as well in prostate, given the dynamics I talked about. So, that is the first thing.
Part of that 30% investment is a portfolio investment. It is not just Decipher Prostate. As I said, we will be thoughtful about how we add that. We know how to build that sales team and align territories, and so I am not concerned about that. I am also not concerned about any competition for resources with Prosigna. Separate sales teams. The Prosigna team will grow to 15, which is double our original estimation, and I am very comfortable with how we will focus our time on building that team as well. So, the sequencing will be very much in parallel, done very much independently of each other. While you are right, I think we are doing more than we might have originally anticipated doing next year in terms of building those resources, that does not faze me at all.
Maybe to your question on shared resources, Doug, it is actually a great one. The way we have structured the operations of this organization, effectively, we have one team across customer service, billing, and the lab, and effectively, we will be able to leverage all of those quite nicely as volume scale. The other thing we have done, and I am pretty sure you are aware of this, is we have introduced our new V2 transcriptome, which effectively is the backbone of both Afirma and Prosigna. So, introducing new products into the lab has been much less disruptive. Between having a whole exome or a whole transcriptome workflow, as well as the whole genome workflow, we really have effectively the entirety of what we need right now from a laboratory infrastructure perspective.
I think when it comes down to it, those are the types of resources that we will be able to leverage as both of these portfolios ramp, whether it is the Prosigna or the urology portfolio opportunity that Marc mentioned.
Okay. Thank you for that. Rebecca, Decipher revenue growth appears poised to fall below 10% in your 2027 construct. I want to make sure I have that right. If I am in the right neighborhood, when you contemplate the addressable market, the penetration of the market opportunity, competitive dynamics, which that combined with guideline changes clearly came back to get you here in a way that you did not expect, and ASPs, can we look at this as a sustainable double-digit growth business in the long term, or does this look more like a single-digit grower factoring in all of these things? Again, I know there are things you are trying to do to reinvigorate this, but there are a lot of variables in this equation that suggest to me that 10% might be the ceiling, at least as we are thinking about multi-year models.
Yeah. It is a good question, Doug, and I think the 12,000 to 15,000 test cadence is the right one. Next year, we do have a lot of unique situations. We do not guide with prior periods, and we had $4.5 million of prior periods year to date for Decipher. When it comes down to it, that 12,000 to 15,000 range, we think we are very comfortable with. Then there are other opportunities above and beyond Decipher Prostate in the urology portfolio that we think can help augment the company to a double-digit growth number. Obviously, this is Afirma and Decipher continuing to grow nicely is core to that. If you look at UroAmp, if you look at Decipher Bladder, TrueMRD, Prosigna, we do think this is a double-digit opportunity at the highest level across the entirety of the portfolio.
What is growing double digits within that portfolio at any given point in time is going to ebb and flow based on things like prior periods and comps and the V2 transcriptome and all the different nits and gnats, if you will. This is a great business. It is a great portfolio. It is incredibly profitable. It throws off a ton of cash, and the top line is growing. Volume growing 10% next year is a good indication of that. You see embedded in that guide some significant growth from Prosigna and Decipher Bladder and to a much lesser extent, TrueMRD.
Okay. Last one. ASPs, I know you said take out the prior period collections. What does that mean for Afirma and Decipher next year? What should we be plugging into our models?
I think ex-PPCs, you can put the current run rate in there for next year, and that should get you pretty close.
Okay. Thank you.
That does not take into account, obviously, any managed care wins between now and the timeframe that we are discussing.
Thank you. Our next question comes from Tycho Peterson from Jefferies. Please go ahead.
Hey, team. This is Lauren on for Tycho. Just a few more on Decipher. Are you still adding new ordering physicians for Decipher at the same pace? If so, does the volume misapply utilization per physician is weakening, or is it more so softness weighted towards the low risk? I guess on that same metric, are critical call points, I guess, going into 2027, do you kind of see necessity to have low risk return to growth to hit kind of the double-digit volume growth targets as the market becomes more penetrated and competitive?
Yeah, so I'll ask John to talk about the dynamics with respect to the addition of physicians and physician utilization.
Sure. So, yeah, so the addition of new ordering physicians does outpace, or I should say is the more important driver of our growth overall. Our orders per physician has been fairly stable over the last few quarters, which tells you that there are a cadre of physicians who have been ordering Decipher for a longer period of time who are much more high-volume orders as opposed to those who've just joined, who order at a lower rate until such time as they secure more tenure and then start ordering at a higher rate. So overall, to maintain that steady orders per doc as we're adding new docs, you can tell that there's a bucket of physicians that just order more as they progress over time.
Yeah, I mean, when you look at the numbers in the third quarter, we actually saw some growth in new physicians. In fact, we are seeing that go into October as well, new and reactivated physicians. I think John is spot on there. When they come on, they come on a lower ordering rate per physician, and obviously, the better you do at that, the more you dilute and drag down that metric. I would say when you look at the kind of the active loyal physicians, you have got that group at the top that are more penetrated, and then you have got the tier below them that are becoming the new top tier. Yeah, I think there is a lot of these dynamics going on.
The kind of high-level message is we are seeing both new physician adds, and for those physicians that are in the lower tier, they are starting to order more. The exception to that is low, the low risk. The low risk has. That is why we say single-digit growth, low single-digit growth. It is more a case of physicians are engaged and they remain engaged, but they are not growing at the same rate that they used to, and their utilization is not growing at the rate that it used to.
The only thing to add to that, Lauren, is that you asked about low risk next year. We are not going to bifurcate by risk category or guide. It is pretty early to even have a guide, let alone to do so. I think when it comes down to it, on the back of the 0815 data, intermediate is going to continue to be incredibly important for us, and we are seeing good momentum there post that data being released. Low, we are not necessarily assuming anything material changes or there are any catalysts that Marc cited. We do expect those catalysts to be coming out over the next few years, but that is not assumed in anything for that in the 2027 number, specific to low.
Perfect. Thank you.
Thank you. Our next question comes from Mason Carrico from Stephens Inc. Please go ahead.
Hey, guys. Thanks for the question here. I am going to ask a question that you guys may have just said that you are not going to break out, but I will try anyway. The 12,000-15,000 Decipher unit kind of changed to the outlook here. I guess, could you just clarify, I guess, the delta between that and 20? What is lowered expectations from low risk compared to last quarter? How much is a step down in intermediate and high-risk expectations?
Yeah, Mason, you were correct. I think at this point in time, quantifying that would be an exercise in futility. I think when it comes down to it, the dynamics we talked about in the prepared remarks was low continues to be the same dynamic that we spoke about in Q2. The competitive noise is taking more time away from the field, which is why we are increasing our commercial activity so significantly. I think we are not necessarily seeing anything dramatic or anything even slightly negative, actually, the contrary, on intermediate and high post the 0815 and ESMO data in high risk. I do not want to quantify those, but I think the dynamics underlying are pretty clear at this point in time. I think we are doing great things in the intermediate and high category, and low is a function of the overall market dynamic.
Got it. Okay. Then maybe moving to Prosigna. I think on the Q2 call, you guys called out you were engaged with 100-plus institutions. Would you be willing to share, I guess, how many have moved from evaluation to ordering at this point, and if adoption has skewed more towards certain patient segments, or maybe institutions adopting across the broader patient population for that test?
Yeah, thanks for the question. We are continuing to add more institutions, which is a clear leading indicator for us. Of those, we are starting to see more and more institutions that are becoming repeat orderers, which is another solid leading indicator for us. Then lastly, to your point, we are looking to whether the case mix changes significantly. As you can imagine, in these early adopter days, they are testing the test on the patient population that is currently underserved by the current providers, and that is where the OPTIMA trial data had its most highest impact. The next leading indicator for us is to monitor the transition of those ordering patterns towards a broader, more representative population.
Got it. Thank you. I will leave it at that.
Thanks, Mason.
Thank you. Our next question comes from Kyle Mikson from Canaccord Genuity . Please go ahead.
Yeah. Hey, guys. Thanks for the questions. I think you talked about how you will be expanding the urology commercial team by like 30% or so next year. Just in terms of like qualitatively how that kind of call point and market is evolving, given, I guess competitors have some kind of bladder cancer stuff going on as well as prostate is evolving too. Maybe how are urologists and radiation oncologists thinking about maybe this area now from end-to-end, the whole continuum? Why does the Convergent sort of addition here address that? Thanks.
I think if you think about the urologist market, we are not seeing much change in our engagement with them, certainly on the prostate side, and in fact, a level of interest in molecular diagnostics. We do not see that going in any direction other than up, and that is why we still feel 80% penetration, 80% share is the goal there, and that would be urologists and rad-oncs. The bladder fits so beautifully into that market and that channel, and we want to make sure that as we launch and really resurge the level of activity around Decipher Bladder, as we launch or push on TrueMRD, which we launched this year, and as we launch UroAmp, we are really working with that community around recognizing the benefit of this multitude of tests in the portfolio. Setting that up for these product launches is absolutely key.
Again, the same thing that we are seeing in prostate, it is fueled by evidence, and so getting publications out around the use of UroAmp and the utility, getting reimbursement, getting into guidelines are all part of the playbook there. It works very well, and that is going to work the same way in bladder. Anything you want to add?
Yeah, the only thing I would mention, just to touch on one of the points you had mentioned, the call points are exactly the same. The same physicians who are managing prostate cancer are also doing bladder, and their urological surgeons are following the same population of I am sorry, it is the same physicians following these two very distinct populations of patients. What we are hearing about the addition of UroAmp is just that it is incredibly complementary to our Decipher Bladder tissue test, which is going to become a focal point for us in 2027. It is complementary to our TrueMRD test in blood, which measures recurrences in more advanced systemic disease, whereas UroAmp is very much a solution for detection of recurrences in localized disease from the bladder.
We're sensing quite a bit of enthusiasm from ordering physicians and KOLs, and we're pretty well set up for bladder cancer in 2027 and in the future.
One thing I'd add, that I mentioned briefly in the remarks, but I want to make sure people pick up on it, is by having these multitude of tests that we have at the multiple stages of the patient journey in multiple sample types, we will be able to track the evolution of the patient's cancer and tumor over time. And because we follow the same GRID approach that we always do, which is we look at whole transcriptomes, we look at whole genomes, we will have incredibly rich and valuable data. And we've seen a lot of interest around that, particularly in bladder cancer, and so that is becoming much more an important part of our conversation with collaborators and potential partners. And I think that's one of the things I'm actually most excited about for this franchise going into 2027, is the opportunity to expand on that.
More to come on that in the future as well.
Awesome. Thanks, guys. I want to just lump two thoughts here in the last question. First is on Prosigna. Is the plan to sort of expand back to med-onc for reps next year as well, or are you going to be good to go with the 15 by year-end here, and you'll kind of just assess things going forward? Then secondly, wanted to ask for an update on the Decipher international plans. I don't think you have touched on that yet. Thanks.
Yeah, so on the Prosigna reps, yes, it is our plan to continue to add reps as we anticipate the growth in volume. We have a pretty prescriptive process about how we assess the opportunities within a territory and when it's ready to place a new rep in either a vacant territory or to split the territory.
On international, our goal still remains to get Decipher in the hands of physicians all around the world so it can be used to help patients with prostate cancer anywhere. We're still very focused on Europe. Yeah, I'd say one of the things with our acquisition of Convergent is we've moved around a few priorities a little bit, including that one. There are multiple other ways that we are looking at of making that happen in certain countries. Nothing that I can share on that at this time, but yeah, I'd say the primary focus right now is shifting more so towards the bladder side, as well as continue to grow the core business.
Thank you. Our next question comes from David Westenberg from Piper Sandler. Please go ahead.
Hey, guys. This is Piran on for David Westenberg. Maybe I could ask the physician penetration question another way. Historically, have you ever broken out percentage of penetration divvied up between academic versus rural providers? If so, channel checks suggest that academic utilization is probably a little bit higher than rural. I guess, what percentage of sales reps and efforts are going to expanding rural new physicians?
Yeah, we haven't broken it out, and I'm not sure it would actually add a tremendous amount of value if we were able to do that. Let's just put it this way. We have our sales team focused on as much of the population as is actually possible and makes sense, because especially as you get out into the community, you don't see as many cases, obviously, and that's part of why we say 80% penetration. By the way, you don't get to 100% penetration because in some cases, you never get there. We've got them focused on all parts of the channel. I would say, obviously, in the academic centers, intermediate would be quite well penetrated, but there's plenty of opportunity still in intermediate, high, and low.
The catalyst that we talked about will be this catalyst that will drive growth in academic centers, and then obviously, that will follow in the community, especially once you get guidelines. The guidelines are more important to drive that community adoption, which is why we keep focusing on evidence and guidelines as being the fuel that drives this business. No, I don't think breaking it out actually would create a tremendous amount of value. The white space is significant. The penetration of our overall prostate cancer test, as we said, coming into the year was around 35%, and there's still plenty of opportunity to grow. The question I think we're dealing with on this call is the velocity of that growth at this point, which is why we're resetting to the 12-15%. It's not the opportunity.
Understood. Cool. Thanks, guys.
Thank you.
Thank you. Our next question comes from Mike Matson from Needham & Company. Please go ahead.
Yeah, thanks. I wanted to see if you could help me kind of bridge this 10% volume growth that you are talking about next year to the 5% revenue growth. I understand the PPC impact, but that seems like it is maybe 2%. It sounds like you still expect some positive underlying pricing, I guess, maybe partially offsetting that. What gets you to the rest of that kind of 3% differential there between the 10 and the kind of five, I guess is what I am thinking of.
Yeah, happy to answer that for you. You are absolutely right. About half of it, and I am, call it a couple hundred basis points, is prior periods, and that being in the 2026 number and not in the guide. The other half is really a revenue mix piece, right? You will have volume for Prosigna at a much lower ASP. You will have volume for bladder at a lower ASP, and then we do not necessarily forecast biopharma revenue that explicitly, unless it is an order in the bag. We have had biopharma revenue, and so those are the different bits and pieces. I would break it into, just to summarize, PPC is about 200 basis points, and I would call those three buckets revenue mix being the other 200 basis points.
Okay. Got it.
And then no result rates in the 10.
Yeah. Then, just for UroAmp, I know when you announced the deal-
And actually, Mike, can I just do one more thing before you get there?
Yeah, sorry.
I do think it's No, I should have had the thought at that point in time, so my apologies. Really, when it comes down to it, all of those items I just referred to are What's the word I want? They're unique in nature, and they aren't necessarily The business isn't really growing at that mid-single digit type revenue growth, right? These are all very temporal things that, over time, volume and revenue should approximate each other much more closely. I recognize that we have a relatively large delta for 2027, but if you take a step back and you look over a multi-year process, that revenue and volume conversation should be one and the same. I recognize that the mid-single digits is a bit of a surprise, but we are facing all, for the most part, from good things, right?
Prosigna volume growth, bladder volume growth, collections being better than expected. We are facing a harder comp in 2027, which is lending it to that delta. Thanks for letting me get that out.
Yeah, no problem. That all makes sense. Then just on the UroAmp test, so you gave some numbers in the press release around number of people with bladder cancer, but I guess what I'm wondering is specifically for the indications you're going after, so BCG initially, then the intravesical maintenance therapy monitoring. Can you talk about how big those are, either in terms of patients or dollars?
Yeah, we'll talk about that. As we said on the call when we announced that acquisition, you've got the incident population, of course, which is- I think it was about 80,000 non-muscle invasive bladder cancers, the bulk of that, then you've got muscle invasive. But then you've got this, the prevalent population, if you like. The benefit of this test is, it's multiple tests per patient. Now, of course, we've got to get through the reimbursement challenges of multiple tests per patient, which is part of what we're developing the evidence to achieve. When you look at it's hundreds of thousands of patients TAM, or sorry, I should say tests TAM, not patient TAM.
We took a very conservative approach in size that around the $400 million mark, but that was incredibly conservative. I think you can assume it's at least that.
Okay, thank you.
Thank you. Our next question comes from Keith Hinton from Freedom Capital Markets. Please go ahead.
Great. Thanks for taking the question. I wanted to start on Decipher ASP. I think it was about a year ago that you talked about maybe being able to get 300 to 500 basis points of leverage over the next five years from ASP. So sort of setting aside all the temporal PPC noise, do you think that that's still a realistic goal over the next four or five years? In terms of getting to that, or if it's lower, getting to a lower number, how much of that is managed care wins versus operational efficiencies, making sure you get paid when you should be? Then I have a follow-up.
Yeah. I do think that is still the right kind of framework. We have had great success across the firm and Decipher this year, and I do not necessarily see that changing too dramatically in the future. The teams that are going after both the collections, as well as the managed care wins are doing an amazing job. I think when it comes down to it, we will continue to do so. The challenge is timing, right? It is effectively calling when that is going to happen, given so much of the managed care conversation is outside of our control. When we think about forecasting in any given year or guiding in any given year, we do not necessarily count on wins that we do not know. I do not want to say in 2027 we will have X percent gain, because again, that is a long ways away.
I think from a framework perspective, absolutely, there is still room to go here. It has been a good news story for a long period of time for us, both on Afirma and Decipher. The $2,900 roughly ASP ex-PPCs is amazing to see. But again, in any given year, it is hard to time those out in a way that we could include them in a guide.
I would say our market access, kind of both strategy and operational execution alongside our billing and collections team, it is an exceptional team, and they do a really great job of managing this stuff, both from a Medicare and a commercial contracting and reimbursement perspective. That is one of the things that we have got probably one of the best in class teams and one of the best in class yields there, but there is still always room to continue to grow, and we have a lot of focus on it. The other point is, our reimbursement is just, it is extremely durable, because of the way we approach it, but also because, again, it comes back, I sound like a broken record, but the evidence. The evidence is what creates the adoption, is what creates the durability, and ultimately is what creates the guidelines.
Just one thing to clarify. The ASP is a revenue comment, not necessarily an EBITDA comment. We do often take ASP gains and reinvest them into growth drivers, because we are obviously working to maintain or to gain access to patients, and help as many patients as we can. In the spirit of revenue growth as well. Just wanted to clarify that one comment and make sure that they were not tied perfectly.
Understood. So basically what you are saying is, even if there is a little upside on ASP, some of that might get reinvested, so we shouldn't just drop that down all the way to the bottom line.
Exactly. And we manage that on an annual basis. So some quarters will be below the annual guide, some quarters will be above. Yep.
Right. Understood. Okay. And then the follow-up is just on Prosigna. Once you have OPTIMA data published, what's the process for getting the expanded reimbursement so you are no longer going off of the old LCD and you can get premenopausal and high node patients, and how can we think about kind of a reasonable timeline for that process?
Well, I think there's a couple things on the premenopausal side. It's a lot of commercial contracting. So it's blocking and tackling one by one, something that we do and have done for many, many years. And we're not starting from scratch there. Obviously, some of those already include Prosigna. On the higher nodal involvement, that will take longer, I think. That will take a few years to get that LCD adjusted for the higher nodal involvement, which is a smaller part of the market, but that's included in our ASP assumptions going forward in our model.
Great. Thanks for taking the questions.
Yep.
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