Veracyte Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 6, 2025

Key Takeaways

  • Positive Sentiment: We delivered 14% revenue growth year-over-year to $130.2 million and achieved a 27.5% adjusted EBITDA margin, vastly exceeding expectations.
  • Positive Sentiment: Decipher volumes grew 28% YoY to ~25,500 tests, putting us on track to exceed 100,000 annual tests and supporting a 65% clinician market share.
  • Positive Sentiment: Afirma test volume rose 8% YoY to ~16,950 tests, and transitioning to V2 transcriptome on NovaSeq X is expected to reduce COGS and offset tariff and reagent price pressures.
  • Neutral Sentiment: Prosigna breast cancer LDT launch is planned for mid-2026 in the CLEAR lab, backed by OPTIMA trial Level 1A evidence in a ~225,000-patient market.
  • Negative Sentiment: Product revenue fell 8% YoY to $3.6 million, and product gross margins are expected to decline in H2 due to the shift to a contract manufacturing model.
AI Generated. May Contain Errors.
Earnings Conference Call
Veracyte Q2 2025
00:00 / 00:00

There are 16 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Veracyte Second Quarter twenty twenty five Financial Results Webcast. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone.

Operator

You will then hear an automated message advising your hand is raised. To withdraw your question, please press 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 for today, Shayla Gorman. Please go ahead.

Speaker 1

Good afternoon, everyone, and thank you for joining us today for a discussion of our second quarter twenty twenty five financial results. With me today are Mark Scaffley, Veracyte's Chief Executive Officer and Rebecca Chambers, our Chief Financial Officer. Doctor. John Leight, our Chief Commercial Officer and Doctor. Phil Febbo, our Chief Medical and Scientific Officer will join us for Q and A.

Speaker 1

Veracyte issued a press release earlier this afternoon detailing our second quarter twenty twenty five financial results. This release and a copy of the presentation we will review during the call today are available in the Investors section of our website at veracyte.com. Before we begin, I'd like to remind you that the 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 they will prove to

Speaker 2

be correct.

Speaker 1

Additionally, 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 have caused 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 ks. In addition, this call will include certain non GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures are included in today's earnings release accessible from the Investors section of Veracyte's website. I will now turn the call over to Mark Staffley, Veracyte's CEO.

Speaker 1

Thank you, Sheila, and thanks, everyone, for joining us today.

Speaker 2

I'm pleased to share details of our second quarter performance and updates on our key growth drivers. At Veracyte, patients are our purpose. Our work is grounded in bringing meaningful, actionable insights to clinicians so that we can drive better health outcomes for patients, which in turn results in greater economic value to global health systems. I couldn't be more pleased with our Q2 performance. We delivered 14% revenue growth year over year with total revenue of $130,000,000 This outstanding result was driven by testing revenue, which also grew 14% year over year or 16% after adjusting for Envisia.

Speaker 2

Decipher and Defirma continued to advance market share and delivered another strong quarter of impressive volume growth, further bolstering our confidence in the ongoing durability of our core testing business, while also delivering our groundbreaking adjusted EBITDA margin of 27.5%, vastly exceeding our expectations. Our vision is to transform cancer care for patients all over the world, and I couldn't be more proud of our team and their commitment to serving our advanced genomic tests to over 700,000 patients to date. We are focused on a number of strategic initiatives to fuel sustained growth at a differentiated level by creating layers of short term, midterm, and long term drivers. Today, I'm excited to share our progress across these initiatives. Starting with Decipher, we delivered approximately 25,500 tests, putting us on a trajectory to exceed 100,000 tests annually for the first time, representing a truly remarkable milestone.

Speaker 2

This resulted in year over year volume growth of 28%, our thirteenth consecutive quarter of over 25% year over year volume growth. It was also our second highest ever sequential increase in volume, superseded only by Q2 last year, which benefited from the timing of pivotal NCCN guideline updates. This performance reflects pristine execution by our commercial and operational teams and a continuation of the strong trends that we saw in March and April. We further established our strong foothold with clinicians in Q2, with both a record number of ordering providers up over 20% from the prior year and increased orders per physician. Clearly, our robust science, vast array of publications, operational quality, turnaround time, and comprehensive offering are resonating with physicians.

Speaker 2

The accelerated penetration of our Decipher test continues to surpass our internal expectations with broad based expansion across each biopsy and CCN risk category. We are progressing across the care continuum with the broad launch in June of our Decipher prostate test for use in the metastatic population. The clinical validity and utility of Decipher prostate metastatic has been demonstrated with four prospective Phase III clinical studies: Stampede, ARMS GNC, TITAN, and CHARTED. These studies have shown the benefit from therapy intensification is greatest in patients with a Decipher higher risk score, meaning physicians can confidently use Decipher prostate metastatic to help determine if treatment should be intensified by adding additional therapy to ADT such as androgen receptor pathway inhibitors or docetaxel. We expect critical studies to be published this year that will make a strong case for guideline inclusion in the coming year or two.

Speaker 2

Recently, we have observed a noticeable uptick in interest from physicians for NCCN high risk patients estimated to be approximately twenty five percent of the incidence population, which we believe reflects a halo effect in the test expansion into the metastatic setting. In these conversations, physicians are looking to adapt their treatment plans for these patients based on Decipher score to prevent metastatic progression as effectively as possible. Additionally, to better serve patients with metastatic and high risk localized disease, we have entered into a partnership with Helix to offer the option for physicians to conveniently order the Helix whole exome based hereditary cancer test when ordering DECIFER. NCCN guidelines include the evaluation of specific hereditary germline variants that may influence therapeutic choices for these patients, including the addition of PARP inhibitors. Further, germline data can be added to our growing grid database and becomes yet one more valuable biomarker to be considered in future research.

Speaker 2

We continue to build on our strong and growing body of clinical evidence for Decipher across all risk categories, with 29 abstracts and nine publications in the second quarter, bringing the focus to more than two twenty five publications. Each of these clinical studies further demonstrates the differentiated performance of Decipher as well as the power of GRID. This expanding foundation of high quality data is a key competitive advantage and plays a critical role in supporting increased clinical adoption in this underpenetrated market. I'll quickly highlight a notable paper from the quarter. Focal therapy is a modality for management of intermediate risk disease that is gaining traction as an alternative to radical therapy.

Speaker 2

New data from the first clinical trial to evaluate the association between decipher scores and focal therapy outcomes was recently published in the Journal of the National Cancer Center. This analysis, which pulled data from a phase two trial in a prospective registry, highlights decipher's role in guiding focal therapy decisions as patients with lower Decipher risk and a luminal differentiated subtype may be ideal candidates for focal therapy, while those with intermediate or high Decipher risk or basal subtype may be better suited for radical treatment or require closer post treatment surveillance if they opt for focal therapy. We remain committed to enabling research in digital pathology and believe that this technology combined with AI may complement molecular analysis by offering additional data points and biological feature interpretation. As we shared last quarter, we recently made our digital pathology services and associated AI models available to research collaborators to advance the science in this field. We have now scanned over 90,000 slides from over 50,000 de identified patients with outcomes data, and we are planning to implement slide scanning as a standard production workflow to support ongoing research into this interesting and emerging technology.

Speaker 2

Looking ahead, we are more confident in Decipher's long term growth trajectory than ever before. We believe we are the number one prostate testing brand amongst clinicians with 65% market share, and Deciphera is the only test that can be used across the entire risk spectrum of prostate cancer care. With the most robust and growing body of clinical evidence, including over a dozen ongoing prospective trials, NCCN guideline recommendation, and a meaningfully expanded patient population, we believe we have everything we need to remain the clear market leader and execute on the multiple drivers that position Decipher for sustained double digit growth. Moving to Afirma. Volume growth continues to be strong and increased 8% year over year, resulting in approximately 16,950 tests.

Speaker 2

We continue to add new accounts and drive depth into our existing accounts, with Q2 marking another quarter of higher year over year utilization per account. This gives us confidence that Affirmal will continue to gain both share and penetration moving forward. We are pleased to see increased traction with our Research Use Only Grid offering, which provides physicians with additional data to advance thyroid nodule and cancer research. At AAES in May, Cleveland Clinic presented the first independent analysis leveraging the GRID database, which received very positive feedback from KOLs and has driven higher awareness and interest in GRID data from other academic institutions. Just a few weeks ago, we were pleased to see the first publication in the journal Frontiers of Endocrinology on the development and validation of novel classifiers to preoperatively predict low risk thyroid tumors that are available on Afirma grid.

Speaker 2

With continued evidence generation, these classifiers could eventually help physicians personalize the extent of surgery and reduce overtreatment for low risk thyroid tumors, thus decreasing the threat of surgical complications and postoperative hypothyroidism. Additionally, three abstracts with data derived from Afirma Grid were presented at ENDO twenty twenty five, the annual meeting of the Endocrine Society, in mid July. The growing body of research and clinical evidence around Afirma continues to build momentum and gives us confidence in the continued ability for Afirma to gain share in this more mature market. As we shared last quarter, we are planning to transition Afirma onto V2 of our Veracyte transcriptome, running on the latest and most cost effective next generation sequencing technology later this summer. This launch is part of our effort to reduce our COGS and improve the efficiency of our testing business.

Speaker 2

In the near term, we expect this to offset normal reagent list price increases, help mitigate tariff impacts, and enable us to reinvest in opportunities to serve more patients. Moving now to Prosigna. Last quarter, we shared our decision to launch Prosigna as an LDT for The U. S. Breast cancer market, given the tremendous prospects we see ahead.

Speaker 2

We believe this test has the opportunity to gain share in a large and well penetrated market with approximately two hundred and twenty five thousand breast cancer patients diagnosed annually in The U. S. With early stage hormone receptor positive disease. Prosigna, which is based on the well known, well researched, and scientifically respected PAM-fifty signature, can provide physicians and their patients with additional data around the biological classification of the cancer and the ten year risk of distant recurrence to help inform treatment decisions. We remain committed to making our Prosigna LDT commercially available in mid-twenty twenty six in our CLEAR lab on our new V2 Veracyte transcriptome.

Speaker 2

The clinical outcomes of the ten year OPTIMA premium study were presented at the ESMO Breast Cancer Annual Congress in May and was well received by KOLs. The findings suggest that Prosigna had higher prognostic accuracy in high risk patients compared to the test initially used to assign patients to treatment groups. These results are consistent with the clinical and health economic performance of Prosigna that contributed to its selection for the ongoing 4,500 patient prospective OPTIMA trial that is now nearing completion of the endpoints needed for a successful readout. OPTIMA represents one of only four prospective randomized trials globally evaluating genomic testing in early stage breast cancer, and is the first to specifically assess Prosigna's ability to predict chemotherapy benefit with Level 1A evidence and is expected to be completed in mid-twenty twenty six. We are focused on generating additional evidence for Prosigna through our Veracyte Diagnostics platform, with data readouts expected over the near term that will help us drive adoption and revenue growth.

Speaker 2

Moving to our commitment to serve more of the patient journey through MRD testing. Our MRD approach is differentiated in that it is whole genome every step of the way, including the initial baseline sequencing followed by the sequencing of serial testing samples. This approach is backed by our fundamental belief that more data drives more insight, more clinical evidence, more payer coverage, and therefore more durable adoption. We're excited about the opportunity to advance our MRD platform for our first indication, muscle invasive bladder cancer or MIBC. We recently received feedback on the tech assessment we submitted to MolDX in March and continue to make good progress towards launching in the '6.

Speaker 2

As a reminder, this indication will leverage our strong Decipher channel that serves urologists and radiation oncologists, as we estimate seventy percent of MIBC patients are treated in this setting. Additionally, we are excited to share that our test will be used in the NEOGLAST prospective trial to determine whether MRD negative platelets can support the de intensification of treatment for MIBC patients. This trial, through investigators at the University of British Columbia, shows our MRD platform together with MRI and standard screening to identify patients with MIBC who can be safely managed with bladder sparing approaches. While our published data shows significantly poor prognosis for patients who are MRD positive, this trial helps address the clinical utility and confidence in those patients who are MRD negative. We are continuing to invest in generating the clinical evidence needed to expand our MRD platform beyond MIBC.

Speaker 2

Beginning in 2027, we plan to deliver indication expansion annually in order to serve more patients across more indications. Next, turning to our geographic expansion through strategic growth driver, where we are committed to launching our tests with IVDs to address patient needs outside The US, I would like to update you on the ongoing process with our French subsidiary Veracyte SAS or SAS. Maintaining access to the Prosigna test for patients and the physicians who serve them was an important goal of this process. I'm pleased to announce that the French Commercial Court recently published a decision approving the sale of the contract manufacturing portion of the business. The sale closed on August 1 and enables us to maintain continuity of supply for the Prosigna IVD on nCounter through a contract manufacturer.

Speaker 2

The remaining assets of SAS will be managed by the existing court appointed administrator until such time that the court progresses with formal liquidation. With the sale behind us, we are in the final stages of concluding this restructuring process. We now expect to meaningfully increase our investment in our U. S. Research and development IVD team in the second half of this year to finalize the development of our next two IVDs, Decipher on qPCR and Prosigna on NGS.

Speaker 2

We are still on track to complete the IVDR submissions for both tests by the 2026 and anticipate subsequent commercial launches thereafter as we go country by country to secure reimbursement post approval. Our next growth driver is solving new cancer challenges with innovative products like our Percepta nasal swab. Lung cancer is the leading cause of cancer related deaths worldwide, and early detection and management is key to reducing mortality and improving outcomes. Percepta nasal swab is a simple noninvasive test that assesses lung cancer risk in patients with a detected lung nodule and smoking history so that the right patients get the right intervention at the right time. With only a few handful of patients remaining, we are on track to reach the enrollment target of 2,400 for our pivotal Nightingale study in the next few weeks.

Speaker 2

Once completed, we will then conduct a follow-up and data analysis, which we hope will lead to publication and ultimately reimbursement. I'm proud of our progress in Q2 as we work to improve patient lives all over the world. We saw another quarter of very strong testing volume growth and demonstrated solid progress across our long term growth drivers. These results exhibit that we're just beginning to deliver on the promise of our powerful diagnostic platform to fundamentally transform healthcare. As we enter into the second half of the year, we are accelerating our investments in these critical projects and have even more confidence in our ability to deliver long term sustained growth with the best in class financial profile we've consistently achieved.

Speaker 2

With that, I will now turn to Rebecca to review our financial results for the second quarter as well as our updated outlook for 2025.

Speaker 3

Thanks, Mark. Q2 was a fantastic quarter with $130,200,000 in revenue, an increase of 14% over the prior year period. We grew total volume to approximately 44,950 tests, a 15% increase over the same period in 2024. Testing revenue during the quarter was $122,300,000 an increase of 14% year over year driven by Decipher and Afirma revenue growth of 245% respectively. Total testing volume was approximately 42,400 tests, an increase of 18% over the prior year period.

Speaker 3

Testing ASP was $2,881 down 3% compared to the prior year, primarily driven by the impact of higher prior period collections in Q2 twenty twenty four, as well as the Afirma Laboratories benefit manager impact discussed last quarter. Adjusting for the impact of $1,900,000 of prior period collections in the quarter, testing ASP would have been approximately $2,825 roughly flat to the prior year period. Second quarter product volume was approximately 2,500 tests and product revenue was $3,600,000 down 8% year over year. Biopharmaceutical and other revenue was $4,300,000 up 21% year over year higher than our forecast given the benefit of a US Decipher biopharma revenue project that completed during the quarter. Moving to gross margin and operating expenses, I will highlight our non GAAP results.

Speaker 3

Non GAAP gross margin was 71.5%, up approximately 30 basis points compared to the prior year period. Testing gross margin of 73.9% exceeded our expectations driven by improved lab efficiencies. Compared to the prior year, gross margin was slightly lower given the benefit of prior period cash collections in Q2 twenty twenty four. Product margin was 20 basis points higher from the prior year at 52.3%. With the sale of the Veracyte SaaS manufacturing business and our transition to a contract manufacturing model, we expect product gross margins to decline in the second half.

Speaker 3

Biopharmaceutical and other gross margin was 18.5%, up 23% year over year due to revenue mix and higher cost absorption. Non GAAP operating expenses were up 2% year over year at $60,300,000 Compared to the prior year, research and development expenses decreased by $300,000 to $14,300,000 driven by the timing of clinical trial expenses and project spend. Sales and marketing expenses increased by $1,200,000 to $23,100,000 given higher personnel costs. G and A expenses were up $400,000 to $22,900,000. Moving to profitability metrics, we recorded a GAAP net loss of $1,000,000 inclusive of $20,500,000 of non cash impairments related to Veracyte SaaS.

Speaker 3

Due to the impact of this impairment in the quarter, our GAAP tax rate was 178%. Looking to the full year, we are expecting our GAAP tax rate to be in the high single digits. We delivered adjusted EBITDA of $35,800,000 or 27.5 of revenue well above our expectations given the timing of our investments which are now forecasted to occur in the second half. While we are while we plan our profitability on an annual basis hitting this quarterly level is a great data point that validates our sustained 25% adjusted EBITDA goal and provides us the flexibility to further invest in our growth drivers. With five products launching in a major clinical study completing in the next eighteen months, we will invest as needed to drive these projects forward, which as always will be balanced with our goal of delivering enhanced profitability each year until we achieve our 25% adjusted EBITDA goal.

Speaker 3

We generated $33,600,000 of cash from operations and we ended the quarter with $320,700,000 of cash and cash equivalents. Before moving to guidance, I would like to share the positive financial impact we expect moving forward now that the sale of the Veracyte SaaS manufacturing business is behind us. While we no longer will be recognizing biopharma and other related to Veracyte SaaS activities, we expect two to two point five million dollars of quarterly product revenue supported by our new contract manufacturer. We remain on track to generate approximately $13,000,000 of savings compared to 2024 results after accounting for the additional $7,000,000 of investment to rebuild our IBD development capabilities here in The United States in the interest of serving patients globally. Further, as of August 1, we have deconsolidated the impact of the limited SaaS operations from our financials as we have deemed that we no longer control the entity.

Speaker 3

Given this, we have reflected $5,000,000 of these savings in our updated 2025 adjusted EBITDA guidance. The remaining funds will be used to invest in our key growth drivers and also further enhance our profitability. The total cash outlay for the SAS program remains at approximately $15,000,000, which was or will be expensed over the course of q four twenty twenty four through year end 2025. Importantly, most of the remaining expense will occur in the third quarter, while only a small amount is expected in Q4. Lastly, with the deconsolidation, we do expect a relatively immaterial non cash gainloss on deconsolidation of a few million dollars in the third quarter.

Speaker 3

Turning now to our 2025 outlook. Now that we have line of sight for Cigna supply continuity and the path forward for Veracyte SaaS, we are excited to initiate our 2025 total revenue guidance of $496,000,000 to $5.00 $4,000,000. Due to our strong performance in the first half of the year, we are raising testing revenue guidance for the full year to $477,000,000 to $483,000,000 from our prior guidance of $470,000,000 to $480,000,000. This reflects a raised decipher outlook as well as Afirma ASP expectations for the remainder of the year, which are now projected to result in a firm of revenue growth of six to 7%. Importantly, given the catalyst Mark outlined, our firm of volume growth expectations of high single digits has not changed.

Speaker 3

As a result, testing revenue growth is now estimated to be 14 to 15% as compared to the prior guidance of approximately 12 to 15%. We are also raising adjusted EBITDA margin guidance for the full year to 23 and a half percent from 22.5% previously, which was already meaningfully higher than our original '21 point six percent 2025 guide. This reflects our year to date profitability outperformance, expectations for accelerated investment in the second half in support of our strategic growth drivers, and as previously mentioned, the deconsolidation of Veracyte SaaS from our financials as of 08/01/2025. Moving to the third quarter, we are forecasting the decline in total revenue given we will no longer be recognizing SaaS biopharma revenue. We expect testing revenue to be roughly flat sequentially driven by a slight uptick in Decipher revenue and offset by typical Afirma seasonality and lower prior period collections.

Speaker 3

Additionally, we expect our non GAAP operating expense to grow up to $5,000,000 sequentially, given the timing of clinical and project spend, new hires and incremental investments in our robust pipeline. In closing, I am thrilled with our strong start to 2025 and our commitment to driving revenue growth with a focus on profitability and continued cash generation. We've made significant progress on our catalyst for the year achieving the launch of Decipher for metastatic patients last quarter and the sale of the SaaS contracting manufacturing business this month. All of this progress is a testament to the outstanding team here at Veracyte, and I am grateful for their contributions towards our vision of helping cancer patients globally. We'll now go into the Q and A portion of the call.

Speaker 3

Operator, please open the line.

Operator

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again.

Speaker 4

Our first question comes from the

Operator

line of Doug Schenkel of Wolfe Research. Your line is now open.

Speaker 5

Hey, good afternoon, and thank you for taking my questions. So, Rebecca, you may have kind of just run through this as you went through your guidance comments. So sorry if I'm kind of saying something that you already ran through. But based on Mark's earlier comments and you tracking above 100,000 Decipher tests this year, I think that takes you over 25% growth for Decipher revenue this year or close to it. What as we think about the durability of that, what are the key drivers to maintaining something like 20% plus growth for the next few years for Decipher?

Speaker 5

Is it further market penetration? Is it share gains? Is it digital pathology integration? How should we be thinking about that? And if indeed, and this is my second question, if we can have some confidence that Decipher keeps growing at these levels for the next few years, if we assume a continued moderation in Afirma revenue growth down to mid single digit levels over time, That still should be enough to maintain double digit growth for the business over time at the top line, and that's in advance of getting any additional pipeline contributions.

Speaker 5

Is that a fair way of thinking about it? Thank you.

Speaker 3

Yeah, happy to do so, Doug. Thank you. And I'm gonna take part and I think Mark's gonna help on some of this as well. But you're absolutely right. Decipher is just doing a the team is just doing a phenomenal job with an absolutely critical test for that patient population.

Speaker 3

Our guide actually implies slightly lower revenue numbers. I think you're thinking more on a volume basis and that volume number does make more sense to me than a revenue number. So the guide implies 22.5% to just over 24% revenue growth for Decipher. So that's one thing to take into account. So that I think the drivers of that growth here are multiple different opportunities.

Speaker 3

The first, obviously the metastatic population that Mark referred to and kind of the halo effect that that has brought into conversations with docs on the high risk side, which is about a large portion of the population and the most underpenetrated of the populations, and underpenetrated of the risk categories. Additionally, we are always going with our Veracyte diagnostics platform with more data and more use cases, more predictive and prognostic capabilities. And then the sales team is just executing really well. So I would say those are the drivers for Decipher growth over a multiyear period. I think I don't want to guide to future years, but I would say we are very confident and I'll turn this part over to Mark.

Speaker 3

But effectively between Affirm and Decipher, we are absolutely confident our ability to demonstrate double digit revenue growth until those longer term growth drivers come in. We've been pretty much a broken record on that for the last couple of years. And actually, I think we've delivered even beyond that as you look at the updated revenue guide here of 14% to 15% for Yes.

Speaker 2

Thanks, Rebecca. And Doug, thanks for the question. I totally agree. Mean, we've guided that we think these tests can get to 80% market penetration. And we started this year with the Decipher market, the prostate market around 40%.

Speaker 2

And we think we have what we need in terms of the product set to drive to that 80% and its market share gains and penetration. And obviously, there's some incidence growth as well there that helps drive the growth. If you think about the second part of your question, I talked about it in the script around layers of short term, medium term and long term growth drivers, right? So you pointed out very clearly, Decipher continuing to grow. We've got multiple years ahead there.

Speaker 2

Afirma is later in its life cycle. But we've talked about Pro Signal and launching that in the middle of next year, muscle invasive bladder cancer for MRD and launching that in the first half of next year and then MRD indications every year after that in 2027 and beyond. We will get to completion on Nightingale and we've good results and we should be able to launch nasal swab. And we're not done there. We've got a rich and exciting portfolio and a financial profile that gives us an opportunity to continue to invest in new indications, new products, new expansions across the care continuum, new studies, more clinical evidence, driving more guidelines and so on.

Speaker 2

So to your point around the double digit growth, yes, it's certainly something that we think a lot about and we've set up our company to deliver that. And as long as we continue to make the right investments, you would expect it to do so.

Operator

One moment for our next question.

Speaker 4

Our next question comes from

Operator

the line of Andrew Brackman of William Blair. Your line is now open.

Speaker 6

Hey, everyone. This is Maggie Bowie on for Andrew today. Thanks for taking our questions. Maybe first, just to start, can appreciate it's still early days for the metastatic launch, but just based on the early interest you were seeing, can you talk about what you expect the growth contribution to be in the back half of the year for Decipher in the metastatic population and just how you're thinking about that contribution as we head into 2026? Thanks.

Speaker 2

Yes, I mean, I'm going to ask John to talk a little bit about the successful launch so far. And of course, we know we're only a couple of months in as you point out of the metastatic and also an interesting trend that we're starting to see in high risk. And then Rebecca can kind of triangulate that back to you for you to the guide.

Speaker 7

Yes, thanks for the question. So far what we've seen is we've seen really good response and interest from physicians who are in these large practices. It's taking one of the lessons learned is that it's taking a multidisciplinary approach towards managing these patients. So, we have to call on urologists, we have to call on the med oncs, we have to call on the rad oncs, and align all of them around the operational impact of implementing the decipher metastatic test, how they think about the operationalization of that test. But the discussions around the CMP data have been extremely impactful and the response so far is good.

Speaker 7

So we see good upside for the test in the future. Just

Speaker 2

high

Operator

Oh, high risk.

Speaker 7

Yes. So with regards to the high risk discussion, one of the arms of the CMP trial, RMG, dealt with the investigation as to whether the addition of abiraterone, which is a next generation ARPI to androgen depletion therapy would have a sustained effect towards patients who tested decipher high risk. And the answer was yes. Patients who test decipher high risk both in localized high risk disease as well as the metastatic setting both saw benefit from the addition of the ARPI. And in a sense that reinvigorated the interest and the conversation again on high risk.

Speaker 7

And then overall, there's just a growing awareness of the robustness of Decipher as a prognostic signature across all these very different indications. And it speaks to just how well designed the assay has been and how well validated it's demonstrating to be.

Speaker 3

And then on guidance, so thank you for the question. I wouldn't say that metastatic is a meaningful contributor to the guide this year in and of itself. I would say the there's we're expecting a launch here that is successful, but not overly impactful given the large denominator and lending itself to a multiyear adoption curve that we would expect similar to that we saw with Decipher out of the gate once it also got biopsy Medicare reimbursement. So in '25, not a huge impact. I would say more of the halo effect John mentioned on high risk is more impactful on the guide.

Speaker 3

But going into '26 and beyond, this is a 10 of the incidence population for high risk that does require this critical information. So as we have stampede published and have we hopefully get guidelines over the coming years, it'll continue to be a contributing factor to decipher revenue growth and absolutely as part of the reason why we have the confidence we do in delivering double digit revenue growth on a total company basis here for the foreseeable future.

Speaker 6

Great. Thank you for that. And then just maybe for my follow-up one on Prosigna. So appreciate some of the efforts that you outlined in the prepared remarks, but can you share what some of the key milestones you'll be focused on, particularly as it relates to drive greater adoption and revenue growth for Prosigna after launch, be that guidelines, additional utility studies or reimbursement? Thanks.

Speaker 2

Yeah, mean, first milestone, which we talk about is the launch in mid twenty six and of course also the outcome of some pivotal study results and early data from which we saw ESMO recently. Beyond that, we haven't said specifically what additional clinical studies will support the tests. But you can imagine, I mean, we're just going to follow the very same formula that we've applied with Decipher. And remember, this is a whole transcriptome based test as well. So, you know, we'll be able to drive research around the whole transcriptome here and there'll be plenty more clinical studies.

Speaker 2

I don't know if any of the team wants to add anything specific.

Speaker 7

No, more to come.

Speaker 3

Yes. The only other thing I would add is that, obviously, for a new product to launch, we'll be having to put in a tech assessment and get pricing and all of that fun stuff. So that would be one data point along the goalpost of getting product launched.

Speaker 2

And of course, the building of the sales team for that as well, which we'll do gradually, as we've always said we will do. So thank you for the question. I appreciate it.

Operator

Great. Thank you. One moment for our next question.

Speaker 4

Our next question comes from the

Operator

line of Puneet Souda of Leerink Partners. Your line is now open.

Speaker 8

Yes. Hi, guys. Thanks for the question. And I'll ask my questions in one. On Afirma, obviously, growth there still.

Speaker 8

Are you seeing any changes in the share dynamics or ordering patterns and endocrinologists at the current penetration level? Just trying to sort of understand how should we think about that growth trajectory as we head into 2026? And how should we think about the ASP stability there with the LCD and the V2 transition? And then secondly on MRD, can you just remind me in terms of your commercial approach there on cross training the reps or hiring more? And how are you targeting that in academic versus community oncology when you launched this in the first half twenty six?

Speaker 8

And if you could just remind us on the MolDX timing as well. Thank you.

Speaker 2

Great. I'll go ahead on both of those. Sure. I can take both of those.

Speaker 7

So we've not noticed specifically any meaningful changes in the ordering patterns of customers on Afirma. It's obviously a much more mature product. It's a more penetrated market. We have the lion's share of share. I think overall growth is going to come from share dynamics.

Speaker 7

And so the bulk of what we need to do better is to service those customers, improving our service levels overall continuously, continue to improve on clinical evidence to demonstrate the clinical utility of the test and differentiate via our grid offering, which invites more collaborators to do that research that drives that clinical utility that ultimately drives more demand than market adoption. Regarding your second question on MRD, we've mentioned this before. Our commercial approach for muscle invasive bladder cancer, which is the first indication that we plan to launch is absolutely to leverage our current Decipher channel. These bladder patients are managed by the same urologists that we call on for Decipher prostate. And the goal there is to cross train our sales reps to have that conversation about bladder and to continue to service the same channel that we do today.

Speaker 7

And then regarding academic versus community, we have contacts across all institutions. Remember, we have a very healthy network of key opinion leaders who work with us on Decipher Prostate and GRID. We plan on leveraging the same for MRD.

Speaker 3

And then a couple of cleanup items, MolDX timing, we've said we will have reimbursement prior to launch. As Mark mentioned, that TA was submitted back in March and we're in the midst of doing the dance with MolDX on that. And then with regard to the Afirma growth trajectory and your ASP stability question, so the implied guide, this updated guide for Affirm is 6% to 7% revenue growth and volume of high single digits. Given the LBM impact that we had back in 'twenty four that has been cleaned up since November '4, we will start to lapse that, Puneet, here in November 2025. And so as we enter into 2026, with the exception of very small prior period collections here in 2025, we won't have the same headwind that we had going through this year.

Speaker 3

So that's good news. Hopefully, will get to more AST growth over a multiyear period for both Decipher and Afirma. There's no reason why we shouldn't. But we are excited. I mean, are continuing at high single digit volume growth for Afirma in 2025.

Speaker 3

We're excited that we're still seeing the strength there. We do have the next version of GRID coming here later this year, and that we are expecting will set us up very nicely for 2026 volume and revenue growth for Afirma. So I would say with the nuance or nuisance is a better way to say it of the ASP LBM issue for Afirma that we're now just working through our financials because it's been cleaned up behind us, I think this is going to be a really a '26 can be a really great Afirma year.

Speaker 2

I agree. Thanks, Puneet.

Operator

One moment for our next question.

Speaker 4

Our next question comes from

Operator

the line of Subbu Nambi of Guggenheim. Your line is now open.

Speaker 9

Hey, Thank you for taking my question. Could you provide any additional color on the positive feedback you received on the assessment from MolDX on the MRD asset? And then are you hearing anything from urologists ahead of the launch or in need of whole genome based MRD test? And then I have a follow-up on Decipher. You had a press release about Decipher frosted GSC data being integrated with a new NCI CO database.

Speaker 9

Could you provide some added color on this as well? Is this more for the general physician support or any incremental adoption driver? Is it something that we could potentially see any benefit tangibly in the decipher results? Thank you guys.

Speaker 2

So, hi, Subbu, thank you. On the first one, the MolDX submission tech assessment, I'd say it's in the normal process. Rebecca mentioned we're going back and forth with Multi X. There's nothing specific to call out there. Importantly, the whole pricing discussion is a key component of that.

Speaker 2

The tech assessment is the first milestone, then you get into the pricing decisions. I don't know if you have anything you want to add to that, John.

Speaker 8

I didn't understand the second question.

Speaker 3

Well, so no, the second part of that was, are you getting feedback from urologists on whole genome based the desire for a whole genome based MRD test?

Speaker 2

Do you want take that one?

Speaker 10

Yeah, this is Phil. So what I can say, Subbu, is that in general, as we've engaged different physician populations, there's incredible enthusiasm, growing enthusiasm for MRD, and incredible enthusiasm for the additional data that comes with the whole genome approach. As we know, as you engage with sequential therapy in bladder cancer, as it goes through neoadjuvant definitive local therapy and then post operative care, there's a lot of changes that the disease can go through. And whereas MRDs that are focused on a panel and detecting disease can detect the disease, they can't monitor the clonal evolution that can happen, and the selection that can go on, and help some agility with the managing of the care. And so people are really looking at that, and with the whole genome approach, you can look at broad genomic signatures and how those are changing of the tumor while under care, I see that as super important, especially as we think about the benefit of our whole genome platform is that it serves multiple cancers, and you can dial in different capabilities based on the needs of that cancer.

Speaker 10

And when we engage with folks and they talk about whole genome, they see the RUO reports that will become part of our Veracyte diagnostic platform, they get very excited about that additional And

Speaker 2

this is just obviously a continuation of our standard philosophy here of more data leads to more insights. We think it makes complete sense to sequence whole genomes to be able to have that data for future research. And then your last question was regarding the SEER data combination. Don't know, Phil, if you want to take that as well.

Speaker 10

No, the SEER data was that was an important collaboration we had with the NCI and their SEER database, and we felt it was responsible after doing the analysis and the publication to make that data available. And so that opens up the opportunity for investigators to dive into that integration of the Decipher data together with some of the outcomes available through the SEER database in a way that protects patient confidentiality and privacy. And I think as we've seen, the more investigators get comfortable with Decipher data with the Veracyte Diagnostics platform, that's all research. But I certainly think it raises the visibility of our company, raises the visibility and the confidence in our diagnostic clinical tests that they're ordering to manage patient care.

Speaker 3

So second derivative impact.

Speaker 2

Great. Thanks, Phil. Thank you, Sydney.

Operator

Thank you. One moment for our next question.

Speaker 4

Our next question comes from the

Operator

line of Yuko Oku of Morgan Stanley. Your line is now open.

Speaker 11

Hello. Thank you for taking my questions. I wanted to touch on digital pathology, acknowledging it's only available on a limited basis to research collaborators. Could you share early feedback on that offering so far? And would you also provide updated thoughts on whether you may offer it more broadly, either in the clinic or perhaps to biopharma customers?

Speaker 2

Yes, great question, Yuko. I wouldn't say any specific feedback so far on that. I think in general feedback on digital pathology in our space is consistent with our understanding expectations that it's a fairly nascent technology or nascent application of the technology in our space. It is likely if anything complementary to molecular diagnostics. The challenge is going to be if it's contradictory, there's contradiction and confusion for the market and for the physicians in any way.

Speaker 2

And so we continue to believe that the right way to think about that technology is in the same way that we diagnostics. You work with KOLs, you do very robust science and research, a number of studies that then can be relied upon for treating patients clinically, which is at the end of the day we've got to be thinking about at the end of every one of these tests is a patient who is dealing with a very difficult situation, probably the most difficult situation in their lives, and we've to have robust tests. And so our decision to launch this as part of GRID is to enable that research. And so our feedback so far from KOLs is that's the right approach. We're on the right track with that.

Speaker 2

They'll support research. I expect to see some interesting things coming out in the future. And as I've always said, if we wanted to launch our own product with DPI either alongside or with Decipher, we could do that, but we wouldn't do that without the robust science behind it. You want to add anything?

Speaker 7

No, I think that's well said, Mark. We have a proven process and strategy of working very closely with key opinion leaders who contribute a large part in the advancement of the science and the clinical insights that ultimately translate into demand for our products through continuous improvement to our product. We see no reason for why that should be different as we apply this new very exciting and potentially transformational omic, but the process is the same. It's working through our collaborators, developing the evidence that arms us with the confidence then to improve our test.

Speaker 2

And back to the data, we have incredible amounts of data. As I mentioned in the call, 90,000 sample scan, we're going to implement scanning as part of our production capability. So you combine that with whole transcriptomes. It's just exciting for what we could potentially do with that data.

Speaker 10

I was going to double down on it. We're going to take the rigorous approach that it requires to bring a test to market. But because of our grid offering and because of our aggressive approach to operationalize the scanning and then cover our historical volume, we can move very quickly to get to a data set that no other company is positioned to do. So we're very bullish as far as our ability to move quickly through a rigorous clinical program and bring that to market better than anyone.

Speaker 11

Great. That was great color. Thank you. And then while you're focused initially in launching MRD platform in muscle invasive bladder cancer, you're also broadening scope in other cancer types starting in 'twenty seven. So, the unique approach you're taking in MRD, as you touched on earlier in the call, which indications or cancer types do you see your MRD platform delivering the best value?

Speaker 2

Great question. We've said consistently that you can imagine us launching MRD in indications where we have a presence. And so you think about where we are today, we're covering urology broadly, including prostate bladder and that could be even more expanded. We're going to be launching our breast tests. We're going be launching our lung based tests.

Speaker 2

So those will be obvious indications, but it doesn't mean they're the ones and the only ones we're going to launch. And then there are different modalities within each of those indications, like starting with muscle invasive bladder cancer, but there's other modalities. So more to come on that. I wouldn't like to speculate yet.

Operator

Thank you. One moment for our next question.

Speaker 4

Our next question comes from

Operator

the line of Lou Li of UBS. Your line is now open.

Speaker 12

Great, thank you. And I wanted to go back to decipher as well. So, you talk about the partnership with Helius to offer the option to order hereditary cancer tests. I wonder, can you give us a little bit more kind of like detail in terms of like why? And then what kind of like cross selling benefit that you can have from this partnership?

Speaker 7

Yes, thank you for the question. The why is fairly straightforward. So NCCN guidelines have very clear recommendations for prostate cancer on the types of patients, namely high risk and metastatic, who should be assessed for germline variants, and in particular to determine therapeutic options vis a vis the addition of PARP inhibitors or even to assess overall family risk. Clearly, this is an area that's not an area of proficiency for us and it would take us some time and possibly even distract us from doing other things. So we thought the partnership route was perfect and Helix revealed itself as a very exceptional and very collaborative partner.

Speaker 7

And that will kick off in the fall. We'll start accepting samples and supporting customers and we look forward to reporting on further results on that.

Speaker 2

Thanks, John.

Speaker 12

Got it. And then my next question for Rebecca. So great margin in the quarter, and then you're also raising the guide. But I'm wondering what will be kind of like a starting point for 2026 given that you have a new product launches coming out. What will be kind of like the balancing add that you have for it?

Speaker 12

And then it will be great if you can refresh us about like the cost profile for both the MRD and the Prosigna. Thank you.

Speaker 3

Absolutely. So I'll take the second part first. On the cost profile of Prosigna, think about that exactly as the cost profile of what Afirma will be. Maybe a little bit higher, but less than 10% higher given the histopathology component, but effectively Afirma would be a great proxy for once we have the V2 transcriptome out there. On MRD, we are doing three whole genomes upfront and then subsequent whole genomes.

Speaker 3

We haven't discussed specifically exactly what that's going to look like. We have multiple R and D projects ongoing and Phil gets asked that exact question often from me. So all jokes aside, we are making good progress on the cost of whole genome sequencing, but that the margin profile of that is going to be as much tied to the Medicare reimbursement percentage of the population as our cost for indication by indication. So good progress there. We're not ready to necessarily share what it is, but we do think that the benefit of what whole genome sequencing provides us in the MRD in terms of differentiation is more than enough to offset the incremental costs.

Speaker 3

Similarly on the Decipher front, if we were doing a qPCR assay, our margin profile would be immensely better, but we wouldn't be the number one leading test provider here, right, because we effectively have the incremental data. So this is a fundamental part of our strategy and the costs end up being a good return for us in terms of incremental sales and less R and D and sales and marketing expense. Going to 2026, you are ahead of us in terms of our budget planning process. So I'm not ready to sign up for a number here today. Obviously, we've made great strides in our ability to deliver incremental profitability, But we also don't want to box ourselves in.

Speaker 3

You are seeing a decent pickup in spend in the back half of this year implied in the guide. Some of that is timing from the first half, but some of that is projects that we were really keen to do that with the outperformance both of the core business as well as the outperformance on the timing of the SaaS deconsolidation, we have more dry powder to go after. So I think if we deliver a solid year of profitability in 2025, we're going to look to do that again in 2026, albeit in any given year where we do hold ourselves, we do request the option to invest in incremental projects that obviously if that changed the profile of our profitability, we would explain to you why and when you would see a return from that investment. Dancing around answering your question a bit just, but it's not because it is because effectively we are still in the planning process and more will come at the appropriate time. But huge opportunity ahead of us across these five new products, A lot of good opportunity between having a full year of SaaS to fund some of those projects, as well as having a full year of the new transcriptome to fund those projects.

Speaker 3

So we'll see where everything shakes out, but we have every we're going all signs are headed in the right direction.

Speaker 11

Thank you.

Operator

One moment for our next question.

Speaker 4

Our next question comes from

Operator

the line of Mason Carrico Your line is now open.

Speaker 13

Hi, guys. Sorry, joining a bit late here. So hopefully this has not been asked, but has the metastatic indication improved the marketability of Decipher to new urologists who maybe hadn't used Decipher previously? Has it accelerated new account wins in any way?

Speaker 2

Yeah, Let me handle that one. I think it's clear that it the marketability of the test being able to say that it's the only test that covers the entire care continuum up to metastatic now, I think is valuable. We're starting to see some interesting trends. You might have missed it, but John mentioned earlier the trend of high risk interest growing as a result we think of having the metastatic product available. So it's difficult to quantify it exactly, but it's also early stages since the full launch.

Speaker 2

But we're so far very happy with what we're seeing. Got it. Okay.

Speaker 13

I mean, could you talk a bit about the commercial payer landscape for metastatic patients? I mean, you have coverage in place? Could you speak to maybe the number of covered lives that you have today and potentially the opportunity before NCCN?

Speaker 7

So, on the coverage policy, there is an LCD in place for the psychometastatic. Two thirds of which, yeah,

Speaker 3

so the Medicare population is closer to about two thirds of the total population. So, we'll be in good stead out of the gate. We will have to go through and update contracts over time. And so that will be kind of a long tail, if you will, to get to the same 200,000,000 covered lives. But the good news is with such a high Medicare population, we'll have a slightly different ASP for Decipher metastatic, but here shortly I would think those two things start to converge.

Speaker 7

And we think there's a strong evidence trail as well, Mason, supporting the use of Decipher in the metastatic indication. So we expect data to emerge here very, very soon in publications. Phil can go into those a little bit further, but we expect those to make their way into guidelines. And then again, will drive demands and adoption as well as the improve the payer landscape and updating their own coverage policy.

Speaker 2

Yes. And don't forget, Mason, if you think about decipher in the localized setting, we made tremendous traction before guidelines, right, before being in guidelines. The guidelines certainly provide a step up. They're very helpful, but not necessary to start that ramp. And so I wouldn't see that as a gating factor.

Speaker 2

Agreed. Agreed.

Speaker 13

Fair point. Thanks, guys.

Operator

Okay. One moment for our next question. Our next question comes from the line of Mike Matson of Needham and Company. Your line is now open.

Speaker 14

Yes, thanks. So just one on PERSIGNA. Can you just talk about the market opportunity there? It sounds like it's an established market here in The US. So, how big do you think that is in terms of dollars?

Speaker 14

And, is this I assume it's fairly mature at this point, but is there room for more penetration of the testing within the targeted group of patients?

Speaker 7

Yeah, thanks for the question. It is absolutely a very mature market, primarily, I would say dominated by one participant. Nevertheless, I think there are opportunities in a sense that the data coming from the OPTIMA trial will highlight where Prosigna has a distinct value proposition in predicting patients that absolutely will benefit from chemotherapy. In terms of overall size, just over 200,000 patients or so are indicated for testing. A good number of those are going to be Medicare patients.

Speaker 7

We're going to leverage our network to update our contracting with payers where we can. And as Rebecca mentioned earlier, it's require going us to build a brand new channel, but we're confident in the upside.

Speaker 2

And Mike, in terms of AST, that's part of what we'll be resolving between now and the launch in the middle of next year. But you can of can bookend it between where it's currently reimbursed for MolDX and where Afirma and other tests like that are.

Speaker 14

Okay. Got it. And then, you know, just a financial one. So you you've got 320,000,000 of cash. I think that's about 70% of your market cap.

Speaker 14

You have no debt. You're positive free cash flow now. Your your adjusted EPS is positive. So your shares look pretty undervalued here. So would you consider share repurchases with some of that cash?

Speaker 14

Why or why not? Thanks.

Speaker 2

You can imagine, we go through those kinds of conversations, the potential uses of cash in terms of strategic uses, share buybacks and so on. And there's a multitude of variables to take into account there. We're certainly in a very fortunate position to have built financial profile that enables us to have those options and the optionality. But we at this time, we're very focused on building the business and making sure we're investing in the right things to grow and allow us to target even more and more patients. So no specific commentary around uses of that cash at this point.

Speaker 3

Yes, I wholeheartedly agree. I would just say, I think your math is appropriate on the valuation. The other thing I would add is the landscape of opportunities is pretty ripe right now. We continue to have a very high bar for M and A, but I think we're now in year three perhaps of some of the valuation disconnect across the industry, and so I think there are a number of different assets that could be interesting. And so, we always are looking.

Speaker 3

That hasn't stopped. We don't always do deals because the bar is so high, but we're absolutely keen to continuously assess and bring to bear what makes sense for our shareholders and for patients and employees.

Speaker 14

Okay, got it. Thanks, Vivek.

Operator

One moment for our next question.

Speaker 4

Our next question comes from the

Operator

line of Sung Ji Nam of Scotiabank. Your line is now open.

Speaker 15

Hey, this is Corey Rosenbaum on for Sung Ji. Thanks for taking my questions. So specifically for the Afirma transition to V2 Transcriptome, appreciate the commentary you've provided thus far, but would you be able to break out the gross margin benefit that could be expected by the time that is fully rolled out?

Speaker 3

Yeah. I would like to I'm happy to talk about it qualitatively. We will be using that to reinvest in the business, and so I don't want folks to get too far ahead of their skis on the profitability side.

Speaker 2

But

Speaker 3

qualitatively, around a third of our costs are sequencing and library prep in nature. We're currently on the NextSeq 500 and we'll be moving to the NovaSeq X. And so for the portion of that 30% that is sequencing related, we will in time see a meaningful reduction in our cost structure.

Speaker 2

And one of the things I really like about this transition other than the obvious COGS financial impact of it is, it gives us a unified platform that we can use for other tests. As we've already said, we're going to be launching Prosigna on that platform next. And you can imagine it's extensible and scalable even more broadly than that.

Operator

This concludes the question and answer session. Thank you for your participation in today's conference. This concludes the program. You may now disconnect.

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