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Veracyte - Earnings Call - Q2 2025

August 6, 2025

Executive Summary

  • Strong beat and raised outlook: Q2 revenue $130.2M and non-GAAP EPS $0.44 exceeded S&P Global consensus ($120.9M revenue; $0.296 EPS), driven by Decipher and Afirma testing strength; non-GAAP EBITDA margin reached 27.5% as lab efficiencies and operating discipline outpaced planned spend. Consensus values from S&P Global: see Estimates Context.*
  • Mix/one‑offs explained GAAP optics: GAAP net loss ($1.0M; -0.8% margin) reflected a $20.5M impairment tied to the French subsidiary’s sale/liquidation and deconsolidation effective Aug 1; management raised FY25 testing revenue and EBITDA margin guidance and initiated total revenue guidance.
  • Execution levers: Decipher volume +28% YoY to ~25.5k (13th straight quarter >25% growth), Afirma volume +8% YoY to ~16.95k; testing ASP of $2,881 (roughly flat ex-PPCs) and elevated testing gross margin (non-GAAP 73.9%) supported profitability.
  • Near-term path: Q3 total revenue to decline sequentially on SAS deconsolidation; testing revenue roughly flat q/q; non-GAAP opex up to $5M sequentially as investments accelerate. Full-year EBITDA margin raised to 23.5% despite stepped-up H2 spend.

What Went Well and What Went Wrong

  • What Went Well
    • Decipher outperformance and breadth: “thirteenth consecutive quarter of over 25% year-over-year volume growth” with ~25.5k tests; management believes Decipher holds ~65% market share and is the only test across the entire risk spectrum (localized to metastatic).
    • Profitability inflection: Adjusted EBITDA $35.8M (27.5% margin) on higher lab efficiency; non-GAAP testing gross margin 73.9% surpassed expectations, validating 25% adjusted EBITDA long-term goal trajectory.
    • Guidance raised: FY25 testing revenue to $477–483M (from $470–480M) and FY25 adjusted EBITDA margin to 23.5% (from 22.5%); initiated total revenue outlook $496–504M post-France resolution.
  • What Went Wrong
    • GAAP earnings hit by France: $20.5M impairment on French subsidiary (Veracyte SAS) and deconsolidation led to GAAP net loss and an anomalous 178% Q2 GAAP tax rate; management still expects full-year GAAP tax in high single digits.
    • Product margin pressure ahead: With SAS sale and transition to contract manufacturing, product gross margin expected to decline in H2, partially offsetting testing margin gains.
    • Q3 near-term revenue step-down: Total revenue to decline sequentially due to removal of SAS biopharma revenue; testing revenue roughly flat q/q amid typical Afirma seasonality and lower prior period collections.
View the full earnings report

Transcript

Speaker 6

Today, and thank you for standing by. Welcome to the Veracyte Second Quarter 2025 Financial Results Webcast. 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 this session, you will need to press *11 on your telephone. 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, Sheila Gorman. Please go ahead.

Speaker 2

Good afternoon, everyone, and thank you for joining us today for a discussion of our Second Quarter 2025 Financial Results. With me today are Marc Stapley, Veracyte's Chief Executive Officer, and Rebecca Chambers, our Chief Financial Officer. Dr. John Leite, our Chief Commercial Officer, and Dr. Phillip Febbo, our Chief Medical and Scientific Officer, will join us for Q&A. Veracyte issued a press release earlier this afternoon detailing our Second Quarter 2025 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 be correct.

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-K. In addition, this call will include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures is 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.

Speaker 1

Thank you, Sheila, and thanks everyone for joining us today. 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 million. This outstanding result was driven by testing revenue, which also grew 14% year over year, or 16% after adjusting for Invisio.

Decipher and Afirma 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, mid-term, 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.

This resulted in year-over-year volume growth of 28%, our 13th 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 the 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. The accelerated penetration of our Decipher tests continues to surpass our internal expectations, with broad-based expansion across each biopsy NCCN risk category.

We are progressing across the care continuum with the broad launch in June of our Decipher prostate tests for use in the metastatic population. The clinical validity and utility of Decipher prostate metastatic has been demonstrated with four prospective phase 3 clinical studies: STAMPEDE, ARMS GNC, TITAN, and CHARTED. These studies have shown that 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.

Recently, we have observed a noticeable uptick in interest from physicians for NCCN high-risk patients, estimated to be approximately 25% of the incidence population, which we believe reflects a halo effect from 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 Decipher. 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. 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 total to more than 225 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.

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 2 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 deidentified 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. 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 Decipher 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. 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 Afirma 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. 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 2025, 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. 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.

We believe this test has the opportunity to gain share in a large and well-penetrated market, with approximately 225,000 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 PAM50 signature, can provide physicians and their patients with additional data around the biological classification of the cancer and the 10-year risk of distant recurrence to help inform treatment decisions. We remain committed to making our Prosigna LDT commercially available in mid-2026 in our CLIA lab on our new V2 Veracyte transcriptome. The clinical outcomes of the 10-year OPTIMA prelim study were presented at the ESMO Breast Cancer Annual Congress in May and were 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-2026. 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.

Moving to our commitment to serve more of the patient journey through MRD and recurrence 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 MALDIX in March and continue to make good progress towards launching in the first half of 2026. As a reminder, this indication will leverage our strong Decipher channel that serves urologists and radiation oncologists, as we estimate 70% of MIBC patients are treated in this setting.

Additionally, we are excited to share that our test will be used in the NeoBLAST prospective trial to determine whether MRD negative statements can support the deintensification of treatments for MIBC patients. This trial, through investigators at the University of British Columbia, shows our MRD Testing 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 poorer prognoses 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 Testing Platform beyond MIBC. 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 strategic growth driver, where we are committed to launching our tests as IVDs to address patient needs outside the U.S., I would like to update you on the ongoing process with our French subsidiary, Veracyte SAS. Maintaining access to the Prosigna test for patients and the physicians who serve them was an important goal of this process. I am 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 encounter through a contract manufacturer. The remaining assets of Veracyte 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. We are still on track to complete the IVDR submissions for both tests by the end of 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, non-invasive 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 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. 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. 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 2

Thanks, Marc. Q2 was a fantastic quarter with $130.2 million 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 $122.3 million, an increase of 14% year over year, driven by Decipher and Afirma revenue growth of 24% and 5% respectively. Total testing volume was approximately 42,400 tests, an increase of 18% over the prior year period. Testing ASP was $2,881, down 3% compared to the prior year, primarily driven by the impact of higher prior period collections in Q2 2024, as well as the Afirma Laboratory Benefit Manager impact discussed last quarter. Adjusting for the impact of $1.9 million 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 $3.6 million, down 8% year over year. Biopharmaceutical and other revenue was $4.3 million, 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. 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 efficiency. Compared to the prior year, gross margin was slightly lower, given the benefit of prior period cash collections in Q2 2024. Product margin was 20 basis points higher from the prior year at 52.3%.

With the sale of the Veracyte SAS manufacturing business and our transition to a contract manufacturing model, we expect product gross margins to decline in the second half. 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 $60.3 million. Compared to the prior year, research and development expenses decreased by $300,000 to $14.3 million, driven by the timing of clinical trial expenses and project spend. Sales and marketing expenses increased by $1.2 million to $23.1 million, given higher personnel costs. G&A expenses were up $400,000 to $22.9 million. Moving to profitability metrics, we recorded a GAAP net loss of $1 million, inclusive of $20.5 million of non-cash impairments related to Veracyte SAS. 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 $35.8 million, 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 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 and a major clinical study completing in the next 18 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.

We generated $33.6 million of cash from operations, and we ended the quarter with $320.7 million 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 SAS manufacturing business is behind us. While we no longer will be recognizing biopharma and other revenue related to Veracyte SAS activities, we expect $2 to $2.5 million of quarterly product revenue supported by our new contract manufacturer. We remain on track to generate approximately $13 million of savings compared to 2024 results after accounting for the additional $7 million of investment to rebuild our IVD 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 SAS operations from our financials as we have deemed that we no longer control the entity. Given this, we have reflected $5 million 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 million, which was or will be expensed over the course of Q4 2024 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 gain or loss on deconsolidation of a few million dollars in the third quarter.

Turning now to our 2025 outlook, now that we have line of sight to Prosigna supply continuity and the path forward for Veracyte SAS, we are excited to initiate our 2025 total revenue guidance of $496 million to $504 million. Due to our strong performance in the first half of the year, we are raising testing revenue guidance for the full year to $477 million to $483 million from our prior guidance of $470 million to $480 million. This reflects a raised Decipher outlook as well as Afirma AST expectations for the remainder of the year, which are now projected to result in Afirma revenue growth of 6% to 7%. Importantly, given the catalyst Marc outlined, our Afirma volume growth expectations of high single digits have not changed.

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 23.5% from 22.5% previously, which was already meaningfully higher than our original 21.6% 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 SAS from our financials as of August 1, 2025. Moving to the third quarter, we are forecasting the decline in total revenue given we will no longer be recognizing SAS 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.

Additionally, we expect our non-GAAP operating expense to grow up to $5 million 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 SAS contract 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&A portion of the call. Operator, please open the line.

Speaker 6

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. We ask that you please limit your questions to one question and one follow-up. If you have additional questions, you may re-enter the queue. Please stand by while we compile the Q&A roster. Our first question comes from the line of Doug Shankle of Wolfe Research. Your line is now open.

Speaker 1

Hey, good afternoon, and thank you for taking my questions. Rebecca, you may have kind of just run through this as you went through your guidance comments. Sorry if I'm kind of saying something that you already ran through. Based on Marc'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. As we think about the durability of that, what are the key drivers to maintaining something like 20%+ growth for the next few years for Decipher? Is it further market penetration? Is it share gains? Is it digital pathology integration? How should we be thinking about that?

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. That's in advance of getting any additional pipeline contributions. Is that a fair way of thinking about it? Thank you.

Speaker 5

Yeah, happy to do so, Doug. Thank you. I'm going to take part, and I think Marc's going to help on some of this as well. 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. 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. The guide implies 22.5% to just over 24% revenue growth for Decipher. That's one thing to take into account. I think the drivers of that growth here are multiple different opportunities.

The first, obviously, the metastatic population that Marc 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. The sales team is just executing really well. I would say those are the drivers for Decipher growth over a multi-year period. 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 Marc. Effectively, between Afirma and Decipher, we are absolutely confident in 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. I think we've delivered even beyond that as you look at the updated revenue guide here of 14% to 15% for testing.

Speaker 1

Yeah, thanks, Rebecca. And Doug, thanks for the question. I totally agree. I mean, we've guided that we think these tests can get to 80% market penetration. You know, we started this year with the Decipher market, the prostate market around 40%. You know, we think we have what we need in terms of the product set to drive to that 80%, and it's market share gains and penetration. You know, 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? You pointed out very clearly, Decipher continuing to grow. We've got multiple years ahead there. Afirma is, you know, later in its life cycle.

We've talked about Prosigna 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 with good results, we should be able to launch nasal swab. 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. To your point around the double-digit growth, yeah, it's certainly, you know, something that we think a lot about. We've set up our company to deliver that.

As long as we continue to make the right investments, you know, you would expect it to do so.

Speaker 6

One moment for our next question. Our next question comes from the line of Andrew Brackman of William Blair. Your line is now open.

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 are 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 1

Yeah, I mean, I'm going to ask John to talk a little bit about the successful launch so far. Of course, you 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. Rebecca can kind of, you know, triangulate that back to you for you to the guide.

Speaker 5

Yeah, 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 that it's taking a multidisciplinary approach towards managing these patients. 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. The discussions around the CMP data have been extremely impactful, and the response so far is good. We see good upside for the test in the future.

Just to.

Speaker 1

High risk.

Oh, high risk.

Speaker 5

Yes, with regards to the high risk discussion, one of the arms of the CHARTED trial, Arm G, 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. The answer was yes. Patients who tested Decipher high risk, both in localized high-risk disease as well as the metastatic setting, both saw benefit from the addition of the ARPI. In a sense, that's reinvigorated the interest in the conversation again on high risk. Overall, there's just a growing awareness of the robustness of Decipher as a prognostic signature across all these very different indications. It speaks to just how well designed the assay has been and how well validated it's demonstrating to be.

Thank you for the question. I wouldn't say that metastatic is a meaningful contributor to the guide this year in and of itself. We're expecting a launch here that is successful but not overly impactful given the large denominator and lending itself to a multi-year adoption curve that we would expect similar to that we saw with Decipher out of the gate once it also got a biopsy Medicare reimbursement. In 2025, not a huge impact. More of the halo effect John mentioned on high risk is more impactful on the guide. Going into 2026 and beyond, this is a 10% of the incidence population for high risk that does require this critical information.

As we have STAMPede published and we hopefully get guidelines over the coming years, it'll continue to be a contributing factor to Decipher revenue growth and absolutely is 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. Great.

Speaker 6

Thank you for that. Maybe for my follow-up one on Prosigna. I appreciate some of the efforts that you outlined in the prepared remarks, but can you share what some of the key milestones you will 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 1

Yeah, I mean, our first milestone, which we talk about, is the launch in mid-2026, and of course also the outcome of some pivotal study results, some early data from which we saw at ESMO recently. Beyond that, we haven't said specifically what additional clinical studies will support the tests. You can imagine, I mean, we're going to follow the very same formula that we've applied with Decipher. Remember, this is the whole transcriptome-based test as well. We'll be able to drive research around the whole transcriptome here, and there will be plenty more clinical studies. I don't know if any of the team wants to add anything specific.

Speaker 5

No, more to come.

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. That would be one data point along the goalpost of getting the product launched.

Speaker 1

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

Speaker 6

Great. Thank you. One moment for our next question. Our next question comes from the line of Puneet Suda of Lyrinc Partners. Your line is now open.

Yeah, hi guys. Thanks for the question. I'll ask my questions in one. On Afirma, obviously solid growth there still. Are you seeing any changes in the share dynamics or ordering patterns in 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? How should we think about the ASP stability there with the LCD and the V2 transition? Secondly, on MRD, can you just remind me in terms of your commercial approach there on cross-training the reps or hiring more? How are you targeting that in academic versus community oncology when you launch this in the first half of 2026? If you could just remind us on the MALDIX timing as well. Thank you.

Speaker 1

Right. Go ahead on both the first and MRD Testing Platform.

Speaker 5

Sure, I can take both of those. We've not noticed specifically any meaningful changes in the ordering patterns of customers on Afirma. It's obviously a 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. 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 and 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. 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. 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.

A couple of cleanup items. MALDIX timing, we've said we will have reimbursement prior to launch. As Marc mentioned, that TA was submitted back in March, and we're in the midst of doing the dance with MALDIX on that. With regard to the Afirma growth trajectory and your ASP stability question, the implied guide, this updated guide for Afirma of 6% to 7% revenue growth and volume of high single digits, given the LBM impact that we had back in 2024 that has been cleaned up since November of 2024, we will start to lapse that, Puneet, here in November of 2025. 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. That's good news.

Hopefully, we will get to more ASP growth over a multi-year period for both Decipher and Afirma. There's no reason why we shouldn't. We are excited. We are continuing at high single-digit volume growth for Afirma in 2025. 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, you know, we are expecting will set us up very nicely for 2026 volume and revenue growth for Afirma. 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, 2026 can be a really great Afirma year.

Speaker 1

Thanks, Puneet.

Speaker 6

One moment for our next question. Our next question comes from the line of Subunambi of Guggenheim. Your line is now open.

Hey, guys. Thank you for taking my question. Could you provide any additional color on the positive feedback you received on the tech assessment from MALDIX on the MRD asset? Are you hearing anything from urologists ahead of the launch for a need of whole genome-based MRD test? I have a follow-up on Decipher. You had a press release about Decipher prostate GSC data being integrated with a new NCI SEAL database. Could you provide some added color on this as well? Is this more for a general physician support or any incremental adoption driver? Is it something that we could potentially see any benefit tangibly in the Decipher result? Thank you, guys.

Speaker 1

Hi Subu, thank you. On the first one, the MALDIX submission tech assessment, I'd say it's in the normal process. Rebecca mentioned we're going back and forth with MALDIX. There's nothing specific to call out there. Importantly, the whole pricing discussion is a key component of that. The tech assessment is the first milestone. You get into the pricing decisions after that. I don't know if you have anything you want to add to that, John. I didn't understand the second question.

Are you getting feedback from urologists on whole genome-based, the desire for a whole genome-based MRD test?

Do you want to take that one, Phillip?

Yeah, this is Phil. What I can say, Subu, 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. Whereas, you know, 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. People are really looking at that. With a 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, you know, 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. When we engage with folks and they talk about whole genome, they see the RUL reports that will become part of our Veracyte diagnostic platform. They get very excited about that additional information.

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. Your last question was regarding the SEER data combination. I don't know, Phil, if you want to take that as well.

No, the SEER data was an important collaboration we had with the NCI and their SEER database. We felt it was responsible after doing the analysis and the publication to make that data available. 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. 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.

Second derivative impact.

Yeah.

Great. Thanks, Phillip. Thank you, Subu.

Thank you.

Speaker 6

One moment for our next question. Our next question comes from the line of Yuko Oku of Morgan Stanley. Your line is now open.

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? Would you also provide updated thoughts on whether you may offer it more broadly, either in the clinic or perhaps to biopharma customers?

Speaker 1

Yeah, 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 and expectations that it's a fairly nascent technology or a 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. We continue to believe that the right way to think about that technology is in the same way that we thought about molecular 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 all 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 got to have robust tests. Our decision to launch this as part of grid is to enable that research. Our feedback so far from KOLs is that's the right approach. We're on the right track with that. They'll support research. I expect to see some interesting things coming out in the future.

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 5

No, I think that's well said, Marc. 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 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 tests.

Speaker 1

Back to the data, we have incredible amounts of data. As I mentioned in the call, 90,000 samples scanned. We're going to implement scanning as part of our production capability. You combine that with whole transcriptomes. It's just, you know, it's exciting what we could potentially do with that data.

No, I was going to double down on it.

Go ahead.

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. We are very bullish as far as our ability to move quickly through a rigorous clinical program and bring that to market better than anyone.

Great. That was great color. Thank you. 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 2027. Given 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?

Great question. We've said consistently that, you know, you can imagine us launching MRD in indications where we have a presence. 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 to be launching our lung-based tests. Those would be obvious indications, but it doesn't mean they're the ones and the only ones we're going to launch. There are different modalities within each of those indications, like starting with muscle invasive bladder cancer, but there's other modalities. More to come on that. I wouldn't like to speculate yet.

Thank you.

Speaker 6

One moment for our next question. Our next question comes from the line of Liu Li of UBS. Your line is now open.

Great. Thank you. I wanted to go back to Decipher as well. You talk about the partnership with Helix 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 co-signed benefit that you can have from this partnership?

Speaker 5

Thank you for the question. The why is fairly straightforward. 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, 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. We thought the partnership route was perfect, and Helix revealed itself as a very exceptional and very collaborative partner. 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 1

Thanks, Phil.

Got it. My next question for Rebecca. Great margin in the quarter, and you're also raising the guide. I'm wondering what will be a good starting point for 2026, given that you have new product launches coming out. What will be the balancing act that you have for it? It would be great if you can refresh us about the cost profile for both the MRD and the Prosigna. Thank you.

Absolutely. 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. Effectively, Afirma would be a great proxy for once we have the V2 transcriptome out there. On MRD, we are doing three whole genomes up front and then subsequent whole genomes. We haven't discussed specifically exactly what that's going to look like. We have multiple R&D projects ongoing, and Phil gets asked that exact question often from me. All jokes aside, we are making good progress on the cost of whole genome sequencing, but 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. 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. 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. 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&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. 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 SAS deconsolidation, we have more dry powder to go after.

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. I'm dancing around answering your question a bit, but it is because effectively we are still in the planning process and more will come at the appropriate time. There is a huge opportunity ahead of us across these five new products. A lot of good opportunity between having a full year of SAS to fund some of those projects, as well as having a full year of the new transcriptome to fund those projects.

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

Speaker 6

Thank you. One moment for our next question. Our next question comes from the line of Mason Caracle of Stephens Inc. Your line is now open.

Hi guys. Sorry to join in a bit late here. Hopefully this has not been asked. 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 1

Yeah, let me handle that one. I think it's clear that 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, 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. It's difficult to quantify it exactly, but it's also early stages since the full launch. We're so far very happy with what we're sitting with.

Got it. Okay. Could you talk a bit about the commercial payer landscape for metastatic patients? Do 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 5

Yes, on the coverage policy, there is an LCD in place for Decipher metastatic, two-thirds of which, yeah, the Medicare population is closer to about two-thirds of the total population. We'll be in good stead out of the gate. We will have to go through and update contracts over time. That will be a kind of a long tail, if you will, to get to the same 200 million covered lives. The good news is with such a high Medicare population, we'll have a slightly different ASP for Decipher metastatic. Here shortly, I would think those two things start to converge. We think there's a strong evidence trail as well, Mason, supporting the use of Decipher in a metastatic indication. We expect data to emerge here very, very soon in publications. Phil can go into those a little bit further. We expect those to make their way into guidelines.

Guidelines will drive demand and adoption, as well as improve the payer landscape in updating their own coverage policy.

Speaker 1

Yeah, 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. I wouldn't see that as a gating factor.

Speaker 5

Agreed.

Agreed.

Fair point. Thanks, guys.

Speaker 6

Okay, one moment for our next question. Our next question comes from the line of Mike Mattson of Needham & Company. Your line is now open.

Yeah, thanks. Just one on Prosigna. Can you just talk about the market opportunity there? It sounds like it's an established market here in the U.S. How big do you think that is in terms of dollars? 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 5

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

Speaker 1

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

Okay, got it. Here, just a financial one. If you've got $320 million of cash, I think that's about 17% of your market cap. You have no debt. You're positive free cash flow now. Your adjusted EPS is positive. Your shares look pretty undervalued here. Would you consider share repurchases with some of that cash? Why or why not? Thanks.

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. There is a multitude of variables to take into account there. We're certainly in a very fortunate position to have built the financial profile that enables us to have those options and the optionality. 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. No specific commentary around uses of that cash at this point.

Yeah, I wholeheartedly agree. I would just say, you know, 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&A, but you

Speaker 6

I think we're now in year three, perhaps, of some of the valuation disconnect across the industry. I think there are a number of different assets that could be interesting. We always are looking. That hasn't stopped. We don't always do deals, because the bar is so high. We're absolutely keen to continuously assess and bring to bear what makes sense for our shareholders and for patients and employees.

Speaker 2

Okay. Got it. Thanks, Rebecca.

Speaker 1

One moment for our next question. Our next question comes from the line of Sungji Nam of Scotiabank. Your line is now open.

Speaker 2

Hey, this is Corey Rosenbaum on for Sungji. Thanks for taking my questions. Specifically for the Afirma transition to V2 transcriptome, I appreciate the commentary you've provided thus far. Would you be able to break out the gross margin benefit that could be expected by the time that is fully rolled out?

Speaker 6

Yeah. I'm happy to talk about it qualitatively. We will be using that to reinvest in the business. I don't want folks to get too far ahead of their skis on the profitability side. Qualitatively, around a third of our costs are sequencing and library prep in nature. We're currently on the NexSeq 500, and we'll be moving to the NovaSeq X. For the portion of that 30% that is sequencing related, we will, in time, see a meaningful reduction in our cost structure.

Speaker 2

One of the things I really like about this transition, other than the obvious, you know, 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. You can imagine it's extensible and scalable even more broadly than that.

Speaker 1

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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