VCYT - NASDAQ

Good day, and thank you for standing by. Welcome to the Veracyte First Quarter 2024 Financial Results Conference Call. [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, Shayla Gorman, Senior Director, Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us today for a discussion of our first quarter 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 first quarter 2024 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. 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.

Thanks, Shayla, and thanks, everyone, for joining us today. Following a very robust end to 2023, I am excited to share that we have continued our positive momentum with a very strong start to this year. We delivered first quarter revenue of $96.8 million, growing 17% compared to the prior year period. This strength was driven by our testing business, which grew 25%, meaningfully exceeding our expectations. . The performance of the Decipher Prostate and Afirma tests again demonstrated the incredible power of the Veracyte Diagnostics platform to drive market penetration. This unique approach relies on broad sets of genomic and clinical data, deep bioinformatic and AI capabilities and a powerful evidence generation engine, which ultimately drives guideline inclusion and combined with our proven commercial and managed care excellence, is designed to ensure durable adoption and reimbursement for our on-market diagnostics. In the first quarter, we delivered 16,500 Decipher Prostate tests, hitting a new quarterly volume record, with growth coming from both new and existing providers. Our incredibly productive urology sales force continues to drive adoption through awareness of the test utility and associated clinical evidence, as well as strong guideline representation. In February, updated NCCN guidelines were published with Decipher Prostate receiving a Level 1b evidence rating, the highest rating of all gene expression tests for prostate cancer. Additionally, because of this classification, the Decipher Prostate test is the only gene expression test for which the guidelines include a separate table that summarizes treatment implications for patients based on both their NCCN risk classification and their Decipher score. These updated guidelines are proving to be a meaningful resource to provide physicians with clear summarized evidence from clinical trials on how Decipher Prostate can inform treatment decisions. On the reimbursement front, we also made significant progress in the quarter, signing a contract with a major commercial payer to make Decipher Prostate an in-network offering for its close to 30 million members. We are thrilled to see this payer's patient population obtain more seamless access to the Decipher Prostate test, enabling their treating physicians to more efficiently optimize their care. Generating additional clinical evidence for Decipher remains a priority for us to drive further guideline inclusion, the durable reimbursement I mentioned previously, and increased awareness in the significantly underpenetrated prostate cancer market. Last month, a publication in JCO Precision Oncology showed that among patients undergoing active surveillance for prostate cancer, the Decipher test is prognostic for identifying those whose disease is likely to progress. Pinpointing the optimal candidates for active surveillance, which can help patients delay or avoid interventions such as surgery, radiation or hormonal therapy, is challenging given the potential harms of these treatments weighed against the risks of cancer progression and missed opportunities for cure. These significant findings make Decipher the only prostate gene expression test to have treatment outcome data from a prospective multicenter Phase II randomized trial in the active surveillance population. Providing a tool like Decipher that could help to identify those whose disease is likely to progress can give physicians important insights to help them with this critical decision while also aiding in the further penetration of this portion of the market. Moving to Afirma. We reported approximately 14,000 test results and 14% revenue growth compared with the prior year, in line with our expectations. With Afirma, we continue to illustrate our differentiation, resulting in market share gains due to broadened awareness of previously published evidence, demonstrating the quality and performance of our test. Another point of differentiation has been the launch of Afirma GRID, our RUO tool designed to advance the science around thyroid nodules and cancer. This quarter, we saw a high level of interest in GRID, with approximately 50% of physicians requesting the report on their test order forms in March. The addition of the Afirma TERT promoter mutation test enhances the clinical utility of our thyroid offering, also reinforcing our competitive positioning. This quarter, following publication of analytical validity data for the test in the Journal of Endocrinology and Metabolism, TERT testing received Medicare coverage. While TERT represents a small portion of our total Afirma volume with limited revenue impact, this is yet another indicator of the strides we are making to provide the most complete offering possible for physicians and their patients facing a potential thyroid cancer diagnosis. Looking ahead to our growth drivers over the coming years. We believe that Decipher Prostate and Afirma will continue to grow meaningfully as we drive towards 80% penetration for both prostate and thyroid cancer molecular tests, while continuing to gain market share and bolster ASPs. For Decipher, we believe the updated NCCN guidelines will be a meaningful catalyst to broaden awareness and change physician behavior. We recently conducted a voice of customer survey on this update, which queried urologists as well as medical, radiation and urologic oncologists across the academic community and large urology group practice or LUGPA settings. Not surprisingly, 82% of respondents were aware of the updated NCCN guidelines, and 75% of respondents utilized the principles of risk stratification section, which details treatment implications based on the NCCN classification and Decipher score. As a result of ordering trends since the publication as well as the survey feedback, our confidence in our outlook on Decipher growth over a multiyear period has been further solidified. In addition, we continue to anticipate the draft of Medicare's local coverage determination, or LCD, for patients with metastatic prostate cancer to become final later this year or early next. We estimate that there are an additional 30,000 patients annually who could benefit from the prognostic and predictive information Decipher delivers to their clinicians at pivotal moments in their cancer journey. Meanwhile, we unfortunately continue to see growth in the incidents of prostate cancer, with the American Cancer Society estimating there will be approximately 300,000 new cases in 2024, up again from 2023, making Decipher even more important for more patients. For Afirma, in addition to the market dynamics previously highlighted, we are beginning to see standard of care changes and physician adoption in rural areas, where we see a long tail of clinicians, who aren't currently utilizing genetic testing for this patient population. Additionally, we are engaging with MolDX on their draft LCD to cover thyroid nodules with the Bethesda 5 cytology, expanding access to patients, who can also benefit from Afirma. Now turning to our longer-term growth drivers. We are focused on 3 vectors: global expansion through our robust IVD strategy, solving new cancer challenges through the utilization of our platform, for example, our Percepta nasal swab test. And with the acquisition of C2i Genomics serving more of the patient care journey through minimal residual disease or MRD and recurrence testing. As we often do and as we committed to do following the C2i acquisition, during the quarter, we continued our portfolio prioritization to rationalize our investments outside of these 3 key areas. As a result, we downsized the commercial support for our Envisia test. While we will continue to offer this important test to those patients facing interstitial lung disease, we will no longer maintain a separate Envisia sales force. Now shifting to our focus on global expansion. We are on track with the key product and market development activities from a multi-platform IVD approach, developing our Decipher Prostate test on qPCR and our Prosigna and nasal swab test on NGS. Recall that once these tests are made available, we will still need to go country by country to drive adoption and reimbursement, utilizing the clinical evidence that we already have and are continuing to generate with our clear based test. This is yet another example of the leverage we get from the Veracyte Diagnostics platform, where our clear strategy built around data, insights proof and utility will fuel our IVD strategy outside the U.S. On our second growth driver, solving new cancer challenges via Percepta Nasal Swab, we have made good progress with our NIGHTINGALE trial and have patients enrolling across our almost 100 sites. While we remain excited about our progress to date, the current patient enrollment per site is tracking below our updated expectations. We've designed the study with a high degree of scientific and clinical rigor, endorsed by the cancer community, and we believe the slower rate of enrollment is consistent with typical challenges currently faced by large multisite pulmonology trials and isn't related to physician interest on market potential of the nasal swab test. While the pace of accrual in April would be indicative of enrollment completion around the end of the year, our internal modeling has wide error bars, and this pace may or may not continue over the coming months. Given that, we will update you next when the study is nearing completion. Our last long-term growth driver is serving more of the patient journey. Now that we have integrated the C2i Genomics team into Veracyte, our excitement for the technology potential has only grown. We kicked off the development of our first MRD test for muscle invasive bladder cancer in our clear lab, which we intend to launch in the first half of 2026. As we mentioned last quarter, C2i's novel whole genome sequencing approach to MRD fits well into the Veracyte Diagnostics platform, making it the ideal solution for us to expand our test offerings throughout the patient journey. As a testament to the strength of this approach, we are continuing many of the collaborations with academia and industry that C2i initiated and have seen strong interest from potential partners and collaborators as we present the technology and begin to build clinical evidence for the test. Between the inbound interest we have received since announcing the acquisition and the momentum in our development activities, we are confident in the strength and extensibility of our new MRD platform and the market potential. We believe this will prove to be a pivotal acquisition for Veracyte across numerous indications over time. With that, I will now turn to Rebecca to review our financial results for the quarter and expectations for 2024.

Thanks, Marc. Q1 was a strong start to the year with $96.8 million in revenue, an increase of 17% over the prior year period. We grew total volume to approximately 33,500 tests, a 16% increase over the same period in 2023. Testing revenue during the quarter was $90.3 million, an increase of 25% year-over-year, driven by Decipher and Afirma volume, along with ASP growth driven by payer contracting and prior period collection. Total testing volume was approximately 31,000 tests. Testing ASP was approximately $2,900 as we resolved and collected approximately $3 million of out-of-period payments. Adjusting for this impact, testing ASP would have been approximately $2,800. We began to see some benefit of coverage for Decipher Prostate from the payer Marc described over the second half of 2023 and a larger benefit with the contract now in place as of the middle of Q1. Looking ahead to the remainder of 2024, this incremental contract is now forecasted to benefit testing ASP. First quarter product volume was approximately 2,500 tests, and product revenue was $3.5 million, down 9% year-over-year as Prosigna demand was impacted by supplier issues seen previously. Biopharmaceutical and other revenue was $3 million, in line with our expectations and down 51% year-over-year given overall spending constraints across the industry. Moving to gross margin and operating expenses. I will highlight non-GAAP results, which exclude the amortization of acquired intangible assets, other acquisition-related expenses and restructuring costs, but does include routine stock-based compensation. Non-GAAP gross margin was 68%, down approximately 70 basis points compared to the prior year period. Testing gross margin was 71%, down 160 basis points, compared to the prior year period as we have invested in our footprint and equipment expansion to meet increased Decipher demand. We expect to leverage these investments as volume continues to grow. Product margin was 25%, down versus the prior year period driven by start-up costs associated with the full-scale Prosigna manufacturing. Biopharmaceutical and other gross margin was 6%, down year-over-year due to lower fixed cost absorption. We have taken steps to address the cost structure of this business that we expect to begin to see play out in the second half of the year. Non-GAAP operating expenses, excluding cost of revenue, were up 6% year-over-year at $61.6 million. Research and development expenses increased by $2.5 million to $15.2 million given personnel additions due to the C2i acquisition and increased costs related to our NIGHTINGALE clinical study. Sales and marketing expenses declined by $1.2 million to $24 million. G&A expenses were up $2.3 million to $22.4 million, driven by higher personnel costs. We reported a GAAP net loss of $1.9 million, which included $8 million of stock-based compensation, $5.6 million of depreciation and amortization and $4.6 million of C2i acquisition-related expenses. As expected, we used $9 million of cash in operations and ended the quarter with $209.2 million of cash and cash equivalents, including the benefit of approximately $4 million of acquired cash. Turning now to our 2024 outlook. We are excited to raise our total revenue guidance to $402 million to $410 million from our prior guidance of $394 million to $402 million. This reflects an improved outlook for our testing business with revenue growth of 15% to 18%, a meaningful increase as compared to the prior guidance of 13% to 15%. We are also raising cash guidance and expect to end 2024 with between $236 million to $240 million in cash, cash equivalents and short-term investments. Moving to the second quarter, we are forecasting a sequential increase in total revenue, given typical seasonality and the impact of reimbursement decisions on Decipher ASP. We expect Q3 to be roughly flat to Q2, with a sequential step up in revenue in Q4. I am thrilled with our strong start to the year and our commitment to driving revenue growth with a focus on profitability and continued cash generation. We'll now go into the Q&A portion of the call. Operator, please open the lines.

[Operator Instructions] Our first question comes from the line of Andrew Brackmann with William Blair.

Maybe just first on Decipher. Obviously, continued nice growth there and sort of a lot of tailwinds, which you talked about in the script. But can you maybe parse out the growth rate there for us a little bit? How should we be sort of thinking about market penetration impact versus sort of share wins or incidence growth here moving forward?

Yes, it's a great question, and thanks for that. You should think of it as being all of the above. It's pretty clear that we're both penetrating the market, growing the overall market for molecular diagnostics and gaining a significant proportion of the share there, and I'd say, taking share in particular. When you look at Decipher, I mean, you can do the math on the volume numbers we've given, the volumes grew roughly 30% year-over-year, and then ASP gains drove a total growth rate of about 36% in Decipher revenue year-over-year. So if you compare that to how the market is growing, you can get to those statements I just made regarding share. And I think, obviously, it's driven by a lot of things we've talked about, the NCCN guidelines that really only come from the extremely high volume of studies that support Decipher. And then going forward, of course, we talked about in the prepared remarks the commercial contract, which certainly helps bolster ASP a little bit. And then going forward into later this year, early next year, metastatic as well adding another 30,000 potential patients. So as I think about it, I don't really see anything that affects our ability to continue to -- that great trend that we're seeing in both market share and market penetration. And that's why we're confident in saying that we see a multiyear growth opportunity for Decipher here as we drive this total market to a place where hopefully, 80% of patients are getting treated with a molecular diagnostic and most likely given all the trends the Decipher test.

Absolutely. The only thing to add to that really quickly, Andrew, is we'll be updating our penetration assumptions annually. We did so most recently on the JPMorgan in the Q4 call. And so I think those are -- that's a triangulation exercise. That does take some data that's only released annually and stuff like that and obviously going through other disclosures. So it's challenging to update that quarterly for those reasons. But I concur with Marc wholeheartedly, we have nothing but white space to go after here and the sales team is doing a fabulous job to do so and our confidence has only been furthered over the last quarter to that end of having Decipher continue to grow handily over the next number of years.

That's great color. And then maybe, I guess, on NIGHTINGALE, can you maybe just sort of be a little bit more specific on what might be driving that slowdown in enrollment? And I guess as you sort of think about the scenarios of outcomes here, can you maybe just sort of talk about your level of investment into that channel ahead of a formal readout, whenever that may be?

Yes. Thanks for the question. Actually, that's part of the problem is it's very difficult to be specific because there's a plethora of situations that are affecting I'd say clinical trials in general, but particularly in pulmonology. And I think we all understand how challenging it is to how much of trial enrollment you don't control, how much is controlled by the site. What we can control is how quickly we sign the sites up and how many we go after. And I feel really good about the work we've done there, having almost 100 sites actively enrolling. And then it's very much within their own internal process of bringing those patients in. Now what's really important to us at Veracyte is a robust trial and good science, and that is a more important priority than velocity of enrollment, of course, we want to make sure that the trial is done the right way. And so we have limitations around the customers or the patients actually that are eligible for the trial. Of course, not every patient who's eligible wants to be part of a trial, and so you have that factor. And then you have resource challenges at individual sites. And that can cause trial activity to increase or slow down. And that makes it very difficult to predict. So trying not to get into -- having now changed that, again, trying not to get into the process of trying to predict when that will finish. But I will tell you that based on our current rates that we saw in April, not that -- April is not an outlier, and it's only -- I'm not suggesting that the April rate is the rate to apply going forward, but that would take us towards the end of the year. But we're doing everything that we can within the bounds of, as I said, the good science and a robust trial to make sure that we get the trial completed as soon as we can, and we'll update you when we're nearing that point.

And maybe you just want to talk about what we said in the prepared remarks regarding your commercial -- the level of commercial excitement?

Yes. I mean I think -- yes, and that's the real question I think comes from a slowdown in the enrollment is, does that affect our view of the commercial interest in the product and also the market? And the answer to that is clearly no. We don't see that at all. There's nothing that gives us any signal other than the -- at this point, the opposite, which is getting 100 sites signed up with the level of enthusiasm that we saw from those sites. Certainly continues to give us a lot of confidence and excitement about getting the test to market and is addressing a very significant market. So no change in our expectations around the market, the ultimate market for nasal swab.

Our next question comes from Sung Ji Nam with Scotiabank.

Congrats on the quarter. Maybe on the MRD for muscle invasive bladder cancer. I was wondering if you might be able to kind of comment on your development strategy there, given there is some competition out there? Curious if you have a sense of how large the trial or if you're running your own internal trial? Or do you have plans to partner with biopharma companies running clinical trials and things like that? Just kind of curious if you're looking for partners or kind of pursuing the partnership strategy or if you might be going at it kind of on your own?

Yes, it's a great question. Actually, one of the reasons that we are launching first in bladder -- in muscle-invasive bladder cancers because we see a clear pathway to getting our tests on the market and getting it reimbursed. So we're able to leverage an existing LCD. We are ingesting the test into our lab, as you can imagine, it's going through the development process. We've already kicked off that program, core teams on, and they're working very hard on that. . We will do the tech assessment that we need to do in order to get to that reimbursement. We will do the automation steps that we need to do within our lab to be able to scale. And so we see it very much within our control. The work that we have to do for the tech assessment is not a significant number of samples to demonstrate the necessary concordance that we need to be able to demonstrate. So that's already in progress. So yes, very confident in our ability to get this test launched by the time, as we said, which is the early part of 2026 and get it on the market and reimbursed. It opens up a potential market, an important one of about 18,000 patients. And while muscle-invasive bladder cancer was the indication where we see the earliest path to a product, as you can imagine, this is a platform. It's not a single test. And so we're excited to think about and determine which indications and which conditions we go after next with our MRD platform.

And just one thing to add to that, Sung Ji. Obviously, one of the reasons we've highlighted for really liking the C2i acquisition was effectively the whole genome sequencing approach that is taken, well, maybe slightly more expensive, the amount of clinical data we believe that will give us over time, just like in Decipher and now with the Afirma GRID, also just like Afirma, will allow us to just have a body of evidence that we think will help us gain commercial traction above and beyond just what is in the tech assessment. So I think we have a number of different levers to pull to compete in this market. And obviously, MRD is a really large market. And so we're super excited to get our products and tests on the market to go after first muscle invasive bladder cancer, but then thereafter, other indications to follow.

Yes. And well, I think that's a great point. Just to add to that. The -- if you look back at Decipher, Decipher wasn't the first test on the market, it certainly didn't have the greatest traction initially in the way that we've been able to get to the point where we're at now is through that evidence development and that incremental data that we're able to generate, what we call the Veracyte Diagnostics platform that pieces all that together. And so I do think while it's a competitive space, there's plenty of opportunity here.

Got you. That's super helpful. And then just on biopharma, obviously, a very small part of your business now, but just kind of curious, given others are starting to see some green shoots in that space. And so I was wondering, especially with GRID for Afirma and for Decipher kind of gaining a lot of traction, things like that. Do you think they're just as we -- as you look ahead to kind of later this year and into next year, there could be some more activity around biopharma-related activities?

I think you said it well. I mean, green shoots for sure, you start to see those soon. It can take a while for those green shoots to really flourish. But -- and we've got a pipeline. I've said this before, we have a pipeline of new customers with new projects. The time to get those projects from early indication to decision to contract is longer than it used to be. And so that's part of the challenge is taking time. I do think you're right to point to the data that we have for GRID, particularly on the prostate side. And now with MRD, we're actually really starting to see some, I'd say, potentially more than green shoots of interest in our MRD platform. So I'm optimistic that at some point, these green shoots should come to fruition. I'm not sure exactly when. I'm not willing to try and put a time frame on that. But of course, as you can imagine, a scenario we're watching very closely. And to your point, the biopharma and other revenue is now a small percentage as the rest of the business has grown, and that has declined, but we continue to maintain a presence and a team and a capability around that in both the clear side, supported by the clear side as well as our immunohistochemistry products.

One moment for our next question. Our next question comes from Mason Carrico with Stephens.

Rebecca, congrats on a solid start to the year here. Maybe a higher level question on the prostate cancer market. What types of patients make up the majority of the 35% or so of the penetrated market? And then for the remainder of the market, I realize that metastatic patients make up a portion of it. But what type of patients make up the unpenetrated portion of this testing opportunity? Are there material differences between the 2? What's the strategy to continue to grow share and expand the market from here?

Yes. I mean there's opportunities to expand and grow in all the indications, as I'm sure that you can imagine. By far, I'd say, at this point, the penetration is mostly going to be in the intermediate space. We can expand into the high, in particular, with metastatic as well, as you can imagine. And active surveillance as well is an area of potential growth. So -- but I'd say no area is particularly an outlier across every part of biopsy as well as RP, there's opportunities for further expansion in that white space that Rebecca referred to earlier.

And we just had a really important study published on active surveillance, perhaps you want to talk about, Marc?

Yes. I mean I mentioned that a little bit in the prepared remarks, but it demonstrated that the prognostic capability of Decipher in the active surveillance space and helping to reclassify which patients should be on active surveillance and which should not, which I think is really important because, as I said in the earlier remarks, you don't want to under or overtreat those patients if you can avoid it. And there's not a great deal of molecular information help there, obviously, when these tests aren't being used for 2/3 of patients to help ascertain what's the right approach. And I think with the evidence that we've now got behind Decipher, you're going to start to see more utilization there. And especially with the NCCN guidelines and particularly that table as well that talks about how to apply Decipher and how to change treatment based on the Decipher score as well as the risk category, you can clearly see how we're going to see more penetration across the entire spectrum of patients. I mean ultimately, Mason, our goal, as I said many times before, I mean, I don't think you ever get to 100% for a whole bunch of inertia reasons. But frankly, most patients with prostate cancer should be having a molecular diagnostic. And of course, we strongly believe that Decipher is the right one.

Got it. That's helpful. And then on the Afirma GRID offering, where are you seeing the most demand from a clinician standpoint? And have you seen any increased traction or higher demand from the academic hospital setting now that you've launched that offering?

I feel like we're seeing -- yes, especially I think there's a lot of interest coming from the academic setting around GRID as we've seen on the Decipher side for many years. We're now seeing on the Afirma side for research purposes. And roughly 50% of physicians are interested in GRID. But also we're seeing greater penetration, whether driven by GRID or not, and it's not always possible to correlate all the good things we've done around Afirma to the outcome. I think it's actually the collection of all the things we've done, including GRID and TERT and the portal and everything else associated with that. But we're also seeing better penetration in the rural communities as well, which is, I think, a positive sign for me, because it says that one of the challenges you have with any test like this is getting out to that long tail of physicians, who haven't adopted either a molecular test or Afirma. And so I think that's a good indication that we're really making good traction there as well.

Our next question comes from Tejas Savant with Morgan Stanley.

Marc or Rebecca, perhaps a quick one for you here on the Afirma side of things. So following Medicare reimbursement, over what time frame do you expect the third promoter testing to provide an ASP uplift to Afirma? Especially as reimbursement broadens out there beyond the CMS coverage you now have in place?

Yes, Tejas, it's a fair question. Effectively, with the test being reimbursed at $185, it's not going to provide a meaningful uplift, especially since only about 50% of patients select to have -- I'm sorry, clinicians select to have TERT run and then you have to have a suspicious finding before TERT is actually ran, and that's another 50% rate. And so you're talking about dollar figures on an ASP perspective and not a huge number of patients. And so I think when we think about it, it's one less barrier to drive penetration more so than an ASP uplift, specifically for Afirma. I think more importantly than TERT is the vast majority of work that our managed care business has been doing drive ASP uplifts across both our products. Obviously, today's news on the Decipher side is huge, and we're very excited and I think the team did a fabulous job negotiating that contract. And on the Afirma side, we have -- we still have some room to go, albeit really do have good coverage and contracting there as well. So I think with the big payer behind us today, there's nice room to grow, but today is probably a decently sized impact. And from there, they'll be smaller, including TERT.

I just want to punch in one of Rebecca's point today, I totally agree. To me, TERT is helping drive Afirma because we have a more complete offering. It's important to have it for our physicians. So it's driving Afirma. It's not necessarily driving TERT revenue for TERT revenue's sake.

Got it. That's fair. And then one on just the data monetization strategy, Marc, on a go-forward basis, including that C2i data, which I'm sure you've now had a chance to get better acquainted with. And my question is less so about some of the reimbursement angle, which you already alluded to earlier, but more so from other ways to monetize it, perhaps on the biopharma side.

Yes. And that's -- I think we've talked about that before. There's always a challenge with just monetizing data for data's sake. I think the way we think about it is that data really supports the flywheel that we talk about that drives the testing. It drives further research, it drives further evidence and then continues to drive more testing. Now to the extent that from a biopharma perspective, there's interest in that data, we, of course, capitalized on that. And those are great projects, because typically, what you find is the biopharma customer reaches out to you because of the tremendous success that you have and the amount of data that you have versus having to go and build a team to go and try drive that funnel. And so you can imagine on the prostate side, we get interest. And as I said earlier, what's really exciting is on the MRD side, particularly driven by the fact that it's whole genome and the performance of the test, we're getting interest there as well. And so we'll continue to fill those inbounds and see what opportunities come out of that. But it's not at the point where I'd say put a line on the spreadsheet for monetization of data. At this point, it's fueling the rest of our business.

Fair enough. And 1 final one for me on just M&A strategy. The balance sheet is in good shape. You took up the year-end cash guide a little bit over here. Just following C2i, the asset is clearly a strategically important technology. You talked about MIBC and broadening out to other indications over time. So the revenue contributions will take a little bit of time, right? And then you've got the Percepta Nasal Swab with the NIGHTINGALE delays that you -- enrollment delays that you cited. So as you consider the landscape here and your balance sheet, just remind us again sort of what are the priorities for tuck-ins? And how much of, I guess, the revenue bridge plays into it in the sense that a focus on near-term revenue generation, is that fair to assume as a priority for other tuck-ins you may do here in the next year or so?

Yes. Thanks for the question. And I appreciate you picking up on the strength of our balance sheet, which is obviously only getting stronger as we increase the guide around cash here. We've been pretty clear about what we are focused on, and I reiterate those points again today. There's no question we want to continue to drive the penetration of Decipher into a market that when we last did the math, was 35% penetrated into Afirma in a market when we last did the math was just over 60% penetrated. We see tremendous opportunities there. And as I said today, I see those products helping to fuel the growth of our business for multiple years ahead and certainly bridging us to our long-term growth drivers, which are the next 3 things that we're very focused on. Percepta Nasal Swab, as I talked about, our IVD strategy outside the U.S. and now MRD. So if you think about those 5 things, Afirma, Decipher, nasal swab, IVD and MRD, we got a lot on our plates. We're very, very busy. We've got a lot of projects going on. Those 3 long-term growth driver projects are absorbing more than the majority of our R&D spend, as you would expect them to, since they're strategic and important to us. And then, of course, growing Afirma and Decipher and us sustaining our business and working on discovery is driving most of the rest of the R&D spend. So we're very, very focused. We've got very clear priorities. We've got the -- we feel like we've got the near-term to midterm to long-term growth spectrums covered with everything that we're doing. And so I would say that M&A isn't the priority for us right now. Of course, we're always opportunistic and things come knocking on our door that look interesting to us. Then we would certainly take a look, but that is not something we're focused on. Because as I said, we've got a lot of opportunity ahead of us and what we're already doing.

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

This is Joseph on for Mike. Maybe just wanted to get an update on how you guys were kind of thinking about the FDA final rule on LDTs. I guess I imagine it kind of went to your expectations. I guess it wasn't really worry for you too much at all. But are you kind of thinking a little bit more positively on any more spend needed for that? Or yes, I guess, any update on that would be good.

Yes. Thanks, Joseph. I appreciate that. I mean, just thinking about it at the highest level, as a company that has been on the market with clear tests for a number of years with the evidence that we got behind those tests as well as having an IVD test already on the market and IVD capabilities in developing 3 IVD tests as we speak. We've always felt very ready for whatever this new regulation might throw at us. We're clear. We've got New York State and all those things now. Obviously, the more regulation adds burden to any business, of course. And so we actually think we're very well regulated already. We don't necessarily need more, but to the extent there is more, then we're ready for it. If it adds cost burden in some areas, again, we've got the quality systems in place, but there might be some things that we have to invest in order to support any new requirements that come our way, we'd be ready to do that. Able to do that. And I'd say that's already included in our projections because we also have opportunities to optimize and reduce cost as we scale, too. So I'd say that would offset any increased regulation or regulatory burden that might show up in the P&L. I would say just maybe specifically on what did come out, of course, it was great to see that existing tests get some special treatment as they should, obviously, because they serve so many patients today.

Yes. Okay. Great. Absolutely. And then maybe just a question on the AUA conference. I mean you guys had a bunch of posters there. You probably took up a lot of space. I was just kind of wondering what was the attendance like there? I appreciate the initial color and everything, but I was also wondering if there's any discussion at these conferences around Decipher Prostate and how some of the, I guess, American physicians feel about the test potentially move into PCR? I guess -- correct me if I'm wrong, but I guess that's more internationally and the CLIA model here. But just wondering if there's any discussion around that? Has that changed maybe your viewpoints on test modalities?

Yes. I mean let me clarify that in the first instance. The Decipher is run as a clear-based test for the U.S. today, and that's not going to change going forward. And of course, that also -- we run a whole transcript that also helps fuel GRID. Where we're moving to PCR after Decipher is our IVD product that will be launched outside the U.S., okay? So we are hearing a lot of interest to that outside the U.S., we do think there's a pent-up demand. I don't know to what extent that showed up at AUA probably. I'm sure it came up, but probably mostly that conference was mostly focused, I would say, on U.S. From what I hear, it went really well. It was a great conference. We, of course, had a very good showing there with the abstracts that we had presented in presentations. I understand our booth was very well attended. And our team, congratulations to our Decipher team, commercial and marketing teams who did an outstanding job supporting the conference. So far, yes, everything I've heard is extremely positive. I'm sure there was a buzz around the new guidelines to the points we made in the presentation, we did our own survey and we heard a very significant majority of physicians over 80% are aware of the guidelines. And 75% of them are actually using them the way that they're intended to be used.

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

Congrats on the quarter. This is Prashant on for Matt. Just a follow-up on a question that was asked earlier on Decipher Prostate. So you have biopsy tests for monotherapy versus multimodal as well as the radical prostatectomy test to determine the addition of hormone therapy. So can you just help us understand the opportunity for improvement in terms of volumes and reimbursement with respect to both subsegments?

Yes. I would say I think they really come together. You don't necessarily need to bifurcate them as we talk about the opportunity for growth. I mean, by far, the majority of growth and the majority of volume is going to come from the biopsy side rather than the RP side, but there's opportunity for them both. Mostly, as I said, mostly on the biopsy side where you have, by far, the largest volume. In terms of reimbursement, the real opportunity there is commercial contracts, like the 1 that we announced today. We've made great progress and great traction in getting both coverage and contracts in place. There's still opportunities. I think we feel really good about where we are so far. There's smaller payers to go after now, and we never really stop. We are still finding our payers for Afirma 13 years after the product was launched. So you just keep blocking and tackling your way through that. So that's whether I'd say the reimbursement opportunity comes from. I've talked at length about where the volume growth is going to come from and what's going to drive it. And again, it's the NCCN, the payer contracts, metastatic and just fantastic execution by our sales team, quite frankly.

Got it. And then moving to Afirma, do you see the competitive landscape as essentially set? Or do you anticipate new competitors entering the space? How high is the barrier of entry to enter thyroid cancer testing?

I think it would be very difficult for new entrants to enter at this stage with the level of share and penetration and performance of the tests that we have and most importantly, the level of evidence behind them, including recent meta analysis that we had that really shows the performance of Afirma in a real-world setting even outperformed our own clinical validation. We actually just got word that was one of the most cited articles last year in the publication. So I think that in and of itself, we've always maintained this is actually is at the heart of the Veracyte Diagnostics platform we talk about that just generating the evidence, which comes from the data and then having more data generate more evidence is really a significant barrier to entry that shouldn't be underestimated. And it's how Afirma has not only maintained, but is also growing its share and how Decipher has become #1 test with the high level of guidelines that it has.

Our next question comes from Puneet Souda with Leerink Partners.

Puneet, we can't hear you. You might be on mute.

I apologize. That's my fault. Marc, can you hear me now?

Yes. Pretty fine.

Yes. All right. Great. And I apologize if this was covered already. But just could you talk about the Afirma and Decipher growth rates that we ought to be thinking within the context of the guide? And I have a quick follow-up after that.

Yes. So without getting into projecting either one of them, let's just -- I don't know if you caught it, but just to recap, our testing in the first quarter grew 25%. I mentioned at the beginning of the call the Decipher grew 36% in revenue. We guided testing to 15% to 18%, which is an increase. And of course, you can imagine Decipher is the larger driver of that growth, and Afirma is obviously smaller, but still growing very, very nicely and I think it's fair to say that testing overall is exceeding our expectations, and hence, we raised the guide for the company. We still have headwinds on the product and biopharma and other line at the moment. But testing is firing on all cylinders.

Got it. And then if I could ask about the AUA. You had a number of presentations there. Obviously, an important conference for you. Anything you would note that is important driver for maybe 2025? And maybe if you can take up 2 minutes and talk about the sort of the -- how should we think about the next set of data sets that could be released either in second half of '24 or in '25 on other assays that you have or even Decipher?

Yes. So thanks for mentioning that in AUA, and we talked a little bit about that earlier. We did have a very strong showing with a large number of abstracts and presentations. The buzz there would have been around -- I'd say a couple of things, but the NCCN guidelines for sure. And metastatic, I think people are excited to have metastatic covered, and it should be. And so I think that's one of the areas that you should think about. Hopefully, by the end of this year, early into next year, we get an answer. And so maybe that can become a driver for 2025. As I said, I do think Decipher in and of itself across all indications that we cover and all markets is a potential growth driver for multiple years to come. Outside of that, of course, data related to bladder -- muscle invasive bladder cancer or MRD test and, of course, completion of NIGHTINGALE and further support for that as well. And then let's just say, our IVD strategy I've mentioned before, but we have 3 products that we're working on right now, 2 of which we completed in '25 and 1 in '26. And so I think of those as being certainly not necessarily revenue drivers for the time frame you asked about, but certainly indications of us continuing to execute and knock down some of the milestones that we set.

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

Thank you, Lauren. I appreciate it. So in closing, as you can tell, I'm excited about our strong start to 2024 and the positive signals we're seeing in our core testing business, which bolster our confidence in the growth trajectory of Veracyte both this year and going forward. We're making progress towards our goal of 80% penetration in the critical markets that Decipher and Afirma serve and expect to drive significant revenue from these tests over the next few years, bridging us nicely to our numerous and exciting long-term growth drivers. I want to thank the entire Veracyte team for the work they do every day for the patients we serve all over the world. Their tireless efforts have enabled us to grow and scale our company to accommodate the significant growth that we are experiencing in our business. So thank you.