Veracyte Inc

NASDAQ:VCYT

Earnings Call Analysis

Revenue Growth Amidst Rising Costs

The company's revenue soared to $90.1 million, up 19% year-over-year, driven by a volume uptick with nearly 32,500 tests, a 23% increase. Testing revenue growth of 27% was fueled by their Decipher Prostate test and Afirma market expansion. Despite a 47% plunge in biopharmaceutical revenue due to industry-wide spend constraints, gross margins improved substantially. Operating expenses climbed by 13%, principally from hiring and trials. Net loss stood at $29.6 million, largely due to an impairment charge from a strategic pivot to a multiplatform strategy. However, the firm remains financially robust with $202 million in cash and elevates its 2023 revenue forecast to $352-354 million from a prior $342-350 million, expecting over $200 million cash on hand by year-end.

Fiscal 2023 Revenue Expectations and Q3 Performance

Our analysis starts on a high note, with the company's quarterly revenue reaching approximately $90 million, marking a 19% increase from the previous year. This surge is primarily attributed to the core testing business, which saw a 27% growth in revenue. Additionally, operational efficiency has been commendable as evidenced by the generation of $14 million in cash flow from operations, indicative of a trend of positive cash flow for four out of the last five quarters. Reflecting on such robust performance, and considering a favorable outlook, the company's revenue growth expectations have been raised to around 18% for fiscal year 2023.

Highlights from Testing Segments

In the quarter under review, approximately 15,500 Decipher Prostate tests were reported, reflecting a sequential uptick in demand. The company prides itself on achieving a record number of unique ordering physicians for this test in the quarter, which bolsters its status as a market leader. Q3 also witnessed about 13,500 Afirma thyroid tests being conducted, supported by the growing market, which sees over 550,000 patients undergoing thyroid fine needle aspiration annually in the United States. Gross margins painted a bright picture as well, with Non-GAAP gross margin at 69%, up 350 basis points from the prior year, and Testing gross margin rising by 400 basis points to 73%.

Expanding Test Offerings and Addressing Market Needs

The company has not only established its stronghold in existing markets but is also expanding its reach to cater to patients with advanced-stage metastatic and castrate-resistant prostate cancer. These efforts are also accompanied by ongoing development in areas like the Percepta Nasal Swab and global in vitro diagnostic (IVD) strategy. Market penetration for cancer tests is hovering around 50%; however, the company targets to drive this figure to 70% or beyond, positioning itself as a primary catalyst for this market expansion.

Supply Chain Management and Future Preparations

Adapting to supply chain challenges, particularly for key components or parts, the company has taken proactive measures to mitigate potential disruptions. By accelerating the production of Prosigna kits in their Marseille IVD facility, the company aims to circumvent these challenges and continue their momentum without undue impact on product deliveries.

Sustainable Growth and Operational Efficiency

Staying true to its business philosophy, the company remains focused on propelling top-line growth while maintaining a keen eye on operational performance. The culmination of refining processes over recent years is reflected in greater overall efficiency, such as improved turnaround times in lab operations, which continue to support the company's scalability and profitability.

Commitment to Evidence-based Innovations

Veracyte's steadfast commitment to clinically validate its offerings for better medical outcomes continues to be evident. Decipher GRID, which empowers physicians with additional gene expression data for research use, is a testament to the company's dedication to advance the understanding of prostate cancer. This dedication to research and development underscores the company's role in leveraging comprehensive clinical evidence to support its suite of molecular tests.

Financial Updates and Projections

Confidence in financial performance has led to an uplift in revenue projections to $352 million to $354 million, up from the prior guidance of $342 million to $350 million. This revision indicates that the company is not just meeting but exceeding its financial targets, signaling strong underlying business health and the potential for sustained earnings growth. Moreover, embracing financial prudence, the company has no immediate requirement for raising additional capital, further strengthening its stable financial foundation.

Market Expansion and Launch Timelines

The company stays on track to broadening market reach, with commercial launch timelines for various tests, including Decipher Prostate and Percepta Nasal Swab, remaining unchanged. This adherence to original schedules showcases the company's operational discipline and strategic focus as they approach planned market forays in the coming years.

Closing Remarks from Leadership

Concluding the analysis, executive leadership displays a strong sense of satisfaction with the company's core testing business and the untapped potential within the prostate and thyroid cancer markets. With a strategy grounded in product enhancements, evidence development, and broadening reimbursement, the company anticipates continued growth well into the future. The sense of optimism extends to global strategies as well, with excitement around future IVD launches. The culmination of a fruitful quarter is a reflection of the tireless efforts of Veracyte employees and their dedication to transforming cancer care worldwide.

Earnings Call Transcript 2023-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the Veracyte Third Quarter 2023 Financial Results Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Tristan Ribar. Please go ahead.

[Unknown Executive]

Good afternoon, everyone, and thanks for joining us for a discussion of our third quarter 2023 financial results. With me today are Marc Stapley, Veracyte's Chief Executive Officer; and Rebecca Chambers, our Chief Financial Officer. Veracyte issued a press release earlier this afternoon detailing our third quarter 2023 financial results. This release, along with the business and financial presentation is available in the Investor Relations section of our website at veracyte.com. Before we begin, I'd like to remind you that various statements that we may make during this call will include forward-looking statements as defined under applicable securities laws. Forward-looking statements are subject to risks and uncertainties, and the company can give no assurance they will prove to be correct. Further, we are not under any obligation to provide further updates on our business trends or our performance during the quarter. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Veracyte files with the Securities and Exchange Commission, including Veracyte's 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 are included in today's earnings release accessible from our IR section of Veracyte's website. I will now turn the call over to Marc Stapley, Veracyte's CEO.

[Marc Stapley, executive]

Thanks, Kristen, and thanks, everyone, for joining us today. I am pleased to share our third quarter results as well as an update on progress across our growth drivers. Our Q3 revenue was approximately $90 million, an increase of 19% compared to the prior year period. Yet again, our core testing business drove this strong outcome with impressive revenue growth of 27% versus the prior year period. We also continue to further enhance our already differentiated financial profile, generating $14 million of cash flow from operations and marking the fourth out of the last 5 quarters with positive cash flow. Our prudent framework of driving test adoption through robust clinical evidence, reimbursement and guideline inclusion has provided indisputable differentiation for our leading on-market tests, enabling us to serve more patients and grow revenue at an accelerated rate. During the quarter, we reported approximately 15,500 Decipher Prostate tests, up slightly sequentially, our summer seasonality was more than offset by a reduction in it. Given the site's growth, we have invested in our San Diego lab operations over the course of this year, focusing on both lab capacity and efficiency. I'm incredibly proud of our lab operations team that has executed on these improvements. One of the impressive outcomes of their efforts is that the Decipher turnaround time is now lower than we've ever seen, enabling us to get answers to physicians and the patients even faster. Consequently, Decipher WIP was lower at the end of the quarter than we forecasted by more than 500 tests, which will resulted in recognized as revenue. With the faster turnaround time as the new normal, our WIP should remain approximately at this lower level going forward. We again saw a record number of unique ordering positions for the Decipher Prostate test in the quarter as our highly productive urology sales force continue to broaden awareness of the test Level 1 evidence status in NCCN guidelines. There are hundreds of publications and presentations contributing to evidence for the Decipher platform, and we continue to engage with KOLs through our Decipher GRID research offering. During the quarter, Decipher GRID was ordered by physicians close to 50% of the time. As a reminder, Decipher GRID information is added to the patient report upon physician requests to provide further gene expression and signature data for research use only, which may offer additional insights into prostate cancer molecular biology. Further in clinical evidence for our products is a key tenet in our proven framework. This quarter was no exception as we presented 6 abstracts at the recent American Society for Radiation Oncology or ASTRO Conference. This included 3 oral presentations focused on a large randomized Phase III trial, which showed the Decipher Prostate genomic classifiers ability to predict risk of metastasis among patients with clinically high-risk disease. This is our 12th validation study of Decipher in a Phase III randomized trial, demonstrating the test performance in clinical utility for enabling physicians to apply precision medicine for patients with prostate cancer. As far as we know, no other molecular test for prostate cancer comes close to this level of clinical evidence. With high-risk prostate cancer becoming an increasingly worrying trend, we remain committed to providing access to patients across the care continuum. As part of this, we have developed and validated our Decipher offering for those patients with advanced stage metastatic and castrate-resistant prostate cancer. We are currently engaging with Medicare's MolDX program on their draft coverage policy or LCD, to enable the cytotesting of this patient population. We expect the draft LCD to be finalized over the coming year. Once that is completed, we will submit the technical assessment, a requirement to grant Medicare coverage and want parallel engage commercial payers. We view these steps as critical to ensure our ability to more completely serve the close to 300,000 prostate cancer patients diagnosed each year in the United States. Moving to Afirma. We delivered another record quarter with approximately 13,500 tests reports. Our dedicated commercial team added more than 65 new accounts in the quarter, including some large health systems and competitive wins. We believe this growth is being driven by increasing usage with existing customers as well as market share gain. Our current estimate is of more than 550,000 patients receive a thyroid fine needle aspiration in the United States annually to assess their thyroid needle for cancer. Of those, approximately 119,000 are cytologically in the indeterminant or Bates 3 and 4 categories, which have historically accounted for the vast majority of Afirma's patient population. This year, at the first system for reporting thyroid cytopathology, broadened their recommendations for which patients may benefit from molecular testing to include those with a best-five cytology diagnosis who likely have thyroid cancer. To this end, we are strong believers that Afirma can provide critical information for the approximately 15,000 additional proposed to 5 patients annually who are now included in the recommendation for molecular testing. Given the firm of strong performance and positive outlook, we are once again updating our revenue growth expectations to be approximately 18% for fiscal year 2023. Our firmer success is due in part to continued enhancements we've made to the test over the last 12 months, including the addition of promoter mutation testing and ongoing customer experience improvements, such as our customer portal. We continue to work with leading KOLs to advance the science around thyroid nodules and cancer. And as a result, we're excited to announce that we will be launching our U PERMA Grid report this quarter. This research tool, similar in concept to the Decipher GRID, leverages the firm's whole transcriptome derived sequencing platform and database and was developed through our novel discovery work and through published literature. It is designed to serve as a comprehensive resource for research into molecular characteristics that may ultimately help improve the understanding of how to manage patients with thyroid nodules in cancer. Going forward, our focus is to utilize this new tool to continue to partner with academic researchers and KOLs to advance findings that may one day help to further personalize treatment for patients. For both Prostate and thyroid cancer, there is still a lot to learn to better support patients in their diagnosis and treatment, and we are proud to be able to facilitate new research with our grid offerings. Our goal for both tests, which is still significantly underpenetrated in the market, is that every patient that can benefit from our molecular diagnostic is able to access to Decipher or Afirma and we strongly believe the continued research will help drive benefits patients everywhere.Turning now to our long-term growth drivers. We continue to make significant progress on both the Percepta Nasal Swab and our global IVD strategy. Our clinical utility stud for the Percepta Nasal Swab test has grown to approximately 90 sites, and we remain on track to finalize trial enrolment now later in the second quarter of 2024. We continue to view the Percepta Nasal Swab test is serving a critical clinical unmet need as it improves the assessment of identified nodules for risk of malignancy in current proforma smokers who undergo recommended screening for lung cancer as well as provides a risk classification. This patient population continues to grow as recently, the American Cancer Society expanded the lung cancer screening guidelines for former smokers, already a population of 15 million in the United States. With this update, the population appropriate for screening has been expanded to ages 50 through 80 instead of 55 to 74 and now includes anyone with a significant smoking history, even if they stop smoking more than 15 years ago. We meaningly advanced our IVD strategy this quarter as well. We had another solid quarter for our Prosigna breast cancer test as product revenue increased 21% versus the prior year period, driven in part by demand from the Nordic region. As a reminder, earlier in the year, Prosigna was adopted as the definitive breast cancer test by the government of Norway following a nationwide prospective study involving more than 2,000 patients. Looking ahead, we're excited about report published this month by the Scottish Health Technologies Group as they recommended a favorable position for Prosigna reimbursement, which we believe will foster further demand for the test in the region. Our move of the manufacturing of our Prosigna assay from NanoString to our Marseille, France location is progressing. This transition, while always an important part of our IVD strategy has become increasingly critical over the last few months as we have faced a number of supply challenges. Consequently, we intend to stand up our own manufacturing line faster than we had originally planned and are doing everything we can to ensure that all patients continue to have access to the Prosigna test. This situation reinforces the need for us to control our supply chain beyond simply improving our long-term economics around our IVD strategy. Our global supply chain and manufacturing teams working collaboratively with the commercial team have done a fabulous job taking on this accelerated goal, and I'm proud of all they have accomplished to date. In spite of our mitigation efforts, we do expect this to be a headwind to volume and revenue in the fourth quarter, the impact of which has been offset by strong testing outlook reflected in our updated revenue guidance. Recall that product revenue represents less than 5% of our total revenue. As a reminder, our decentralized IVD strategy is designed to make our clinically impactful tests available to patients all over the world. Fundamentally, we believe that the quality of our diagnostics and level of evidence supporting them is what ultimately differentiates us as we can clearly see is happening in the U.S. market. Based on our own experience in the field, customer feedback, the growing installed base of NGS and QPCR platforms and the cost structure of other platforms, we have decided to adopt a multiplatform strategy for our tests. We now believe this approach will help us reach more patients with our tests more quickly and hence accelerate long-term growth. Leveraging the nCounter development work already completed, our team has already begun bridging Decipher Prostate to qPCR and will surely be commencing a project to bridge our Nasal Swab to NGS. To enable our launch of products on NGS, as announced earlier today, we have already signed an agreement with Illumina to develop and offer some of our tests on their NextSeq 550Dx instrument. We are on track to launch these new products consistent with prior expectations, the time line for which was previously predicated on submission to the Mixite body in 2024 and 2025, respectively. Given our updated plan, our recent interactions with the notified body and the current evolving regulatory framework for IVDR, we expect the Decipher Prostate will commercially launch in mid-to 2025 and Nasal Swab 2026. At that point, we expect to be able to immediately leverage our existing IVD commercial team who are selling Prosigna to drive towards reimbursement and adoption country by country for these new tests with the benefit of a large existing installed base of instruments. I'm excited about this multi-platform approach to launching our test in the U.S. market, underscoring our belief that exceptional countercare begins with broad access to exceptional diagnostics. To help us further advance our global vision, we were pleased to announce the addition of 2 highly respected industry veterans to our senior leadership team during the quarter. Dr. Phillip Febbo joined Veracyte as Chief Scientific Officer and Chief Medical Officer; and Dr. Marie-Claire Taine is now GM of our IVD business based in Marseille, France. Further, we recently launched a new corporate website, which brings to life our vision and how we are differentiated from other companies in the space. In closing, Q3 was an exceptional quarter with strong execution in our core testing business and progress across our long-term growth drivers. We are now focused on executing our remaining goals for the year while also setting the stage for global leadership in cancer diagnostics. With that, I will now turn to Rebecca to review our financial results for the quarter and our updated guidance for 2023.

[Rebecca Chambers, executive]

Thanks, Marc. As Marc mentioned, we achieved excellent results in the third quarter with $90.1 million of revenue, an increase of 19% over the prior year period. We grew total volume to approximately 32,500 tests, a 23% increase over the same period of 2022. Quarterly testing revenue was $82 million, an increase of 27% year-over-year, driven by strong adoption of our Decipher Prostate test post Level 1 evidence designation by the NCCN and continued penetration of the Afirma market as well as strong prior period cash collections. Total testing volume was approximately 29,500 tests, which includes the impact of our improved lab efficiency and WIP reduction that Marc mentioned. Testing ASP was approximately $2,750 per test, benefiting from approximately $1.5 million of out-of-period collections. Adjusting for this impact, testing ASP would have been approximately $2,700. Third quarter product volume was approximately 2,850 tests and product revenue was $4 million, up 21% year-over-year. Biopharmaceutical and other revenue totaled $4.1 million, down 47% year-over-year. As expected, reductions in customer projects, extended sales cycles and overall spending constraints across the industry led to the decline. Moving to gross margin and operating expenses. I will highlight non-GAAP results which exclude the amortization of acquired intangible assets, restructuring costs and the impairment of long-lived assets, but does include routine stock-based compensation. Non-GAAP gross margin was 69%, up approximately 350 basis points compared to the prior year period. Testing gross margin was 73%, up 400 basis points compared to the prior year period, benefiting from efficiency gains, fixed cost leverage, test mix and higher ASP. Product gross margin was 39%, roughly flat versus the prior year period. Biopharmaceutical and other gross margin was 18%, down year-over-year given lower fixed cost absorption. Non-GAAP operating expenses, excluding cost of revenue, were up 13% year-over-year at $58 million, driven by higher personnel costs and clinical trial expenses as well as investments in facilities and infrastructure. Research and development expenses increased by $2.8 million to $13.3 million. Sales and marketing expenses decreased by $0.5 million to $23.8 million and G&A expenses were up $4.3 million to $20.6 million. We recorded a GAAP net loss of $29.6 million, which included $7.3 million of stock-based compensation expense, $7.3 million of depreciation and amortization and a $34.9 million impairment charge tied to our decision to adopt a multi-platform IVD strategy. We ended the quarter with $202 million of cash and cash equivalents, well ahead of our expectations. Turning now to our updated 2023 guidance. We have raised our revenue projections yet again to $352 million to $354 million as compared to our prior guidance of $342 million to $350 million. This increase is based on our strong third quarter results and an improved outlook on testing revenue, which takes into account the Q3 WIP impact and out-of-period collections, which we do not anticipate repeating. This guidance also contemplates Q4 product revenue of $23 million, given the supplier challenges previously mentioned. Moving to cash, cash equivalents and short-term investments, as always, our comments are barring potential M&A. We now forecast to end 2023 with more than $200 million of cash on hand, accounting for the impact of upcoming milestones and contingent consideration payments, capital expenditures related to our lab expansion and other working capital trends.Importantly, this updated guidance represents an increase of approximately $30 million compared to our expectations at the beginning of this year, driven by the strength of our testing portfolio as well as the fabulous execution of our managed care and billing teams. To date, this year has been an incredible one for the Veracyte team, and I'm excited to continue to deliver on the financial goals we've set for 2023 and beyond. We'll now go to the Q&A portion of the call. Operator, please open the lines.

[Operator]

[Operator Instructions]. Our first question is from Tejas Savant with MS.

[Unknown Analyst]

This is Yuko for Tejas. Thank you for taking the question. Maybe starting with the Illumina collaboration that you announced today. How does this collaboration fit into more centralized testing model in the U.S.? Or is the focus here mainly OUS adoption? And if that's the case, has there been any changes in the strategy to build the test on nCounter?

[Marc Stapley, executive]

Yes, great question. Thanks for that. So the collaboration with Illumina is very much focused on the OUS market, and it's regarding distributable IVD as kids on the NextSeq DX550 platform. Now remember, we're very much from a clear standpoint, we're a customer of Illuminas today, and this doesn't change or impact that in any way, shape or form other than we've expanded our relationship with Illumina to relate to outside the U.S. as well. So we're excited about that. In relation to the nCounter approach, the question you asked there, yes, the way that this multi-platform strategy of ours will take place is we are going to leverage the best instrument or instruments for the test. So as we talked about in the prepared remarks, we will launch Decipher Prostate on qPCR. We will launch Nasal Swab on NGS. And for every other future test, we'll consider the platform or platforms on which we'll launch those tests. The Encana's still going to support very much for our Prosigna test and others that we have in place today, like lymphoma, for example. No changes there. Prosigna is actually one good example where we will also launch that product and NGS, which expands and provide more options for our customers. Hopefully, that answers your question.

[Unknown Analyst]

Yes. No, that was great. And then a separate follow-up question. You touched on this during the prep remarks, but could you -- it sounds like some of the time lines have changed for submission of Prostate and Nasal Swab for the -- for the IVDR process. I was wondering if you could elaborate on some of the discussions that you had with the notified body and whether some -- what from the discussions may have changed the time lines there?

[Marc Stapley, executive]

Yes. So actually, the time lines for when we now expect to launch these tests commercially has not changed. And when I say these tests, I'm talking about Decipher Prostate and Nasal Swab. But we've moved from providing a submission time line, the steps after that, which would largely be outside of our control and unpredictable from a time line standpoint to now a commercialization time line, which we think is better, more predictable and clearer. And so now we're at a point where we're comfortable saying when we're able to commercialize these tests based on our road map and our project plan, whereas previously we weren't ready to put a commercialization time out there. So had you previously assumed something like at least a year for commercialization? You would have landed on Decipher Prostate in '25 and Nasal Swab in '26. So we're now confirming -- we will be ready to launch commercially to Decipher Prostate in '25 and Nasal Swab in '26 consistent with that assumption. Okay? So we've just taken, I think, less of the uncertainty out of it and made a little bit more committal -- a lot more committal, in my opinion, in terms of when we're ready to commercially launch. Now one thing I want to be very clear about when we're ready to commercially launch from an IVDR perspective, doesn't automatically get us reimbursed and adopted in every country. Remember, we've always said this, we still have to go country by country and drive reimbursement decisions and drive KOL support and adoption. So that doesn't change, which is why we continue to position this as a long-term growth driver.

[Unknown Analyst]

And just one thing to add to that, go. Obviously, this decision to broaden our -- to broaden strategy to include other platforms, it's really predicated upon the growing installed bases of those other platforms and as well ensuring that we have can serve even more customers than what the installed base of the nCounter allowed for. So we really very much view this as something that is going to not only solidify the timelines that Marc discussed, but also really allow us an opportunity to grow revenue even more quickly given the number of instruments already in the field across qPCR and NextSeq.

[Rebecca Chambers, executive]

Great. Thank you very much.

[Operator]

[Operator Instructions] Our next question comes from Matt Sykes with Goldman Sachs.

[Unknown Analyst]

This is Prashant Kota on for Matt Sykes. Congrats on the quarter. Really great to hear the results. So how does an N Swab test fit into the paradigm of screening for lung cancer with Percepta Nasal Swab and Low-Dose CT?

[Marc Stapley, executive]

Yes. That's a really great question. So we talked about this a little bit before. And the way we think about multi-cancer early detection and healthy --basically healthy screening today is very different than the way we position and think about Nasal Swabs. So Nasal Swab is focused very much on patients who have been identified with a lung nodule and therefore, a high risk for lung cancer and helping to make an appropriate decision whether to accelerate treatment or avoid unnecessary procedures for those patients. Today, very few people out of the 15 million or even more, as we talked about in the prepared remarks, who could or should be getting screened today are actually getting screened. So it's a small percentage, it's about $1 million. And then there's actually more lung nodules found incidentally actually than there are by screening. So clearly, there's a lot of people including us who care a lot about getting more and more people screened. Now the way I think about multi-cancer detection is that could feed that funnel. So if the patient is identified through one of those tests in the future, assuming that they are adopted and reimbursed as potentially having lung cancer, the next step would be a Low-dose CT. And if a lung nodule is identified, then that puts that patient firmly into the workflow for Nasal Swab, for example. And so that's how we think about it fitting in. Of course, at that point, you have to believe that there will be reimbursement for these tests, multi-cancer early detection tests for healthy individuals. And you also have to believe that there will also be reimbursement for Low-dose CT and Nasal Swab. Having said that, I continue to believe that at least in the near term, the incidental population will continue to be larger in the screening population until that issue of under-screening is resolved. And that will be, I think, in the first as we launched the Nasal Swab test will be one of the primary use cases and drive a significant volume.

[Unknown Analyst]

Got it. That's helpful. And how are you planning on increasing market penetration with Afirma? Is it more sales reps, additional coverage expansion, product updates? Or can you give us some more color there?

[Marc Stapley, executive]

More of what we've been doing, quite honestly, I mean, as you've seen this year, we far exceeded our original expectations with Afirma coming into the year, and we recently increased our guidance on that to 18% growth, and that's significantly higher than we anticipated. And it would appear that the multitude of things that we're doing are absolutely paying off in terms of penetrating the market and bringing on new accounts, which continues to be an encouraging sign. So what are we doing? We've enhanced the product, we've added mutation testing to our product offering, we've launched a portal for customers to make it a lot easier for them to order the test and for the billing information to be correct. We just announced our grid offering for research use only for Afirma. We also have an incredibly effective and dedicated sales team. To be honest, I mean, adding a large number of sales reps isn't what's been driving this at all. In fact, we've been doing this with pretty much a stable sales force and a very strong sales force. So continuing into next year and beyond with these steps, we believe will help drive and fuel further growth. The market is about 50% penetrated today for these kind of tests. And we've always said that we think that could get to 70% or beyond, and we can be the primary driver of that. So yes, a lot more of the same, quite frankly.

[Rebecca Chambers, executive]

The only thing I would add is there was also recently -- I don't know if you want to talk about the draft LCD, it's not necessarily for next year per se because the timeline of that could be slightly longer. But as we look broadly across both Decipher and Afirma, we obviously are focused not only on penetrating the market as defined today, but also ensuring every appropriate patient can get the appropriate test and to that end, broadening the market. And so I think longer term, as we think about penetrating both Afirma and Decipher, it's both about doing exactly the things that Marc mentioned, but also broadening the market indications over a multiyear period. And to that end, our managed care team is actively working to do so vis-a-vis working with MolDX on the draft LCDs have -- that have been come -- that have come out most recently.

[Marc Stapley, executive]

Yes. And so that's a great point Rebecca, that could add reimbursement for patients in the [indiscernible] category, where we do believe there's a significant clinical utility of our test. And so if that gets passed in a year or so, then we'll be very pleased about that for patients.

[Operator]

Our next question comes from Andrew Brackmann with William Blair. [Technical Difficulty] [Operator Instructions] Our next question comes from Puneet Souda with Leerink.

[Puneet Souda, analyst]

So wondering if you could talk a little bit about the supply chain issues and what does that mean for the sort of the fourth quarter, if you can quantify that? And then maybe also, it's good to see that you are addressing this with multiple platforms. But can you maybe talk about the economic agreement there with Illumina, assuming that, that being a multiplex platform that you would see more growth there versus sort of the qPCR then nCounter approach?

[Marc Stapley, executive]

Let me come back to that one in a moment. But on your first question regarding supply chain. So as you know, I mean, this is the first time that we have dealt with supply chain challenges. We talked a little while ago, a couple of years ago, less than that about what we're dealing with Afirma. And this isn't really that different in regard to every now and then, you end up with a lack of supply of key components or parts or kits and you have to mitigate that. And so the good news is we were doing our own -- we were standing up our own manufacturing for these particular kits for Prosigna in Marseille as part of our IVD strategy anyway. As you know, we had planned to get that done around the end of this year. Once we saw the supply chain challenges happening, we were able to accelerate that and are able to accelerate that and they're making great progress on being able to launch our own kits to mitigate that supply challenge, which means that our kits supplement the other kits that we have, increasing our available inventory. And so the next thing you do then is you go through a very robust customer allocation process, you don't want to build inventory at customer sites when that inventory is extremely in short supply, and you want to make sure it's available for all patients. And so there's a lot of activity involving our commercial teams to balance that effectively. So I'd say we're getting through it. We have assessed the potential impact you saw in our prepared remarks from Rebecca Q4 product revenue of $2 million to $3 million, which is lower than we've been seeing in previous quarters and even lower than we anticipated because we did anticipate a little bit of an uptick in the fourth quarter. So hopefully, we won't see that much, but that's what we're projecting right now.

[Rebecca Chambers, executive]

And then, Puneet, could you repeat your question on economics... For wasn't abundantly clear. Yes. Thank you.

[Puneet Souda, analyst]

Yes, a little. I just wanted to understand, is it an IVD kit that you will be manufacturing and will be simply run on 550Dx -- or is there some sort of revenue sharing or profit sharing with the alumina...

[Rebecca Chambers, executive]

Structure. Thank you.

[Puneet Souda, analyst]

Yes. The way to think about that is Illumina has the standard open offer clinical agreement, there's not a lot of room for maneuver in that. And so we've been able to adopt that agreement or at least our version of that, and that's how the economics is going to work. So there's technology access, there's milestone payments as you launch a new IVD and then there's a royalty-based structure. And if you look online, you'll be able to see how that typically works.

[Rebecca Chambers, executive]

And just one point is our updated cash guide does contemplate the technology access fee, which is contemplated in the open offer, and we've absorbed that in our cash guide.

[Puneet Souda, analyst]

Rebecca, I'm just wondering, as we think about the biopharma impact, obviously, is happening with some of the biotechs and budget funding on being under pressure. It seems like Decipher is doing well. Afirma continues to gain traction on these penetration levels. So maybe just wondering what can you provide us in terms of sort of 2024 as also the right jumping up point and overall, just given a number of these moving parts and now supply chain as well sort of mixed into it. And as you bring on these other platforms, maybe just if anything you can provide there, that would be helpful.

[Rebecca Chambers, executive]

Yes, of course. So the other platforms, maybe just to hit those first, Puneet, those are tied to longer-dated catalysts, right, with regard to the Decipher being launched in the back half of '25 and Nasal Swab '26. So that won't impact 2024 per se. On the product supplier issues that Marc was just highlighting, given we are standing up our own manufacturing, we're very hopeful that this will not have an impact in 2024 and that it is short-term in duration, especially since we are pulling forward those activities from our previous time lines of roughly around the end of the year. So that will not necessarily impact 2024 at this point in time, albeit still work a lot of work for the team to do there. On Biopharma, we aren't ready to call 2024 at this point. We -- the good news is, as we said on our last earnings call, we expected $18 million to $19 million for 2023. How that looks in 2024, there's still very wide error bars do. So I wouldn't necessarily want to go into that at this point in time or draw a line in the sand, given we're obviously working very hard with the teams to really kind of put a stake in the ground with regard to where we think 24 will be. Afirma, Decipher continue to be good news stories across the entirety of the portfolio. 2024, we hope we'll continue to see more of the same. That's not a quantitative statement. That's a qualitative statement in terms of we are not fully penetrated in these markets. We are broadening the indication. We are making it easier for physicians to order our tests and our sales team continues to crank. So I think 2024 will be continued to be headlined Biopharma and Decipher and the rest of it, hopefully, will be more around the edges as we progress forward with our strategy.

[Marc Stapley, executive]

Yes. And maybe to add a little bit to that, I agree with 100% with everything Rebecca said the Decipher and Afirma test, if you think about all of the things that we're doing, and I ran through in response to an earlier question, what we're doing in Afirma you can clearly see what we've been doing in Decipher too. None of that's going to stop. We're going to continue to generate the evidence. We're going to continue to pursue guidelines. We're going to continue to pursue coverage and all of these things that have been so successful for us in the past. So the only real headwind I see for those businesses is the fact that as they grow, the comp is a higher number. So mathematically, there's a headwind. But relative to how these tests continue to grow each quarter, we're not going to change the working formula that's worth served us really well over the last few years.

[Puneet Souda, analyst]

Got it. And if I can squeeze one more in. Good to see Phil's addition to the team. I don't know if he's there. But just wondering, obviously, Prostate and [indiscernible] continue to be major areas in nasal swab you were developing. But are there other areas or indication types where you can potentially take the technology now with -- now that you're going to have access to multiple platforms?

[Marc Stapley, executive]

Thanks for that. Certainly, it's great to have still on board with his expertise and experience in not just those, but other areas as well. As we think about expanding within indications and across indications, let me start with the current indications and our specialty model that is working so well and is highly leverageable. Of course, we're going to continue to drive into urology applications and more focus on bladder and so on. We're going to continue to drive our pulmonology franchise with nasal swab as the really important anchor for that, and we're extremely dedicated to that.And then outside in other indications, of course, part of our strategic [indiscernible] process, we always look at those other indications and think about where we can organically or otherwise expand. Nothing specific on that. At this point, we're very satisfied with the indications that we're in and how they're fuelling our business. But we're excited to continue to apply the model that we've built in other ways in the future. And that's why we brought on people like Phil and others to help with that strategy. So I'm excited to continue those conversations.

[Operator]

Our next question comes from Sung Ji Nam with Scotiabank.

[Sung Ji Nam, analyst]

Hi, thanks for taking the questions and congrats on the quarter. Maybe starting out with the IVD strategy. Just kind of curious if you might be able to comment on why you're putting the Decipher Prostate on a qPCR versus NextGen sequencing versus the NextSeq, just given that I think Decipher remembering correctly, it's a whole transcriptome analysis. And then also, if there's a specific qPCR platform you have in mind? Or could this be utilized across multiple qPCR systems?

[Marc Stapley, executive]

Yes, great question, and thanks for that. So Decipher is a whole transcriptome test, that is Afirma in the U.S. in our clear lab environment. And that's what enables us to launch something like GRID. But just a reminder that as we plan to launch IVDs, including any platform, whether it be nCounter, PCR or NGS, we're launching the a more of a targeted test. So Decipher 22 genes fits beautifully on qPCR, there is a significant installed base for PCR. And as we look at the installed base, the economics, we listen to customers and so on, we're -- we've landed on qPCR as the appropriate platform for that. By the way, it was also going to be a 22-gene test on the encounter. So that doesn't change at all. That doesn't mean in the future as the economics permit that we wouldn't launch it also on NGS, we could, and that is an option for us. Other tests, for example, Nasal Swab, which you look at a lot more targets, make a lot more sense on NextGen sequencing same with Prosigna, which, as you know, is the [indiscernible] 50. So that is the -- again, that is the approach enables us to look at the right platform, the best platform to optimize for the test, and it could, of course, be multiple platforms. So hopefully, that answers that question. On your second part, with respect to a PCR provider, there's multiple options. And of course, you can imagine, we're looking at them all and we could support multiple options with the test with very little incremental effort in terms of R&D work. So that may ultimately be where we go. It's more of an open platform. So it's not following the same formula as the supply agreement does with Illumina.

[Sung Ji Nam, analyst]

Got you. That's super helpful. And then just on Afirma, great to hear that you're taking market share there still. Just kind of curious, are you referring to -- are you actually taking share away from other -- your competitors? And kind of could you maybe talk about the key drivers of that, why they might be switching to Afirma, and also kind of what's your estimate into -- what's your estimate in terms of your current market share is?

[Marc Stapley, executive]

Yes, it's a great question. It's difficult to pass these things as you can imagine. But I think actually -- and this is the case for, I believe, Decipher as well as Afirma. If you look at the overall market share -- market penetration that we're clearly driving more market penetration. In other words, patients getting tests that wouldn't otherwise have got a test physicians using the products that otherwise would not have used ours or anyone else's product. So that's the first. Within our existing customers, we also see that the utilization is increasing. So that's the second. And then the third area of taking share from other tests, that's more anecdotal than anything else. But as we look at the respective growth rates, I think that it's clear to -- you can clearly get to that as a conclusion in some respects. And as we hear from our sales team, some of the things physicians like in Afirma's case, for example, we've got the new ordering portal as we've just launched grid, we've got -- and then of course, there's evidence. One of the most important differentiators for all of our tests is the level of evidence. In the case of Decipher, you've got NCCN Level 1. In case of Afirma, you've got a tremendous array of evidence supporting the use of our test, including comparing it to other tests. So I think that and then you couple that with a very effective sales force in both cases who are very good at making sure that existing and new customers are aware of the level of evidence behind us, then you start to see the kind of share gains we've talked about.

[Operator]

Our next question comes from Mason Carrico with Stephens, Inc.

[Mason Carrico, analyst]

Hey guys, thanks for the questions. Congrats on another strong quarter. Maybe a higher level one here. On the $14 million in cash from operations, that's great seeing obviously pretty unique in the space. As we look into 2024, how are you thinking about the focus going forward, balancing investments and driving top line growth versus focusing on operating leverage and starting to drive free cash flow?

[Marc Stapley, executive]

I'll maybe start and Rebecca, please weigh in as well. But nothing's changed in our philosophy in that regard, we've always been very focused on. Doing everything that we can to drive top line growth appropriately, and we're not getting ahead of our skis in that regard. I think we find that extremely well. We have been optimizing throughout our P&L for the last couple of years, if not before that. So there's a lot of things that we're doing that drive operational performance. In fact, you saw some of that, as I talked about, what the accomplishments in our Decipher Clear Lab in San Diego and the turnaround time and efficiency there. That's one example. Another example would be IT systems, for example. So we're continuing to invest in terms of helping us scale our business but also keeping a very close eye on the net profitability and cash flow. And we're not in a position, unfortunately, where we need to raise cash, and we don't anticipate we will be. Anything to add?

[Rebecca Chambers, executive]

No. Just I think what you've seen out of us in 2023, our goal would be to continue that into the future. And obviously, now we've had 4 of the last 5 quarters where we've generated cash flow from ops, and that is a good news story and one that we hope, obviously, we're not guiding to 2024 at this point in time, but one we have, from a philosophical perspective, every intention of moving forward with. And we don't believe that is coming at the expense of revenue growth and we would not want to do that at the expense of revenue growth. So I think, Mason, thanks for asking the question. But I think when it comes down to it, we believe this is a differentiated portion of the Veracyte investment thesis and one we feel strongly we should continue.

[Mason Carrico, analyst]

That's helpful. Thank you. And moving to Decipher metastatic draft LCD, could you talk about kind of your interpretation of the LCD thoughts around the language and criteria that needs to change or could change in order to potentially open it up to multiple tests for patients -- per patient? And then maybe if that were to occur, I'd assume that testing a front when patients have localized disease would potentially decrease the percentage of patients who ultimately progress. So could you kind of frame up how we should be thinking about if that were to occur, the incremental testing opportunity?

[Marc Stapley, executive]

I think to your first part of your question, I'll come back to the second one. But the first part of the question, you've hit really the nail on the head in terms of the key element of the draft LCD that we're focused on. Let me take a step back. The draft LCD in and of itself is extremely favorable as it should be for patients. We believe in testing for this cohort of patients. We believe we've got evidence that suggest that Decipher supports it. And so we're very happy to see the LCD. The one area that we believe needs to be addressed is what you called out, which is the multiple test per patient. There are many, many examples where legitimately, the same patient may need multiple rounds of molecular diagnostic testing and that's currently written that would preclude that. So of course, as you can imagine, we've shared our feedback very openly with MolDx and prepared shared our comments. And so we're somewhat hopeful that, that gets addressed. It's important for -- it's not a large number of patients, but it's enough and these patients do need to be taken care of appropriately. So we're hopeful that, that kind of dealt with. Now in terms of your -- the second part of your question, I want to make sure I understand, but are you saying that by identifying patients earlier and you increase -- maybe you can just repeat the question, and we can make sure we're addressing.

[Mason Carrico, analyst]

Yes. And maybe my interpretation here is flawed. But I guess the way I think about it is a certain number of localized patients ultimately progress. There's numbers out there. I think that the way I kind of think about it is if you're tested upfront with Decipher treatment management is better, maybe the progression rate goes down, maybe that's not the case. I was kind of just asking about how you think about the incremental testing opportunity if you were able to test each patient twice.

[Marc Stapley, executive]

I don't think -- yes, so I don't think you should think of it as a multiple episodes of testing for every patient type of approach more so than there are some patients for whom multiple tests would be required. And an example of that might be -- it's a little bit related to the case you described where a patient is on active surveillance and then develops another lesion, and that other lesion needs to be tested, and it's a more aggressive cancer. And so that will be driven by clinical factors and where we agree that there should be a concern from the physician who's treating them to desire a second test in that case. But I don't think you should think of it as every patient gets tested multiple times over their lifetime. And that's...

[Operator]

[Operator Instructions] Our next question comes from Mike Matson with Needham & Company.

[Joseph Conway, analyst]

This is Joseph on for Mike. Maybe just looking at Decipher and Afirma GRID. I guess, you announced the research use only for Afirma. Maybe I just wanted to get your comment again, I guess, on the biopharma business. I guess is there any expectation that more tools or more services will be coming out of this side of the business? I know you guys have talked about it being kind of on the back burner, lower priority, but maybe just wanted to get a refresh on how you think about the business. And I guess maybe is there a plan for, I guess, Afirma GRID to be shifted to the clinical setting? Maybe just one more follow-up after that.

[Marc Stapley, executive]

So just to clarify, both Pharma GRID and Decipher GRID are intended for research use only to provide additional information. And that's helpful in the context of the patient that the physician is treating in their overall practice and the research that they're doing as well. But in terms of biopharma, this isn't really enabled by GRID. GRID is a by-product of this, but the fact that we do a whole transcriptome analysis on all of our tests gives us this incredible rich data set for all of these patients, and that has value for biopharma customers. And so that side of our business of driving utilization of that data with biopharma continues. It is an enabled by grade, it's enabled by our whole transcriptome approach, and we'll continue to engage with biopharma in utilizing that data for their studies. So yes, that's absolutely a part of what we're focused on.

[Joseph Conway, analyst]

Okay. Yes, sure. That makes perfect sense. Thanks for the clarification there. And then I guess I'll maybe ask just because I think, Marc, you mentioned in the prepared remarks, but I guess, LinkMark, just haven't heard that said from you guys in a while. So just wondering if there's like an update of anything there, any milestones in the future? Yes, just an update on the product general would be great.

[Marc Stapley, executive]

No, nothing specific at this point. We're continuing to work with our partner on that. And throughout this IVD strategy approach with no change there, continue to support that on nCounter. And as we work towards commercial launch, think about the right approach there with our partner. So no new updates. And certainly, at this point, it's not something that you should factor in terms of the numbers until we get to a point where the studies are completed and it's clear we were the commercialization happens and how that happens, what that would look like in which case, we would give more color at that time.

[Operator]

At this time, I'm showing no further questions. I would now like to turn it back to Marc Stapley for closing remarks.

[Marc Stapley, executive]

Thanks, I appreciate it. I'm extremely pleased with the performance of our core testing business, and I'm encouraged by the unpenetrated opportunity to help more patients in both the Prostate and thyroid cancer markets. We're clearly growing in both indications at a rate that is exceeding the market. And with our extensive product enhancements, evidence development and opportunities to broaden reimbursement, I see that continuing for many years. In addition, I'm excited to see our global expansion come to fruition with our augmented IVD strategy, and I applaud our team for their diligence and commitment to continuously evaluate our opportunity and approach. I'm proud of our Veracyte employees who have demonstrated their ability to execute quarter after quarter, driven by their passion to transform cancer care for patients all over the world. Thank you.

[Operator]

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.