Veracyte, Inc.
Q1 2021 Earnings Call Transcript

Published: 10 May 2021

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to Veracyte’s First Quarter 2021 Financial Results Conference Call. As a reminder, today’s conference call is being recorded. I’d now like to turn the conference over to Tracy Morris, Veracyte’s Vice President of Corporate Communications and Investor Relations. You may begin.

[Tracy Morris:]

Thank you, Nika. Good afternoon, everyone and thanks for joining us today for a discussion of our first quarter 2021 financial results.

[Bonnie Anderson:]

Thanks, Tracy and thanks everyone for joining us today. Before we get into the strong progress we made in the first quarter, I will begin with the CEO succession plan that we announced a few minutes ago. I am delighted to introduce Marc Stapley as Veracyte’s new Chief Executive Officer to succeed me effective June 1, at which point I will transition to the active role of Executive Chairman of the Board. As a Founding CEO who has invested so much into Veracyte, I couldn’t be happier with the timing and circumstances of this leadership succession. First, the Board and I are extremely pleased that Marc will be taking the reins as CEO of Veracyte. He is the right leader with the right experience to take over at this important stage in Veracyte’s growth. Marc shares my vision for Veracyte and is aligned with our mission of applying the power of genomic science and technology to best serve patients by asking the right questions and providing answers that give a clear path forward. He is a seasoned global executive with highly relevant industry experience from his time at Illumina and Helix. He brings an ideal mix of strategic, operational and financial acumen, combined with a proven track record. Over his career, he has built and led complex global operations including both centralized labs as well as the instrument and reagent chip business, which aligns with Veracyte’s strategic growth plan. He also has extensive experience integrating acquisitions. Lastly, I believe Marc will be an excellent cultural fit at Veracyte. He is a result-oriented leader with the ability to lead and motivate teams around a culture of high-performance and high integrity. Second, we believe that Veracyte is well positioned for success with a powerful strategic global vision, and the table is set to execute on this vision and continue our growth in the $50 billion plus long-term global market for our genomic diagnostic tests. The company is operating from a position of strength with a strong track record of execution and significant growth opportunities. And third, the succession fits with my time line for transitioning out of the CEO role, which is something I have been discussing with the Board for about a year. I am excited and committed to continue serving the company and to be a trusted adviser to Marc in my new role as an active Executive Chair. In this role, I will be intimately involved in ongoing strategy and business development. I will be Marc’s strongest advocate and ally. And I look forward to partnering with him to guide Veracyte to achieve its full potential.

[Marc Stapley:]

Thank you, Bonnie and good afternoon everyone. I appreciate the warm welcome and the faith that you and the Board have placed in me to lead Veracyte through this next phase of growth. As Bonnie said, I share her vision for Veracyte and I am passionate about improving outcomes for patients all over the world at every step of their difficult journey. I am incredibly excited to join a company that has such an excellent reputation and track record for bringing highly differentiated and clinically impactful test to market. Importantly, Veracyte’s ability to bring these tests to patients through both a central lab and distributed kit model creates an exciting global opportunity. In the near-term, we have multiple ways to expand and grow, and over the long-term, our deep clinical diagnostic expertise provides a strong foundation from which to expand to other opportunities. Joining Veracyte is a compelling continuation of my career in applying genomics to help patients. At Illumina, I solidified my belief in the power of broad accessibility to genomics, and we achieved incredible global scale enabling the entire industry. At Helix, we have been focused on using genomics to identify people with previous positions to cancer in other diseases as well as providing clinical diagnostic results to millions of people during the pandemic. And with the Veracyte team, I will now be driving the utility of genomics one step closer to patients by bringing to market innovative clinical tests, to diagnosis and treatment. Being able to continue to partner with Bonnie and her new position as executive chair was a key element for me wanting to take on this role. Our deep industry expertise and strategic vision are incredible assets to me and the company. Bonnie has created a wonderful business over the last 14 years, and I intend to take full advantage of this opportunity to execute and build upon her vision. I would like to thank you, Bonnie, for entrusting me with Veracyte. Over the coming months, I plan to dedicate time with key stakeholders, the Board, the executive leadership team, Veracyte’s talented employees and the company’s analysts and investors. I look forward to meeting many of you in the near future.

[Bonnie Anderson:]

Thank you, Marc. I could not be more excited to partner with you as you pick up the torch and continue taking Veracyte to where we aspire to go. And with the strong performance and progress in the first quarter of 2021, we are well on our way. Turning to our first quarter performance, we delivered solid results with especially robust momentum in March as COVID vaccination rates increased across the country and physician practices continue to open up. Our total revenue for the first quarter was $36.7 million, an 18% increase over the first quarter of 2020. And our genomic testing and product volume was 14,437 tests in the quarter, an increase of 11% over prior year. With these solid results, we are reiterating our 2021 full year total revenue guidance of $190 million to $200 million. We are thrilled to complete our acquisition of Decipher Biosciences on March 12 and welcome their top notch team to the Veracyte family. The integration is going really well. And our teams are already collaborating and learning from each other. The Decipher business expands our reach into 7 of the Top 10 cancers in the United States and is already contributing strong revenue with its prostate cancer test, which continues to gain commercial traction. We also made great progress in advancing our pipeline and are on track to launch 3 new products in pulmonology in the second half of the year. These include our novel noninvasive Percepta nasal swab test, which we believe is going to be a game changer in early lung cancer detection, potentially enabling more lives to be saved. We are excited to unveil pivotal clinical validation data for the test at the upcoming ASCO annual meeting prior to its planned launch in the second half of the year. Now let’s review key highlights for the first quarter. I’ll start with commercial growth, our first measure of success. Our genomic testing and product revenue was $36.1 million, an increase of 19% over the first quarter of 2020. The primary driver of the growth was the addition of the Decipher prostate volume. Excluding Decipher, our revenue grew 6% to $32.9 million, driven primarily by our Afirma franchise in thyroid cancer. Afirma is leading our pandemic recovery among our legacy tests with physician offices increasingly accessible to patients as well as our sales reps. Office-based physicians represented about 50% of our Afirma volume and the vast majority of our urologic cancer business, in fact, in March of 2021, we experienced all-time monthly highs in the number of unique ordering physicians for both Afirma and Decipher prostate testing with nearly 2,400 and over 1,000 physicians, respectively.

[Operator:]

Your first question comes from the line of Puneet Souda from SVB Leerink. Your line is now open.

[Puneet Souda:]

Yes, hi, thanks Bonnie and Marc, but congrats on – great having you on board. And Bonnie, we will really miss working directly with you. It’s been a great journey with – for Veracyte so far.

[Bonnie Anderson:]

Thank you, Puneet.

[Puneet Souda:]

Thanks guys. So first of all, Marc, I mean you have led large population studies. You have been close to genomics for a long time. A lot of Veracyte has done is build clinical evidence over the years to drive adoption of these tests in important markets such as Afirma. So, one question for you, as you look at the Veracyte’s current position in the market, given sort of your experience with population study, the largest studies, where do you see opportunities in the portfolio? And maybe just Veracyte’s nCounter efforts are to drive adoption of this test broadly across the globe, but you have obviously been somebody who is very close to sequencing. So, tell us how do you view this opportunity and the use of nCounter versus sequencing? Thank you.

[Marc Stapley:]

Yes. I am happy to answer that and anyone else can jump in as well. But from my standpoint, I mean, Veracyte has always done an amazing job of addressing some really key markets in oncology in particular, with – so obviously, now with the recent acquisition of Decipher, 7 of the top 10 cancers are covered. So, the way I look at it now is there is a lot of execution on that strategy that’s already been set and those markets that are very significant, as Bonnie just mentioned, potentially $50 billion plus in the long-term. But I still think there is always more breadth. We can expand indications. We can expand geographically. We can expand across different disease areas. And so I have always viewed the power of genomics as being incredibly broad and vast and look forward to working with the Veracyte team to achieve that in the company. With respect to sequencing and the nCounter platform, I think the platform itself is one of the key facets for me of Veracyte in the strategy that Bonnie and the team, has executed on. I think that was an excellent move and it really does give the company tremendous opportunity to go broadly and geographically. As far as differences to sequencing, I mean, as you mentioned, it’s a lot about the clinical evidence and the data. And there are multiple ways to get after that. And the approach that Veracyte has taken with gathering huge amounts of data, I think is incredibly differentiating and I am very excited about it.

[Bonnie Anderson:]

Yes. And I will just add to that, I think just to remind everybody that’s listening. We have a two-pronged strategy for reaching this $50 billion market and sequencing our whole RNA transcriptome sequencing is the backbone of what we do today to discover, to develop and to validate really high-performing tests that patients and doctors can make clinical decisions on and bank on that performance. We also build incredible bio-repositories out of all of the whole transcriptome and see what sequencing work we do. And we believe continuing to serve the very large U.S. marketplace through our CLIA lab is absolutely the right approach. We also believed a couple of years ago, and continue to believe today, that the right approach for the international market is distributed testing. So when we took on this two business model approach, it’s because we want the best solution for each market situation. And that’s what we will be executing on. And Marc has a terrific background with both sequencing and products to be able to lead that.

[Puneet Souda:]

That’s great. Thanks for that, Bonnie. If I could briefly touch on – I am not sure if the Decipher number for the full quarter was provided – and maybe you did and I didn’t catch that so if you could clarify it? It was really strong in the last 2 weeks I wanted to get that number. And then also, what percent of reps are actually in person today? I think you gave a 50% number. So, just wanted to make sure that number was correct for Afirma and Percepta? Thank you and I will hop back into the queue.

[Bonnie Anderson:]

Okay, yes, we recorded $3.8 million of revenue in the period from March 12 to the end of the quarter and 1,560 tests. March was a month of momentum across both our legacy business as well as the Decipher business. So I wouldn’t take a few weeks of revenue times the number of weeks in the quarter by any stretch. In terms of number of reps, we now have, together with Decipher, over 175 reps in the field. We will continue to invest in sales expansion on the back of our bladder cancer test, which we expect to get a final Medicare coverage decision later this year. And as we bring our nasal swab test and Percepta Atlas to market in the U.S. and potentially a couple more positions as we launch Envisia and nCounter in international markets. So not huge increases through the end of the year, but we will continue to make those investments to keep up with all the great product pipeline advancements. Next question?

[Operator:]

Your next question comes from the line of Brian Weinstein from William Blair. Your line is now open.

[Brian Weinstein:]

Hey guys. Thanks for taking the questions. Congrats to Marc and Bonnie and Keith – certainly, Keith, if you’re in the room or not, l don’t know. I’m saddened to see you both moving on. And that’s really kind of the first question, Bonnie, for you, which is I mean you’ve had a team that’s been together for a while. We’ve now seen a pretty meaningful turnover at the top between you, Keith and John, all sort of now moving on all the time on the strategy. It’s really starting to come together and now is the point where you start to realize the benefits of what that vision has been for many years. So can you help balance that positive outlook and the opportunities with the transition of many of the key leaders here, all within a couple of months of one another.

[Bonnie Anderson:]

Well, Brian, I would say, we have been executing on a really big idea and a really bold vision and strategy over the last 18 months. And we’ve always known that the company, as it has over the 14 years. I’ve been at the helm, we’ve gone through several iterations of evolution, and that always happens. But the key is, as those changes are made, that we use it as opportunity and elevate and attract and continue to evolve the structure. For example, we are really pleased to have Tina Nova, who’s on the call with us today, joined us as part of our acquisition with her very talented team down in San Diego, who are also playing key roles across other aspects of the business. Tina is now the General Manager of our Decipher and our Afirma franchise, leading the business, the two top revenue-generating products for the business. And we’re thrilled and excited to have Tina on board doing that. You also might recall, we added another very senior executive to the staff beginning on January of this year. Morten Frost joined us from a leadership position at Agilent where he had built significant growth across the globe in diagnostic and pathology-type businesses. In fact, his team was part of a success story with the CDx with KEYTRUDA. So he brings a remarkable and very relevant experience to the table. Morten has added some people to his team and is leading the pulmonology franchise, one requiring incredible strategic leadership as well. So we have said goodbye to a few folks. But we have also strengthened as well the top of the company. We’re now aligned around our general manager structure which gives us top to bottom clinical expertise in each of the clinical verticals that we’re in. We think that was another very important move. And as we move forward with expanding menu and expanding toward the global potential of our nCounter and product business, it was important that we strengthen the company with people that bring that kind of expertise as well to the table. So I’m thrilled. I think the timing is right because the table is well set. And while there is many other things we can do strategically as Marc gets his hands on the wheel, just executing well as we go through these next few years. Is going to be very differentiating for Veracyte. And I plan to be at Marc’s side in the Executive Chairman role, which will be an active role, helping to drive that success.

[Brian Weinstein:]

Okay. Thank you for that. Moving just to kind of the more near-term stuff here with the data that’s going to be published as part of abstracts coming up for ASCO, and then at ASCO specifically, on the nasal swab classifier. Bonnie, can you just level set us on what type of data do you think is necessary here for commercial viability utilization reimbursement? Do you have any idea kind of where the bar needs to be set when we try and evaluate what this data is. Obviously, you’re not going to tell us what it is. But where is the bar for kind of commercial success? Do you have any idea on that?

[Bonnie Anderson:]

Well, we have a very clear idea on that. We have spent a number of years honing in on what is needed to have success in that space. And I think our clarity is we need to do two things

[Brian Weinstein:]

Thank you very much.

[Bonnie Anderson:]

Thank you.

[Operator:]

Your next question comes from the line of Sung Ji Nam from BTIG. Your line is now open.

[Sung Ji Nam:]

Hi. Thanks for taking the questions. Congratulations to Marc. Welcome aboard. And also congratulations, Bonnie and pleased to hear that you’ll be in your current – in your new role for a very long time. So, just starting with a clarification question, the Percepta nasal swab test, has the classifier been locked in? It sounds like it has been. So the data being presented is based on kind of the locked in classifier?

[Bonnie Andersonb:]

Yes. Well, I don’t – Giulia Kennedy is here in the room with us. And why don’t I let her provide a little bit of a summary on what work has been going on since we had R&D Day. Giulia?

[Giulia Kennedy:]

Sure. Since we had R&D Day, we continue to do more development work on candidate classifiers. And since then, we have locked them and put them through a validation, a pre-specified validation plan, and now have a winner, if you will, and that data will be presented at ASCO. So yes, it’s locked and validated.

[Sung Ji Nam:]

Fantastic. Also great to hear the physician practices, reopening, recovering and was kind of curious, given we’re hearing that there is been a lot of delays in terms of diagnosis of cancer, screening of cancer last year, and it may feel a bit too early to tell. But are you kind of seeing any kind of trends that – any different trends as the – if physician offices are reopening or getting more station volumes in terms of later stage diagnosis or whatever else?

[Bonnie Anderson:]

Yes. We do. Well, in fact, I’ll ask Tina to speak up here in a moment and give a little bit of a backdrop on what you’re seeing in the – in her businesses. But certainly, the physician office accessibility is happening. As I said in prepared remarks, the pulmonology space is still a little tighter mostly because we are still seeing the COVID impact there of pulmonologists simply being the doctors still working there with COVID on patients, but also the procedures that they are performing has not yet completely rebounded because of the in-hospital status. But Tina, why don’t you walk through you of the two top revenue-generating products and have been keeping a close eye on a sales rep access. Why don’t you give us a summary?

[Tina Nova:]

Right. Sure. So on the prostate side, it was amazing that at the beginning of the year, the American cancer society came out with a number that said they estimated that there would be 248,500 new cases of prostate cancer diagnosed in the United States in 2021, and that represents a 29% increase over 2020, which is quite substantial. So they didn’t specifically make a comment about COVID, but there is certainly been a lot of articles written that point to that, knowing that a lot of people did not go to their primary care physicians where a lot of these cancers are initially detected before they are sent to specialists in 2020 because of COVID. And also, I have heard from physicians while I’m out in the field that there is, especially with older patients, there is still a lot of reluctance to leave home and to go to a hospital or go to a physician’s office, even with conditions today. The Decipher prostate market actually has recovered quite nicely in the last quarter as far as COVID goes. I would say about 80% of our offices are completely open and accessible for our sales reps. Different parts of the country are different. And the Afirma for the thyroid is a little lower than that. It ranges between about 60% and 70% of offices are accessible to sales reps, so just slightly lower. And of course, on the pulmonology side, which is not my expertise, but they see even lower because a lot of those positions, as you would expect, are treating COVID patients. So it’s still not open 100%. We still see variability, and we also see variability in geographic area.

[Bonnie Anderson:]

Thanks, Tina. And yes, we’re encouraged, but certainly, COVID’s impact hasn’t completely gone away yet. Next question?

[Operator:]

Your next question comes from the line of Tejas Savant from Morgan Stanley. Your line is now open.

[Unidentified Analyst:]

Well, this is on for Tejas. Thank you for taking our question. For the validation data for nasal risk, would you remind us of the enrollment criteria for that study? And what are the potential differences between the population study in this upcoming data presentation at ASCO compared to the population included at CHEST ‘19?

[Bonnie Anderson:]

Sure. I’ll be happy to ask Giulia to speak to that. The work that we did earlier that was part of the unveiling of the R&D Day, we’ve been able to expand that cohort. But Giulia, you want to talk through that?

[Giulia Kennedy:]

Yes. So in 2019, in CHEST, we had a single cohort prospectively collected and that enabled us to provide a proof of principal classifier, and you remember those results. And then in the R&D day back in December, we have presented some data on a variety of candidate classifiers that used that cohort plus an additional cohort that had different properties to it to enable us to create a spectrum of cases to train the classifiers so that it could recognize a variety of cancers for different populations from different sites, different nodule sizes, different subtypes and whatnot to provide as much diversity as possible in the training set. And at that time, we also locked away an independent test set with similarly diverse characteristics, and that is the set that we unlocked in our validation, and we will be providing more color as to the data at the ASCO meeting in June.

[Bonnie Anderson:]

Thanks, Giulia. We began getting access to these nasal cohorts that were collected back with our acquisition of Allegro. When we announced our collaboration with J&J in early ‘18, we announced that part of the big value of that collaboration was access to additional cohorts. And although it will build for future, we’ve also invested in the NOBLE study, which will be a cohort that we’re investing in for future development in lung cancer; hopefully, allowing us to even go further upstream and tap an even bigger market opportunity in lung cancer. So all-in in lung cancer, we’re excited about ASCO and look forward to bringing the nasal swab to market.

[Unidentified Analyst:]

Great. Thank you so much for the color. And then just as a quick follow-up. Will we see a preview of the headline results in the ASCO abstract coming up next week?

[Bonnie Anderson:]

Yes. We will be sharing. There will be a pre-sharing of data because of the way ASCO has lined up the release of information in abstract. So yes, you will get a preview of that.

[Unidentified Analyst:]

Thank you.

[Bonnie Anderson:]

, thank you for joining.

[Operator:]

Your last question comes from the line of Mike Matson from Needham & Co. Your line is now open.

[Mike Matson:]

Hi. Thanks for taking my questions. I guess I wanted to start with the guidance and kind of what the first quarter applies to the rest of the year. So if we take the midpoint of the revenue guidance, this would be about $195 million. And I think on the fourth quarter call, you said that there was about $48 million in there for Decipher. And I don’t think that included this roughly $4 million that you got in the first quarter. So that’s about $52 million for Decipher. If I deduct that out, that implies about 22% growth for the organic growth for the base business, excluding Decipher, you just grew about 6% organically. So are you comfortable you can get that growth and/or the Decipher will do better than that 52 million kind of range?

[Bonnie Anderson:]

Yes, thanks for the call, Mike. And yes, we are reiterating and affirming our guidance, $190 million to $200 million. And we’re very confident that we will get there. I think we will have various levels of performance across the whole portfolio, but we’re very confident in that guidance. Thank you.

[Mike Matson:]

Okay, alright. And then just wondering if you could give us the pulmonary and biopharma sales for the quarter, first quarter?

[Bonnie Andersonb:]

Yes. So we – I don’t think – believe we broke the pulmonary spot out, but the biopharma revenue was – do you have that handy? The biopharma and collaboration revenue for the first quarter is on Page 13 of the slide deck. Break that out, it was $566 million. That’s a lumpy revenue base. A lot of that’s coming from our longer term collaborations. And that’s where that was.

[Mike Matson:]

Okay.

[Bonnie Andersonb:]

The pulmonary products line up under our testing revenues and the only associated products within the product area that we pull out would be Prosigna and associated instruments out there. Thank you.

[Mike Matson:]

Yes. Alright, yes.

[Operator:]

Ladies and gentlemen, this concludes our call today. Thank you for joining us. You may now disconnect.