Xeris Biopharma Holdings Inc

NASDAQ:XERS

Good day, and thank you for standing by. Welcome to the Veracyte Fourth Quarter and Full Year 2024 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 speaker today, Shayla Gorman, Senior Director, Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us today for a discussion of our fourth quarter and full year 2024 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 fourth quarter and full year 2024 financial results. This release and a copy of the presentation we will review during the call today are available in the Investor Relations section of our website at veracyte.com.

Before we begin, I'd like to remind you that various 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 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 the IR section of Veracyte's website.

I will now turn the call over to Marc Stapley, Veracyte's CEO.

Thank you, Shayla, and thanks, everyone, for joining us today. 2024 was a record year for Veracyte. I could not be more proud of our team for their hard work on behalf of the patients we serve, which is the reason we come to work every day. Not only did their focus and dedication lead to approximately 150,000 patients benefiting from the information provided by our tests, it also enabled us to execute on our key strategic objectives and deliver a best-in-class financial profile.

We capped off a record year with Q4 revenue totaling $119 million or 21% year-over-year growth. This brought full year total revenue to $446 million for robust growth of 23% year-over-year. Testing revenue, which now accounts for almost 95% of our business, grew 28% year-over-year. Fourth quarter testing revenue increased 24% over the prior year and marked our 10th consecutive quarter of 20% or greater testing revenue growth, demonstrating the durability and runway of Afirma and Decipher that we have consistently signaled. And we drove class-leading bottom line performance, delivering full year adjusted EBITDA margin of 20.6% and cash generation of more than $70 million.

Starting with Decipher, we further strengthened our position as the market leader with outstanding adoption over the course of 2024 as we delivered more than 80,000 tests, representing volume growth of 36%. During the fourth quarter, Decipher volume grew 45% year-over-year to a new record of more than 22,400 tests.

We are particularly proud of our land-and-expand approach in prostate cancer, which has enabled us to go from an early beginning in RP only to adding biopsy almost a decade ago and growing that to be the vast majority of our testing today. In Q4, we saw 40% to 55% annual volume growth across each of the NCCN biopsy risk categories from low risk to intermediate risk and high risk.

Importantly, low risk now represents an impressive 20% of our total Decipher volume. This is a testament to the value that Decipher brings to this population in better managing their disease from those that will benefit from active surveillance to those who have a worse prognosis and might need treatment. As a demonstration of the clinical utility of Decipher in the NCCN low-risk population, based on our extensive real-world evidence, about 1/3 of those patients are reclassified to Decipher intermediate or high.

Decipher's clinical validity and utility has already been demonstrated in approximately 85 clinical studies. This includes 42 on biopsy samples, more than a dozen of which could inform an active surveillance decision and 43 on radical prostatectomy. Since our last earnings call, we added 20 new publications, posters, abstracts and presentations highlighting the clinical utility for Decipher as well as incremental disease insights powered by Decipher GRID.

Looking ahead to further Decipher catalysts, we now estimate the growing prostate cancer market is approximately 40% penetrated, and we believe we have more than 65% market share, which we estimate increased by more than 500 basis points over the course of 2024. As we have previously shared, our goal is to drive at least 80% market penetration in all of our indications.

With the 2025 updated NCCN guidelines for prostate cancer, Decipher is still the only gene expression test with Simon Level 1 evidence, and we believe it's now the only gene expression test that is recommended by the NCCN panel to make personalized treatment decisions for prostate cancer patients.

Now to expanding Decipher to cover the entire risk spectrum for patients with prostate cancer, our metastatic technical assessment was approved in late December, and we secured New York state approval in January. We are well on our way to finalizing all the necessary commercialization and training activities to launch into this expanded population in the first half with volumes benefiting in the back half of 2025 and beyond.

Given our leadership position, the expansion of Decipher into the metastatic patient population as well as significant greenfield opportunity ahead for our test in localized disease, we expect to drive meaningful Decipher growth for the foreseeable future.

Moving to Afirma. Volume growth continues to be very strong and increased 12% in 2024. Despite the challenging Q4 comp, we delivered more than 16,300 tests during the fourth quarter, growing 8% year-over-year, while revenue grew 4%, given the large prior period collection in the fourth quarter of 2023. Deeper penetration into existing accounts, along with some sizable new customers drove the majority of growth in the quarter, a testament to Afirma's differentiated level of evidence, service and overall performance.

As a reminder, an expanded LCD for Afirma went into effect in July 2024, adding reimbursement for Medicare and Medicare Advantage patients with Bethesda V thyroid nodules. Revenue for Bethesda V and VI grew more than 80% year-over-year in the fourth quarter. We expect this to be a moderate ASP tailwind in 2025 as the clinical utility is further developed and resonates more with physicians.

Meanwhile, the research use-only GRID data is driving interest in evidence generation from the KOL and academic community. We look forward to sharing a number of upcoming publications and poster presentations leveraging this data in 2025 as we continue to build on our commitment to patients and physicians to advance thyroid cancer research. The endocrinology market is still only about 65% penetrated as of the beginning of 2025, and we estimate is growing in the low single digits.

We believe Afirma grew share in 2024, continues to serve the majority of the market and will make gains in both share and penetration to deliver strong revenue growth of high single digits this year. We are confident that Decipher and Afirma have ample growth runway ahead to bridge us to our longer-term growth drivers, which I will discuss next.

First, I'll start by providing a quick update on the status of our NIGHTINGALE study for nasal swab. To date, we have enrolled more than 85% of the 2,400 patients that we are targeting and look forward to sharing when enrollment is fully completed. Next, I'd like to provide an update on our efforts 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 insights, more clinical evidence, more payer coverage, and therefore, more durable adoption.

As we have shared, we are working on the first indication of our MRD platform for muscle invasive bladder cancer. This indication will leverage our strong Decipher channel that serves urologists and radiation oncologists. We are also focused on expanding into other indications where we already have a commercial presence.

We have completed setting up the workflow in our lab and submitted for New York State approval. Further, we recently submitted to MolDx our proposed Z-Codes and expect to submit our tech assessment this quarter. These are critical steps for us to be able to launch and we're pleased with the progress we're making.

As is our strategy across our platform, we are committed to having reimbursement in place and all development in managed care and commercial activities are progressing well so that we can launch our inaugural MRD test in the first half of 2026.

Finally, turning to our longer-term strategic growth driver of international expansion. Here, we are dedicated to launching our tests as IVDs to address patient needs outside the U.S. As you know, our French subsidiary, Veracyte SAS or SAS, has been focused on supporting our IVD strategy as well as a legacy biopharma and third-party contract development and manufacturing business.

Given the declines in biopharma and our manufacturing and supply challenges for Prosigna, we believe that to continue to support such a large operation and infrastructure may be inconsistent with our core strategy and may not be in the best interest of Veracyte. Given this, we notified SAS that Veracyte, Inc. is considering no longer funding their operations. As a result, SAS will engage in consultation proceedings with the Work Council over the coming months, while in parallel seeking to identify one or more buyers for all or part of the SAS activities.

Without Veracyte, Inc.'s continued funding or identification of a buyer, SAS may be required to commence bankruptcy proceedings this year. Consequently, Veracyte, Inc. would no longer own or operate the Marseille facility by year-end, if not sooner.

Our first priority is to our patients, and so we will do our utmost to maintain continuity of Prosigna nCounter supply for the foreseeable future, which will depend in part on finding a buyer for this portion of the business. Further, we remain committed to our IVD strategy and our ongoing development programs. Having said that, this potential change is expected to impact our timelines, and we are diligently reassessing our development road maps.

In terms of the financial impact this year, this is, of course, highly dependent on the final outcome and the timing of that. Rebecca will share what she can to help you bracket the potential impacts. Our Marseille team has worked hard on behalf of customers and patients, and I truly appreciate their efforts. As we always do, we will compassionately support our employees during this information and consultation period.

Despite these challenges in what is now a very small part of our business, I don't want to lose sight of the success we are having in the core business. As you can see, Q4 was another incredible quarter that capped off a truly exceptional year for Veracyte. My sincere thanks to our team for their relentless focus on our mission to serve patients. It is their hard work that sets us apart as we transform cancer care for patients around the world.

This year, we are committed to continuing to deliver robust testing revenue growth as we execute on a number of key catalysts that will expand our reach both further along the patient journey and geographically. We look forward to sharing more details with you as we progress towards these goals.

With that, I will now turn to Rebecca to review our financial results for the fourth quarter and full year 2024 as well as our outlook for 2025.

Thanks, Marc. As mentioned, Q4 was a strong conclusion to 2024 as we delivered revenue of $118.6 million, an increase of 21% over the prior year period. Further, total volume grew to approximately 41,000 tests, a 22% increase over the same period in 2023.

Testing revenue during the quarter was $112.2 million, an increase of 24% year-over-year, driven by Decipher and Afirma revenue growth of 44% and 4%, respectively. Total testing volume was approximately 39,100 tests. Testing ASP was approximately $2,875, which included approximately $600,000 of prior period collections. Adjusting for the impact in the quarter, testing ASP would have been approximately $2,850, up 4% compared with the prior year period.

Turning to the product line. Fourth quarter volume was approximately 2,200 tests and revenue was $3 million, down 18% year-over-year as we continue to experience supply and manufacturing challenges while also managing demand for Prosigna. Biopharmaceutical and other revenue was $3.5 million, down 17% year-over-year.

Moving to gross margin and operating expenses, I will highlight our non-GAAP results. Non-GAAP gross margin was 69.3%, down approximately 130 basis points compared to the prior year period. Testing gross margin was 72.3%, down approximately 150 basis points due to the impact of approximately $4 million of lower prior period collections compared with the same period in 2023.

Product gross margin was 7.3%, down materially from the prior year period due to lower fixed cost absorption and manufacturing challenges. Biopharmaceutical and other gross margin was 26.5%, up 9.4% year-over-year. Non-GAAP operating expenses were flat year-over-year at $57.9 million.

Research and development expenses increased by $0.2 million to $17.4 million, given personnel additions from our C2i acquisition and increased development costs, partially offset by the NextSeqDx IVD technology access fee that was recognized in Q4 2023. Sales and marketing expenses increased by $0.2 million to $23 million. G&A expenses were down $0.3 million to $17.6 million, driven by lower compensation expense, partially offset by infrastructure investments.

Moving to profitability metrics, our financial profile continues to be best-in-class, driven by our disciplined approach. In the fourth quarter, we recorded GAAP net income of $5.1 million and delivered adjusted EBITDA of $26.1 million or 22% of revenue. Full year 2024 adjusted EBITDA margin was in line with our guidance of over 20% at 20.6%.

We ended 2024 with $289.4 million of cash and cash equivalents, generating over $70 million of cash driven by $75 million of cash from operations. During the fourth quarter, we made an election to treat Veracyte SAS as a disregarded entity for U.S. federal income tax purposes, resulting in a $356 million worthless stock deduction. Given this, our Q4 GAAP effective tax rate was minus 48.5%. Our full year 2024 tax rate was 6.2% and exiting 2024, our NOLs available to offset U.S. future income now stands at more than $600 million.

Before moving to our outlook for 2025, I would like to provide you with additional information regarding the France business. Please bear in mind that we are subject to a strict legal process and so are somewhat limited in what we can share. Biopharma and other revenue now runs at about $2 million per quarter, as does product revenue. Our fixed cost structure in France runs about $7 million per quarter, and our net operating losses are approximately $5 million per quarter.

Revenue could be negatively impacted any time depending on our ability to continue servicing current customers, including through Prosigna production. Meanwhile, our cost structure will be positively impacted in the future if SAS completes a sale to a potential purchaser or finalizes bankruptcy proceedings. The timing of these events could occur in different quarters or not at all.

This year, we are currently estimating onetime costs of up to $15 million. Going forward into 2026 and beyond, if this goes ahead, we would see an improvement in our annualized profit of approximately $13 million.

Looking ahead to 2025, given the dynamic nature of the situation with our French entity, our guidance will highlight testing revenue and total company adjusted EBITDA margin for the year. We are forecasting testing revenue of $470 million to $480 million or 12% to 15% year-over-year growth. As a reminder, and as we shared on our Q3 call, we made the difficult decision to pause offering the Envisia CLIA test at the end of 2024.

Adjusting for the approximately $6 million revenue impact, testing growth would be 14% to 16%. For 2025, we are forecasting adjusted EBITDA margin to improve by approximately 100 basis points as we balance investment in organic revenue opportunities for long-term growth with enhancing our already best-in-class financial profile. Our guidance assumes 2025 GAAP and non-GAAP tax rate will be in the mid-to-high single-digits.

Turning to the first quarter. We expect testing revenue to step down from Q4 given Afirma seasonality as well as lower product and biopharma revenue. With the annual reset of taxes and merit, as is typical, we expect Q1 adjusted EBITDA margin to be in the mid-teens. Further, due to standard first quarter personnel costs, we plan to use cash in Q1 before generating cash over the remainder of the year.

In closing, I am proud of the tremendous strides we made in 2024 and together with the entire Veracyte team, committed to delivering to the strategic priorities we've set in 2025 and beyond. Further, I'm proud of this organization's focus on delivering what is best for all stakeholders. We do our best to balance this each and every day with patients as our purpose.

We'll now turn to the Q&A portion of the call.

[Operator Instructions] And our first question comes from Doug Schenkel with Wolfe Research.

I have 2 and I will just rattle through both of them here and then get back in the queue. The first is a higher-level question. 2024 was a really strong year for the company. You set testing expectations for 2025, taking out all the adjustments at levels that I think were well ahead of consensus expectations.

So, in many ways, you're in a position of strength in what is a tough environment for the broader market and the group. I'm just wondering, Marc, if you would talk a little bit about how you balance the potential to maybe get more aggressive with either further investment in growth and/or capital deployment with really the desire and the need in this environment to continue improving margin and cash flow. How are you balancing those options and those levers you have to pull? So that's the first topic.

The second is for Rebecca. Rebecca, I think the assumption for Afirma revenue growth is high single-digit growth this year. I think that's what's embedded into guidance. Assuming I have that right, how much is expanded LCD coverage versus pricing or other levers contributing to growth within the Afirma franchise this year?

Great. Thanks, Doug. Appreciate your questions. I'll take the first one and Rebecca will take the second. So, yes, I appreciate you pointing that out. I mean the -- 2024 has been an incredible year and it's clear it's driven by our core testing business and the growth of Decipher and Afirma. And we've been signaling for quite a while now that both products have plenty of runway.

I cited the amount of kind of opportunity there is in the market to grow each further, then the opportunities to take share, even though we're coming from a position of strength there. And so, we feel confident that those 2 businesses or that core franchise bridges us to our long-term growth drivers. And we talk about 3 things that we're doing within the company, including our international expansion, our MRD platform and innovative tests like nasal swab.

And of course, as you can imagine, we're working on other things as well that we're not ready to get into at this stage. But there's a lot of things that we're focused on as a company, and I think what you've seen us announce today with, again, another step in our kind of portfolio rationalization work and our difficult decision, or rather than a decision, our recommendation or our desire to look at the further investment in France.

We have continued that portfolio process, and as a consequence of that, if that goes ahead at some point, that might create opportunity for us to invest in other ways. And so this portfolio decision making process that we go through has been key to create opportunity so that we can both focus our company and focus our team and focus our investment in things that we think are going to drive a positive ROI for the company in the next few years, 5 years and even 10 years. So, we think very long term at Veracyte, and we're excited about the opportunities we have.

Capital deployment is the one lever we have as well. Obviously, coming from a position of strength in terms of generating positive cash flow gives us even greater opportunity there. So, lots for us to do. But right now, our team is very, very focused on the things that are right in front of us. We have to get through this consultation period with France. We have to get MRD launched, we have to get metastatic launched. We're doing things within the company to improve COGS. There's a lot in front of us right now, all very positive things and 1 or 2 things that we just have to get through and let the dust settle.

Absolutely. And the other thing I would just add is the benefit of the structure of our P&L allows us to both enhance profitability over a multi-year period while also investing for those growth drivers that Marc mentioned and others that have not yet been mentioned. So, we're pretty excited about 2024 results, 2025 outlook and even beyond, all is headed in the right direction.

To that end, Doug, on your question on Afirma, effectively, yes, you're correct, guidance does contemplate high single-digit growth for Afirma Given some of the -- given effectively the benefit of what we're seeing both competitively, incidence growth as well as kind of share gains, we are driving most of that through volume. There is not a huge ASP tailwind assumed in the Afirma guide for the year.

So I think we're going to kind of continuously play our playbook here for Afirma, and that is continuously introduce new product introductions, whether that's through customer experience or new grid signatures, et cetera, get out there, pound the pavement, share what we're doing and execute as we have for that product for the last number of years now.

Our next question comes from Mason Carrico with Stephens.

I'll just keep it to 1 here. When it comes to guidance, could you give us some color around how you're thinking about metastatic revenue this year? I know you talked about the back half, but any incremental color around cadence or potentially the opportunity to pull that revenue forward this year?

Maybe, Mason, I'll start and Rebecca can jump on in terms of guidance. But a reminder for everybody, the metastatic indication is about 30,000 new incidences a year, which is about 10% of the total market. We're very deliberate about our choice of language there around the second half of the year. We've still got work to do to get this launched. The hardest part of actually getting everything ready and approved is very much behind us. Now it's a lot of just blocking and tackling internally to get it done.

And then that -- then we've got to go out to customers and really talk about the benefit of this test for patients in that setting. And so, in that regard, we're starting from ground zero there. And so you would expect a ramp as our sales teams do that. We also don't want to distract from a core localized business that's been growing fantastically as well.

So, how we meter those 2 things and balance those 2 things is a really important part of the equation. So, given that, we've been very deliberate about this being more of an impact in the second half and accelerating it wouldn't necessarily be in our best interest. We're thinking about the long term, doing it right, launching it right, getting it right and having the most success with that for the benefit of patients.

Absolutely. And on the guidance front, we have assumed a relatively small contribution given it will be the first 2 quarters of launch for that 30,000 patient population. So I think could there be upside to that? Potentially, but I think the bigger upside driver would be outperformance during the year on the core Decipher business. That could obviously be a piece of it. But I think given our projections for where volume is coming from and where volume growth is coming from this year, metastatic will be a multiyear growth driver more so than the second half of our 2025 growth driver.

Mason, if you don't mind, maybe perhaps we can go into some of the sequential trends for guidance for the year, given the highlight of the second half with metastatic, that absolutely is the case. As is typical, we do expect Q1 seasonality. There's a couple of drivers to that. One is Afirma. Last year, obviously, we saw a step down in Afirma.

We're expecting something similar this year. Also, we are not having -- going to have the benefit of Envisia revenue in the fourth -- in the first quarter, which was around $1 million in the fourth quarter. And then we did have a little bit more weather so far this year than we have had in prior years. The reason I cite this isn't because that has impacted order trends. On the contrary, order trends are actually quite strong, but it has impacted effectively 3 days of samples getting to us. And we'll make that up within the first half, but it depends on whether or not -- [ whether ] kind of strains out from here on out, whether we make it up in the first quarter or so. So just want to make sure you all have the benefit of that information.

We're incredibly excited about this year for Decipher, for Afirma, for kind of the strategic long-term growth drivers and what we're setting up for here. So, don't want to have some sequential trends be a surprise given those are effectively what we see every year.

Our next question comes from Puneet Souda with Leerink Partners.

First one, just given the puts and takes on the NCCN, and first of all, very strong quarter here in Decipher volumes. Just want to understand NCCN contribution versus other factors that are contributing to that? And how do you expect that to play out in 2025? You have the advanced table as well.

And also, in terms of -- overall, the penetration of Decipher is strong, is well established in the market. So, just trying to understand how should we think about Decipher 2025 and -- Decipher volume growth 2025 and longer term as well, given the status of this product with the strong clinical evidence behind it and metastatic also helping?

Yes. Thanks, Puneet. You talked about -- the key point here is the evidence because the NCCN is really just a -- kind of a manifestation of the great evidence that you have for a product and that we have for Decipher. I'll start by saying, obviously, I appreciate the incredible amount of work that goes into the NCCN process. It's a group of very hard-working individuals who spend time understanding the evidence, making sure they can assimilate that evidence and provide guidelines that are in the best interest of patients.

What's very clear is, NCCN has, I think, raised the bar and is very focused on Simon Level 1 evidence, whether it's Level 1A or Level 1B. We've determined that the table that's in the guidelines would be tests that have Level 1 evidence only. And I think it's probably fair to say, as an industry, we will strive to get to that level of robust evidence demonstration. And so Decipher is there, and I think that'd be doing a disservice to our team and our KOLs and our PIs and collaborators by not calling out that distinction and how important that is.

Having said that, when it comes to -- for example, metastatic will be a good example of this. When it comes to launching a new pilot test that doesn't have NCCN guidelines, we need to continue to generate the evidence to get there. And so I do think the guidelines are very important. But as we demonstrated before, we all had guidelines, you can continue to grow and penetrate the market without. They certainly help to, I think, step it up.

But really, at the end of the day, what they do is, they demonstrate that the test has incredibly robust evidence behind it. With 85 publications, peer-reviewed publications for Decipher, I couldn't be more pleased with how much evidence we've gotten. We are continuing -- we're not standing still, we're continuing to generate evidence at a very nice clip. So I think that certainly helps to provide a tailwind, a continued tailwind for Decipher.

I don't want to get specifically into guidance. You can obviously see the testing guide that we have. We've guided to Afirma, and so the Decipher volume is obviously a part of that equation as well.

Yes. And the only other thing to help with that equation is, effectively Cyto is the plug, if you will, between Afirma and Decipher and the Cyto doesn't necessarily grow that materially. So I think you can assume Cytos roughly around the same level in '25 as it was in '24.

And then, just a clarification question. In terms of Prosigna, is that -- I just want to clarify, with the biopharma products and Prosigna, both of those will be obviously terminated with the French entity. Just can you clarify what products will continue forward? It appears Afirma and Decipher are the only 2 commercial products at this point, but I just want to make sure I have that right.

Yes. I'm glad you brought that up, Puneet, because I really do want to avoid confusion on this, and so want to be crystal clear. One is, there is no decision at this point to terminate or anything else. At this point, we're in consultation and we're considering no longer funding our French legal entity and that operation and that will impact, if that goes to either a sale or a bankruptcy process, it will impact our biopharma and other revenue clearly -- and that's coming out of that SAS entity.

We do have a small amount of biopharma revenue that comes out of U.S. entity, but that's neither here nor there at this point in terms of getting into and I don't want to confuse the situation.

Turning to Prosigna, though, this is a really important point. No, we fully expect to continue Prosigna on the nCounter. And as we've mentioned before, at some point, we will move that test to NGS, and we do need to get our IVDR approval for that test on nCounter and ultimately on NGS. So, that's important. Now that is being run out of our -- being manufactured by our Marseille operation. And so, being able to continue that supply of Prosigna is dependent, as I said in the prepared remarks, on being able to find a buyer for all or part of that business.

So, we want to continue. We want to make sure our customers have access to that test, and that is top of mind for us right now. So no, this doesn't ultimately affect the long-term goal and the long-term IVD strategy. We're committed to our IVD strategy. We're committed to getting our tests that make sense into other markets, including first off, Europe. And so this doesn't change that commitment.

What it might change, as I mentioned in the prepared remarks, is our timelines for when we're able to get that certification and launch those tests. And so we're going to have to revisit our development road maps depending on how this process plays out. And then we'll have an update on those timelines when we've done that.

Hopefully, Puneet, that clarifies that situation. If there's any remaining questions, please do let me know.

Our next question comes from Andrew Brackmann with William Blair.

This is Maggie Boeye on for Andrew. Maybe the first one on guidance. Could you talk about what you view are potential upside levers for Decipher in 2025? What type of areas can we see to pull upside there?

Yes. I mean -- for me, I'd come from a couple of standpoints on Decipher. One is the significant amount of white space opportunity that is there in the market. As we've talked about, the test is only 40% penetrated coming into this year. We clearly have a lot of share there. But there -- the key point there is there's 60% that isn't penetrated and our goal is to drive molecular diagnostics in prostate cancer testing to 80%.

And clearly, we'd like Decipher to be the leader there. So, that is priority #1, 2 and 3, and that's done through expanding the utilization within existing accounts. It's done by expanding into new accounts. It's also done by expanding into new indications like -- and as I've said earlier, metastatic being a factor kind of later in the year than earlier in the year. The incidence is also growing, sadly, which is an important point. And I think those are probably the key ones.

The only other one I would add is, typically, at this point in time of the year, we don't have a ton of clarity on prior period collections. And so, to the extent we see a strong amount of those over the course of 2025, that could be upside as well.

Got it. And then maybe just one on NIGHTINGALE. As you continue to make progress on enrollment here with over 85% of the enrollment completed, can you just talk about your view on the market opportunity here? Has there been any changes to that as you continue to make progress there?

Yes. The market -- thanks for asking. The market opportunity hasn't changed or at least our view of it hasn't. I mean it's still a leading major cause of cancers -- of death in cancer in terms of lung cancer, unfortunately. And it's a vast market, plenty of opportunity. The test utility -- sorry, validity has already been demonstrated with respect to how it can actually help patients and determine and classify patients into appropriate categories.

NIGHTINGALE will hopefully demonstrate, and that's the key to it, that it also is able to change practice, right? And patients will be treated differently depending on whether they have a low, intermediate or high result based on our nasal swab test. But there is a tremendous amount of work to get done to get to that point, not only complete the enrollment, analyze the results, create a peer-reviewed publication from those results and get reimbursement in place.

And as we've always said, we will make sure reimbursement is in place before we launch the test and then we're off to the races. So, no, nothing has really changed with respect to our view of the market and the market opportunity for nasal swabs. It all hinges on, as it always has, the clinical utility and us being able to demonstrate that through NIGHTINGALE, and it's too early to say whether that will be the case or not. Step number one is, continue the enrollment and follow up those patients and look at the data.

Our next question comes from Lu Li with UBS.

A lot has been asked, so I will keep it short. I guess my first one on Decipher. If I'm doing the math right, it seems like the guidance assumed 25% growth. Can I just get a little bit more color on that? And how much is coming from pricing? I assume the majority is coming from volume?

And second, on the MRD, it seems like you're already -- are you planning to submit the technical assessment to MolDx in the quarter? I wonder what is the kind of like the latest timeline we can expect from a reimbursement outcome? And then, do you think that all kind of [Indiscernible] around government agency will impact the timeline for the review?

Yes. So, on your first question, I think you know higher than the guideline -- the guidance would suggest for Decipher. Again, if you think about our guidance that we provided and you adjust for Envisia, it leads you to a testing revenue growth of 14% to 16% net of Envisia. And we said high single digits for Afirma.

So if you do that math, you get Decipher somewhere in that low 20s, something like that. So, slightly lower than you cited. And that's the volume. And if we think about it right now, that's a volume factor more than anything else, given -- and Rebecca, feel free to jump in here if you've got anything to add. But given we had a lot of onetime collections last year, we had a big payer in the early part of last year that is now nicely embedded in the numbers. So, think of it that way for Decipher.

On MRD reimbursement, tech assessment is this quarter. And then it's a case of completing everything we need to do in our lab, automation, et cetera, getting the test launched and then reimbursement should follow.

And with regard to your question around federal agencies and will that have an impact? There's always a chance. I don't think any of us know really what the impact on the types of decisions that are going on will be. That being said, we are in active engagement with MolDx on this and other reimbursement questions and haven't seen any change in their posture or their engagement. So, we would hope that this would progress as planned, but obviously, there's always a tail risk to these sort of things given the dynamic of the situation.

Our next question comes from Sung Ji Nam with Scotiabank.

This is Corey Rosenbaum on for Sung Ji. So you're continuing to strengthen your clinical evidence for Decipher Bladder, including the recent study published in European Urology Open Science. Do you see the prognostic and predictive use cases of Decipher Bladder as largely distinct from the MRD test under development? And if not, do you think there could be a significant opportunity to use both tests concurrently?

Yes. So to the first part of your question, we do see it as distinct. Obviously, the MRD test has now become our most important priority in bladder for muscle invasive bladder cancer. And that has a very distinct use case for patients who've been treated.

In terms of the prognostic test itself, clearly, it's another opportunity to drive more into the channel. It's more investment in the clinical utility, more studies like the ones that you mentioned, and that will be part of our road map over time, I'm sure, but it's not the immediate priority right now.

But of course, yes, the more we can continue to serve the urologists and their offices, the more we will do that as long as we see that the cost of creating these studies is offset by the revenue opportunity in the future.

Got it. And again, on MRD, given the sensitivity advantages you expect from the C2i test, do you believe that the test will be viable potentially in the non-muscle invasive market as well for bladder cancer?

It is actually -- I mean, it's a platform, right? And you've talked about the sensitivity of it and the whole genome approach that we take for every sample, including not just the initial sample, but the serial testing samples, we think is unique, helps improve the performance of the test. In our minds, performance is measured by detection earlier than imaging. And so that we can -- believe that that test will have multiple applications in multiple cancers.

Muscle invasive bladder cancer is current focus, whether it can be utilized in other bladder cancers and non-muscle invasive, maybe, but that wouldn't be -- in my mind, that wouldn't necessarily be the first place we would go. I wouldn't see it as a larger market opportunity. I think there are larger opportunities where we currently have channel and serve customers or will have where we could launch that platform. But, we're not ready to actually give the detailed road map yet. But you can imagine anything is in play where there's a utility opportunity for MRD.

Our next question comes from Subbu Nambi with Guggenheim Securities.

Coming into 2025, what is your commercial headcount? Meaning, what is the proportional mix of focus by product? And where do you -- where would you expect to build out more over the course of the year? That's question one.

And question 2, regarding the long -term outlook for Decipher, to the extent there is interest in using a digital pathology complement to your existing assays, how well are you positioned to bring something to market?

Yes. So let me just quickly address the headcount question because one thing that's been really, I think, important for both our Decipher and Afirma franchise is, we've had tremendous leverage in our sales team. So we haven't added significant number of sales heads, single-digits over each year, and I don't see that changing going forward, given the current opportunities we have for both tests to broaden both market penetration and share.

And I think it's roughly, as I said, 50 heads per Afirma; and Decipher, a little bit more. In terms of digital pathology, I think the important thing to think about there is, some of the studies that we've seen so far really don't demonstrate that digital pathology is any better than, and in some cases, actually not performing as well as the genomic test. And I think the reason for that is they kind of focus on different biology, different parts of the biology.

They're looking at different things, and consequently, there's not a great deal of correlation there. So if anything, we see maybe a complementary opportunity in the future. Whatever we do see the opportunity to be, and you can imagine, we watch it very, very closely, we couldn't be better positioned. And the reason I say that is we have hundreds of thousands of samples, tissue samples. We've already scanned in our lab over 50,000 samples across more than 30,000 patients. And the vast, vast majority of those have clinical outcomes.

And so with that richness of our data, and remember, the richness comes from us being able to run a whole transcriptome in every case that gives us rich genomic data. Scanning is scanning. So we would have as rich digital pathology data as anybody else would have. And then we have incredible AI capabilities already within our company. It's not like we have to go out and build or buy that. We already have that. And so, with that richness of data, we could do whatever analysis we need to do and publish on that.

Again, it would be a question of the priorities. We have lots of things to do right now which we think have a better near-term priority and opportunity for the company. But bear in mind, we always have this in our back pocket to the extent we need it. And we'll continue to do research and fund research or support research that looks at the opportunities for digital pathology and AI in our markets, not just in prostate, and we'll always stay ahead of the curve.

Our next question comes from Tejas Savant with Morgan Stanley.

This is Yuko on the call for Tejas. Some of the current players in the MRD market are now pursuing both tumor-informed and tumor-naive approaches. What are your thoughts on that direction of travel in MRD? And could we see you pursue both options down the road? And then more importantly, do you think that physician preference will evolve where each approach is preferred in certain cancer types versus one-size-fits-all approach?

Yes, it's a great question. Of course, we think about that a lot. And I think in a nutshell, I do believe that our MRD approach with whole genome in particular, lends itself very well to all the research and studies we would need to do to demonstrate validity in tumor naive. But I think at this point and where we are in the market, our view is tumor-informed, where you have tissue, obviously, is by far the better performing test. Tumor-naive comes into its own where you don't have tissue, hard to get to tissue et cetera.

But right now, for the vast majority of the market, you do have tissue, you have enough of it. You don't need a lot to do that initial sequence. And with a whole genome approach, it is by far the best approach. But as I said, it does lend itself to the studies we need to do to support human naive in the future. And I do think that both will be offered.

Whether a physician preference or not, I think it's a little early for me to say, and I don't have the data to suggest one way or the other on that. Certainly, we could get that. But I think it's going to come down to a number of factors. I think what's most important is a company like us that has the platform to be able to support whatever paradigms make most sense for the patient and the physician in the future.

And it's hard for me to imagine a world where we're not all thinking about whole genome approaches 5 to 10 years from now. I think whole genome is absolutely the way to go because it does support those kinds of studies and product enhancements and expansions.

Great. That was helpful color. And then my follow-up question, given the unique approach that you're taking in MRD with C2i, do you think that you have an opportunity to file for ADLT status? Is that something you may pursue?

Obviously, for muscle invasive bladder cancer, the answer is no, we don't need to, right? So we are where we are right now, and there's an LCD, and we're going to be able to just get to the market as soon as we can with that approach. ADLT is a unique situations, and if there are unique situations where ADLT makes sense, then it's as open to us as it is to anybody else.

But, not -- so I don't think I would -- I don't build a strategy around ADLT or not ADLT, our strategy is built around can we get a test reimbursed at an appropriate level given the number of sequences you have to do. And there are some things that as an industry, I think we need to evolve in terms of how MRD gets priced. MRD is a paradigm that hasn't been contemplated when a lot of these coverage determinations were put in place.

And so there's some evolution that needs to happen there. But with that said, I think we'll build our strategy around getting the test launched with the appropriate pricing, managing our COGS to a level where we feel that the test is able to perform with an appropriate level of gross margin.

Our next question comes from Mike Matson with Needham & Company.

This is Joseph on for Mike. I guess, on Decipher, lot of levers of growth there, indication expansion, obviously in the market in general. But maybe just to focus on share gains in the market from your competitors. Can you maybe just talk about, like big picture, what that looks like for you guys? Is it more individually with your sales force going in and converting people directly? Or do you think a lot of it is more passively driven from clinicians seeing stuff, like the NCCN recommendation and just the division between your competitors in terms of clinical evidence?

And then if I could just ask the follow-up. Afirma GRID, I was just kind of curious if you could give any metrics there, maybe compare it to Decipher GRID? I guess the same proportion kind of opting for that. I believe you said it was somewhere around 1 in every 2 physicians for Decipher GRID?

Yes, happy to. In fact, maybe I'll just go to the GRID one first. I don't remember the exact metric on Afirma. You're right, it was 1 in 2 for Decipher and so was...

It was roughly around the same.

Roughly around the same. Maybe 30% to 50% would be a reasonable estimate for that. The uptake has been pretty decent so far. In terms of Decipher and share, you can't really separate sales team going out and blocking and tackling from the -- what you described as the passive reaction or response from KOLs because there's kind of -- the sales team will highlight to the physician, the extent of evidence that exists and what it means and why it's important, including the NCCN guidelines.

So if we take a step back, all of this comes from robust evidence. It starts with robust evidence, which in our view, starts with our whole transcriptome approach. That drives a lot of studies, both studies that we fund or support to studies that we aren't even remotely involved in that just get done with Decipher given how much real-world data there exists for the test.

And so, we see a lot of studies being completed. Our sales reps bring those to the physicians' attention. Some obviously pay more attention to those studies than others, saying, obviously, those studies result in NCCN guidelines. They result in things like Level 1 evidence, which then result in guidelines. And that -- again, that's an important factor to sway some physicians, not all, but some.

And I think when you put it all together, it's the blended effect of all of these things that has really driven Decipher's success in both RP and biopsy. And I couldn't be more excited with the growth we've seen across all NCCN categories. And I think that just demonstrates how Decipher is really covering the whole care continuum. And once we add metastatic, I mean and I truly will be able to see the whole care continuum. for Decipher or the whole risk stratification for Decipher patients.

So, no, hard to say it's all of that. It's just -- it's giving our sales reps incredible information to share with physicians and have a good reason to go out and do that.

Our next question comes from Matt Sykes with Goldman Sachs.

This is Prashant Kota on for Matt. I have one question that's a 2-parter. So building off of Puneet's question earlier, is it possible to quantify the benefit of NCCN guideline inclusion for a given test in terms of adoption, insurance reimbursement and competitive positioning?

And then my second part is, as you enter new indications, given your NCCN guideline inclusion for Decipher Prostate, does this increase the likelihood that future tests you may develop will get included in guidelines?

Yes. I appreciate the questions. It's not possible to quantify the benefit of NCCN because they're just part of a whole package of positive indicators that really support the use of a test for a patient. Obviously, it's helpful. It's incredibly valuable, but you can't literally take it apart and figure out which Decipher test would have been utilized with or without NCCN guidelines.

And I don't think it actually helps us -- you're kind of at the starting point or a level playing field when it comes to new indications and different indications as well for different cancer types. So, a good example of that is metastatic. I mean the NCCN guidelines for metastatic is going to be based on the peer-reviewed publications, what level of evidence, when you get to Simon Level 1 evidence, which is the new threshold and. And we're going to have to get there over time. Same with a new indication in a new cancer type.

So, no, it's -- I don't think it helps you there at all. I do think that knowing what it takes to and having the engine in the company to support and create that level of evidence, have those strong, robust studies with scientific rigor behind them, get them through peer-reviewed publications, those are all factors that help you get this kind of recognition that we're getting from [ NCCN ]. And so there is a competitive advantage to having done it before, but that's how I would characterize it.

Thank you. This concludes our question-and-answer session and today's conference call. Thank you for participating. You may now disconnect.