Good afternoon, ladies and gentlemen, and welcome to Veracyte's Fourth Quarter and Full Year 2021 Financial Results Conference Call. As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to Tracy Morris. Veracyte's Vice President of Corporate Communications and Investor Relations. You may begin..

Thank you, Lee. Good afternoon, everyone. And thanks for joining us today for a discussion of our fourth quarter and full year 2021 financial results. With me today are Marc Stapley. Veracyte's Chief Executive Officer, Rebecca Chambers, our Chief Financial Officer and Dr. Tina Nova, President of our US CLIA business.

Veracyte issued a press release earlier this afternoon, detailing our fourth quarter and full year 2021 financial results. This news release along with a 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 that they will prove to be correct.

Further, we are not under any obligation to provide further updates on our business trends or our performance during the quarter.

To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Veracyte filed with the Securities and Exchange Commission, including Veracyte's most recent Forms 10-Q and 10-K. I will now turn the call over to Marc Stapley, Veracyte CEO..

Thank you, Tracy. And thanks everyone for joining us today. I am very pleased to share an update on our strong Q4 2021 results. We delivered fourth quarter revenue of $67.3 million, an increase of 95% over prior year, despite headwinds from the sudden and rapid onset of the COVID 19 Omicron variant.

We closed out the year with revenue of $219.5 million, an increase of 87% over the prior year. Importantly, behind these numbers are thousands of individuals who benefited from Veracyte tests and at the heart of our vision to improve outcomes for patients all over the world every step of their journey.

This vision inspires us to come to work every day, helping patients to avoid unnecessary and often risky procedures and interventions, while also reducing their time to appropriate treatment.

As many of us know from personal experience, any patient going through a diagnosis of cancer or facing the potential prospect of such a diagnosis already faces unimaginable anxiety. Few things motivate our team more than being able to quickly help that patient and their family achieve an accurate diagnosis, prognosis or treatment decision.

I am incredibly proud of the entire Veracyte team for helping make this vision a reality. Through their efforts, we delivered strong results in 2021 while also integrating two acquisitions, Decipher and HalioDx and advancing a number of important product development projects.

With our augmented leadership team and recent key promotions, our business is now aligned to set us up for long term success. To start, I would like to remind everyone of the strategy of our newly combined organization.

We believe we are uniquely positioned given our broad menu of advanced novel diagnostic tests to serve patients in the US through our CLIA labs and patients in the rest of the world, through our IBD products on our end counter platform.

Further, we believe that our cycle of innovation commercialization and data creation produces a flywheel effect that will propel our long term growth, enabling us to deliver on the promise of becoming a leading global diagnostics company.

We start by identifying the unmet clinical needs that could be addressed by Veracyte to help physicians make better informed decisions for their patients. From here, we deploy our world class global scientific team led by Dr. Giulia Kennedy, our Global Chief Scientific and Chief Medical Officer to develop robust clinical assays.

With a technology agnostic mindset and advanced capabilities in whole transcript on genomics immuno-oncology and machine learning, we have tremendous flexibility to employ the best approach to answer challenging clinical questions.

It is this approach that led, for example, to the development of our Percepta Nasal Swab, a unique noninvasive test intended for the many patients who undergo evaluation for a potentially cancerous lung nodule.

In parallel, our business teams assess them market size reimbursement dynamics and competitive landscape before developing and launching our tests in the US market through our CLIA labs. Dr. Tina Nova, a renowned diagnostics industry leader drives this process as President of our CLIA US business.

Together with our scientific clinical and medical team, we build a library of clinical evidence to help us gain reimbursement, KOL support, and ultimately guideline inclusion. This enables our experienced sales team to work with their physician customers to secure broad adoption for our tests.

Our decipher prostate test is a wonderful example of how well this works as we continue to build the library of clinical evidence that is driving the market share gains that we are seeing.

Outside of the United States, we develop tests to be run locally closer to the patient on our end counter diagnostic instrument, leveraging the clinical expertise that we've generated to drive adoption market by market Stephen De Bono, who has deep experience developing manufacturing, commercializing such products leads our IVD business and our EMEA region.

Our IBD development team in France, collaborating with our San Francisco and San Diego scientists is working hard to bring the next wave of products to the encounter building menu that will enable our experienced commercial team in EMEA to drive market access and reimbursement, and to secure our test inclusion in clinical guidelines and to educate stakeholders on the clinical value of our products.

A good example of our IBD market potential comes from Prosigna our breast cancer assay test, which is growing nicely outside the US with coverage decisions now in a number of countries.

Finally, we partner with biopharmaceutical companies to provide valuable whole transcriptome and immuno-oncology data utilizing our unique biorepositories of over 350,000 patient samples. We believe these data assets combined with our ability to reach patients globally will be of great value to biopharma companies, precision medicine programs.

Jérôme Galon [ph] a Co-Founder of HalioDx leads our global biopharma business unit. Our work with J&J Astrazenica and [indiscernible], the Gilead company are great examples of our biopharma collaborations.

Turning now to our product portfolio; our first and most mature test, as you know, is a firm for patients who are facing the uncertainty of a thyroid cancer diagnosis and treatment.

We gained Medicare coverage for this test in 2012 and today to Afirma has provided key clinical information for over 225,000 patients and we estimate has helped eliminate over 130,000 unnecessary surgeries.

Last year, the outreach performed by our endocrinology sales and marketing team resulted in approximately 6,500 ordering physicians, the most we have ever served. Given the penetration of the market, we are focused on gaining traction with the long tail of endocrinologists who are not currently utilizing our tests.

On the product development side, while Afirma is mature in the life cycle, we have some exciting projects underway, which we believe will drive further adoption and enhance the physician experience. Our pulmonology tests continue to be impacted by COVID in the fourth quarter.

These tests are largely performed in hospital settings, which have more restricted access for patients and our reps. A lack of access for our sales team has been the theme of our lung portfolio since the beginning of the pandemic. In Q4 and January, this continued as we struggled with the surge of the Omicron variant.

We have seen an improvement in February though we believe that procedures and access still trail 2019 levels. As we look towards the next few years, we do expect to see further adoption of our lung portfolio, which we believe will be advanced by additional data public and our test inclusion in clinical guidelines.

Additionally, work on the preceptor genomic Atlas has progressed, we're finalizing our launch strategy and we'll provide an update in the coming months. Our urology portfolio continue to perform well in the fourth quarter, as we reached record levels of tests, order and reported.

Contributing to our test momentum is the expanded recommendation in the 2022 NCCN clinical practice guidelines for oncology, which now recommend treatment decisions based specifically on the patient's decipher prostate score. Decipher is currently a covered benefit for over 150 million people in the US.

Our urology products are in the early stages of penetration and as a result, we believe will be a driver of our near and long term growth through a steady cadence of new clinical utility data and reimbursement contracts. We are particularly excited about study findings that were presented to the ASCO GU meeting earlier this month.

This data from a phase three trial shows that the decipher prostate test is a prognostic biomarker that helps physicians personalize treatment for men with intermediate risk prostate cancer.

We also recently commercially launched the decipher bladder test, which helps to determine which patients with muscle invasive bladder cancer will benefit from chemotherapy prior to cystectomy.

We believe our test is the first molecular test of its kind and will require comprehensive physician education to drive commercial adoption over the course of the coming years.

While one of our key focuses in 2022 is executing upon our near term revenue growth opportunities, primarily in Decipher [ph] we are also building the foundation for long term growth. There are three key projects in which we are investing to that end.

Our Percepta Nasal Swab test, our IVD menu development and the end counter kit manufacturing transfer. Beginning with our Percepta Nasal Swab, we believe this test is going to be a game changer in lung cancer early detection.

It provides physicians with key information to determine the appropriate next step for patients with lung nodules that have been found through standard of care, CT screening or incidentally.

Today, we believe that there are approximately one million patients annually in the US with detected lung nodules for whom our nasal swab test could help determine whether at low risk for cancer and so can avoid unnecessary workup or at high risk and should be accelerated to more aggressive diagnosis and potential treatment.

Our novel Percepta Nasal Swab has been validated with findings from our multicenter clinical validation study presented last year at ASCO and with expanded data presented at the Chest Meeting in October.

We believe the nasal swabs ability to augment the current screening paradigm of highly sensitive, but not very specific low cost CT imaging will go a long way toward improving lung cancer screening.

Today among the estimated 15 million people in the US who are at high risk of lung cancer and thus eligible for annual CT screening only about one in 15 are actually getting screened.

Knowing that there is a non-invasive test that can give physicians and their patients greater confidence in the classification of lung nodules should help funnel more patients into screening, saving many more lives through earlier detection of lung cancer when it can be more effectively treated.

We expect our clinical validation study to be published this year. Looking forward, we have already started testing patients with Percepta Nasal Swab and returning results as part of our clinical utility efforts. We believe this growing body of evidence will enable KOL support, reimbursement, and guideline inclusion for the test.

We anticipate the Medicare reimbursement will likely take up to two years. As we consider future opportunities in lung cancer, beyond the Nasal Swab, we continue to advance the Noble Trial, which we initiated in late 2020 with the lung cancer initiative at J&J.

This multi-center perspective trial is expected to enrol over 9,000 individuals with lung nodules detected incidentally or through screening, and will include patients who are benign initial diagnosis, but subsequently develop lung cancer. Through Noble, we aim to further enhance the early detection of lung cancer, reducing many more deaths.

Moving to our second major investment this year, driving menu for the end counter platform. The development work is progressing very well and we expect to launch Envisia for interstitial lung disease next year, followed by Decipher prostate, and then Percepta Nasal Swab.

Our goal is to launch a test annually over the course of 2023 to 2025, thereby driving demand four and use of the encounter instrument. I'm extremely encouraged by the collaboration across our global teams in three sites to advance these programs and to accelerate time to market.

Our IBD commercial team that is already successfully driving Prosigna sales growth throughout Europe and beyond is poised to devote the international markets for these additional tests.

Finally, with respect to our third major investment, we are on track to transition the manufacturing of our IVD kits beginning with Prosigna to our facilities in Masai [ph], which will give us end to end control over our IVD testing business.

By the end of this year, we expect to be handling inventory management and global customer fulfillment and by the end of next year, we expect to be fully manufacturing the kits in Masai. In closing, 2021 was a monumental year for Veracyte and the outlook for 2022 is encouraging.

I've now been here nine months and could be more inspired by the impact we're having on patient's lives, where we're headed as a company and the world class group of employees that is going to get us there. With that. I will turn the call over to Rebecca Chambers to review our financial results for the quarter and expectations for 2022..

Thanks Marc. As Marc mentioned, we are pleased with our fourth quarter performance, despite headwinds from COVID 19. Our total revenue for the quarter was $67.3 million, an increase of 95% over the prior year, including $6.8 million of revenue from HalioDx.

We grew our volume to 22,300 tests reported during the quarter a 70% increase over the same period in 2020. Testing revenue equaled $53.4 million with an ASP of approximately $2,625 per test, down slightly sequentially, primarily due to build test and commercial payer mix.

Over 12,000 Afirma Percepta GSC tests were reported in the quarter and Decipher contributed approximately 7,700 tests. Product revenue was $2.8 million reflecting 2% growth year over year with Prosigna volume of approximately 2,000 tests down slightly sequentially given COVID related challenges.

Biopharmaceutical and other revenue equaled $11.2 million benefiting from a full quarter of HalioDx and a $4 million milestone payment tied to the availability of the Percepta Nasal Swab in our CLIA lab. Excluding the impact of intangible asset amortization, gross margin was 66%, an increase of 200 basis points, sequentially.

Testing gross margin was 69% slightly higher sequentially and product gross margin was 43% lower sequentially driven by startup costs for the manufacturing transfer of our IBD kits. Biopharmaceutical and other gross margin was 56% higher sequentially, primarily due to the nasal swab milestone payment.

Operating expenses excluding cost of revenue increased $1.4 million sequentially to $56.8 million R&D expenses grew $2.2 million to $10.3 million driven primarily by the full quarter impact of the HalioDx R&D organization.

Sales and marketing expenses grew $500,000 to approximately $22.2 million driven in part by continued investment in the urology commercial team and the full quarter impact of the HalioDx organization. G&A expenses were $18.8 million down $1.9 million primarily due to acquisition related costs recognized in the third quarter.

Total operating included $6.5 million of stock based compensation. We recorded a net loss of $10.5 million, net cash provided by operating activities was $8.4 million and we ended the quarter with $173.2 million of cash and cash equivalent. Turning now to our 2022 guidance.

We project total revenue of $260 million to $275 million or 18% to 25% growth compared to 2021. The low end of this range takes into account some uncertainty around the trajectory of the COVID 19 pandemic.

Additionally, our guidance reflects strong year over year growth in the urology business and Afirma growth that is reflective of its penetration for the pulmonology portfolio. The impact of the Omnichron variant in Q1 and the lingering effects of a prolonged period without access to providers is expected to mute growth.

In 2022, biopharma revenue is expected to grow driven by the full quarter full year impact of ha ODX partially offset by the nasal swab milestone in the prior year. For the first quarter, we expect a sequential decline in revenue, given the milestone payment, typical seasonality and the impact of the Omni crown variant.

We expect gross margin, excluding the impact of intangible amortization to be in the low to mid sixties for 2022, approximately flat to the fourth quarter, when adjusting for the impact of the nasal swab milestone payment, we are fortunate to have a strong business and portfolio of products would leverage to achieve profitability in any given year.

With that said, we are focused on investing to ensure the continued growth of our business. And therefore we expect cash flow from operations to result in a slight use of cash, notwithstanding potential M&A. We are confident in our position and believe we have the foundation necessary to take the business to profitability with cash on hand.

In closing, we are excited about the catalyst we will deliver in 2022 and beyond, and are focused on continued execution to deliver strong financial results. I will now turn the call back to Tracy..

Thanks Rebecca. We'll now go into the Q&A section of the call and Tina Nova, President of our CLIA US business will join us. Operator please open the lines..

[Operator instructions] Your first question comes from the line that Brian Weinstein from William Blair. Your line now open..

Hey guys, how you doing? Thanks for taking the question..

Hey, Brian..

Hey I guess we'll just start with Decipher, I know you just gave a little bit on the guidance there, but anything else that you can provide in terms of the growth expectations there, and I'm also curious about, some of the drivers there, you've been talking a lot about the Salesforce expansion and Salesforce effectiveness that's gone on there.

What I'd like to try and get a little better understanding of is the growth profile broken down a little bit between kind of Salesforce investment versus kind of going deeper in the account.

Can you give us any idea about how truly effective these Salesforce members are being versus kind of just adding brute force there?.

Yeah. Maybe I'll, start and then turn over to Tina to add more color here. But if you think about the leaders that we have for growth in decipher, you know, just reiterating some of the things you mentioned, but, but adding one is you know, firstly coverage decisions there's 150 million covered lives, so there's more room to go there.

And that is driven by the vast array of publications and, and getting included in guidelines. Tina can talk to some of that stuff. Another is, the blocking and tackling of working with physicians to sell, and that's adding you know, Salesforce, which we are doing.

And then, you know, obviously over time, there's also broader broader indications, which kind of goes a little bit hand in hand with coverage, but we're already covering something like over 90% of the prostate cancer patients potentially and that's been through a process of adding indication after indication.

And then there's a little bit more to go there, but Tina, do you want to add anything to that?.

Sure. So hi Brian, it's Tina.

I think that there's still only about 20% of the market is penetrated at this time and we believe that we have a majority of the share and I really think that number one, we have a fabulous sales team who does a great job of getting in there and selling and since we don't have to go to hospitals and we can go directly to urologists that are out in the community for the most part, we've been able to access our customer even through COVID.

So that's given us a great advantage. The other thing is, I think a lot of our growth is really driven by the number of clinical studies that we have done and are in the process of continuing to work on, which is quite a few and the data that keeps coming out of those, the presentations that are done by KOLs at very important meetings.

And the fact that we just recently had another addition expanding the recommendation in NCCN guidelines to use Decipher. I think all of that has really put us in a great position on top of the increase in the sales reps. So I still feel very good about the growth and prospects for decipher.

And then Brian, to address your question on how much is implied in guidance with regard to growth, and we're not going to be going into quantifying each of the puts and takes. I will share that Decipher is the largest contributor to the growth implied in guidance..

Okay. Thank you for that. And then on the IVD menu that you guys are developing in the pace of one test per year, and you mentioned Envisia, I think in '23, decipher prostate in '24 and Percepta Nasal Swab in 25.

Why is that the right cadence? Can you just kind of talk about what it takes to kind of get those products ready for encounter and could you potentially do something faster than that for your cadence? What would that take?.

Yeah, it's a great question. You can imagine we spend an ordinary amount of time across our team since we acquired HalioDx in August asking that question and consequently, the timeline has come down very, very significantly as a result of that.

Bear in mind these are not serial, right? They're happening in parallel and some of the tests are more advanced for than others.

So Envisia, for example, we already did the code set generation and then the validation of the code set conformance with our existing tests and that same process has to be gone through for any other test that we're going to bring up on the platform and then once you do that, you've obvious got to go through, as I said, the validation, the studies, the design of the assay itself to be able to do that.

And then don't forget the IVDR part of it, the regulatory part of it as well, which also takes time and some of that's within our control and some who's outside of our control.

So we squeeze this timeline as much as is I think humanly possible to squeeze the timeline with some incredibly experienced people across both our Mae or all of our Mae San Diego and San Francisco teams. So we've had the best scientists on this and, and we've gone as far as we can terms of squeezing it.

The goal is to come out with very, you know, strong tests, well validated good data, supporting them work, the, the reimbursement and market access, you know, challenges in parallel for these other O us markets, which we're already doing for Prosigna of course and then, really drive that cadence of one test per a year and potentially go beyond that.

So that that's the focus, Brian it's I think that is absolutely for, if you think about IVD development under an IVDR framework. And if you talk to other companies who are doing this, that is a very accelerated timeframe..

Great. Thank you for the color on that. Thanks guys..

Thank you. Your next question comes from the line of Tejas Savant from Morgan Stanley. Your line is still open..

Hi, this is Yuko [ph] on the call for Tejas. Thank you for taking our questions. You mentioned in the opening comments about Omicron impact in this quarter and some encouraging trends as you head into February.

Could you elaborate on what you saw during the quarter, particularly on Afirma volumes, and then when does your guide start to bake in that return to normalcy?.

Yeah, well, I'll start and then Rebecca jump in here, but, Omicron came upon us all rapidly and surprisingly, and I think it started to drop off at a similar gradient in some ways.

So we dealt with it a lot during the back end of the fourth quarter and the early part of this quarter and I think, the effect on our businesses is consistent with the way we've always talked about it. And in the script I talked about pulmonology being most and of course, decipher least. So Rebecca, if you want to add anything..

Yeah, no, I would say, I would say I would echo mark and effectively say that on, on the affirm of volumes, you know, I think in general across the, the broader portfolio as mark site in January was light.

And, and we did see a, a bit of a return to, you know, the new norm, if you will, in, in February, what our guide contemplates is that is at the low end that we will have, some meaningful business impact from COVID.

Over the course of 2022, we aren't necessarily expecting that per se, but we are, we did feel it prudent to try and bracket that for the, the broader community, if that was to occur, obviously if we had meaningful shutdowns that wouldn't necessarily be impacted in the low end, but if we had, kind of a Q3 Q4 type impact, that would be if you look to the mid to high end, what you can effectively take in there is that the February trends that we have seen continue, I think that would be a fair expectation.

And that is, we haven't necessarily said the world is going to be perfect at the high end and really challenging at the low end. And February's in the middle, that's not the case here. I would take the low end as a challenging environment. And then, mid to high being more in the lines of what we've seen of late..

Maybe I'll just add two quick things, one on Afirma, I think as we said before, Afirma hits us in those hotspot areas, and Veracyte physician, sorry cell rep access and patient access issues in those hotspot areas. But, generally across the board, the procedures are less impacted as a result of that than they are, for example, in lung.

In terms of a new normal, I don't know when we'll be in a new normal, as far as the pandemic is concerned. There'll be these variant spikes like there were with Omicron. Let's hope we don't see another one of those in the future, but we've talked before about second and third order effects.

So for example, the effect the pandemic is now having on staffing within our customers is pretty clear. And I think, none of us knows when those are going to abate. So, that's one of the cautions I would always have is there are these other effects that so far we've been able to manage through, but they could impact our business.

And I think to Rebecca's point, that's really contemplated those negative effects are contemplated in the low end to some degree..

Great. That was super helpful. And then just a quick model question.

Could you help us think about quarterly cadence of OpEx through the year?.

Yeah.

Why don't we handle that on the post calls?.

Okay. Thank you..

Thank you. Your next question comes from the line of Matt Sykes from Goldman Sachs. Your line is now open..

Hey, everybody. Thanks for taking my question. Just appreciate it.

Hey maybe just mark high level question for you kind of capital allocation, but also kind of presence state of the business as you've kind of been in the seat for a little while now, just given them the number of acquisitions you made last year and some of the Salesforce you acquired, but also invested in how are you thinking about from a capital allocation point? My assumption would be a lot of it would shift kind of internal versus sort of external or sort, sorry, organic versus inorganic, but just would love to get kind of the state of the way you see the sales force.

Any pockets of opportunity that you see that you might want to want to bring in and just how you see the year playing out in terms of how you're going to allocate capital..

Well, I think of it in terms of really two phases. One is, our catalyst for the coming years.

So the things we've talked about, like DEC driving, decipher growth through adding sales team, to that, some of the projects that we are doing around you know, a firmer as well to, to continue to enhance that product continuing to support and fund studies that help drive our pulmonology portfolio.

In addition to the other assets in our portfolio, remember we are in eight of the 10 and top cancers now. So we're really taking a portfolio approach to our investments. The second oh, by the way, I probably should add one, which is building the infrastructure. We we're a, a much different company than we were before we acquired decipher and HalioDx.

We we're a company of 750 or more employees now with complexities that we didn't have before and location in multiple countries. And, for that reason, we need to invest in the infrastructure as well, to support the scaling and being ready for when these other major products, which I'm going to talk about in a moment hit.

So that's an investment over the next couple of years. And then that second phase was the longer term investment. So the three that I talked about investing in the Nasal Swab investing in the accounter portfolio and then bringing our manufacturing to Masai..

And just one thing to add, we don't have at this point in time, any M&A activities to site, obviously with the asset dislocations that you have seen of late there are opportunities out there.

But, we have a great portfolio that we will invest in, as Marc said and we will be we be available for any M&A conversations that we feel prudent, but aren't necessarily going to be out there proactively..

Yeah. Never say never, but, we got a lot to do right now with handling it. Well,.

Got it. Thank you for that.

Helpful color then maybe I know it's a smaller portion of your business, but when you look at the biopharm revenue, I know you've included Haley DX in there, and there was a milestone payment in Q4, but if I were to kind of look at the underlying trends in your ability to leverage that bio repository, that 350,000 patient samples how do you feel in terms of your progress? You mentioned a couple partners that got, but just would love to hear, what you think that business could be understanding.

You're not gonna guide on a segment basis, but just would love to hear the momentum in that biopharma specific business. And, and perhaps some of the leverage you can apply to that large biorepository you have..

Yeah, I think over time, I've, I've always said the biopharma business could be a significant growth drive of, for us. I mean, that data, you know, asset set that we have, we're already able to leverage a large part of that in these deals that we're doing, but there's clearly opportunity to do more.

We only put this global together in August and is very focused on driving that business across, you know, all of Bey globally and leverage all of the assets that, that we have got.

So, whether it's in translational research and, and kind of looking at the drug effects on the tumor micro environment, which, which is one of the things that we got from the Halio business, whether it be kind of clinical development and clinical trial selection and optimization, looking at biomarker work, the kind of things that we've done with kite, for example, and then commercial and market access, companion diagnostics, I think is, is, you know, an opportunity across all of our businesses all three that we put together.

And so there there's what multiple different ways that we could leverage our skills and capabilities. In addition to the data set Karen's very focused on, on, you know, kind of building the the data assets, the Atlas that we need to, to really help, to give bio farmer what they're looking for to help grow that business.

So I think we'll probably talk about this a little bit more in, in the future because I do see it as, as I mentioned, a good, a good growth driver for us, but very happy with the progress so far, putting the businesses together..

Great. Thank you very much..

Thank you. And your next question comes from the line of Nom [ph] from BTIG. Your line is now open..

Hi, thanks for taking my questions.

Marc and Rebecca, could you talk about any early feedback you're getting on the Nasal Swab as you're delivering some of these tests to the early access sites?.

Yeah, it's early days of this stage, but we, you know, we have obviously initiated sites and we're return results to patients. And, and I'd say the first thing is we're getting a lot of interest in, in becoming one of the sites here. It's you know, it's not, it's not gonna be available to everybody.

Sites have to qualify for that and be the right kind of sites. But the interest level is high. And then the desire to get through the necessary stages of contracting and initiation and training are very much there. So we've been seeing a lot of response. And so far the feedback we're getting from those that have used it is very good.

So I think that's helping to really drive momentum and, you know, we'll continue to build those, those sites up. We're looking at, you know, up to 50 sites. We can go further if we want to, we can, we can do less if we need to, we, we're trying to get to a certain number of patients here and we're making good progress on that..

Great. and then for the IBD strategy you, you know, as you talk about launching a product a year you know, after and decipher cetera I think in the past, you guys had some products under development with partners or, or partners developing products for youth on encounter.

And I was wondering if there's still, part of the strategy and if that one per test, one per year launch includes potential tests from partners as well..

Yeah. I'm actually glad you asked that, cuz that's a good clarification. It does. It does that one per year over that '23 or '25 timeframe does not include those. We we're talking specifically about our own tests there. But those you are absolutely right.

Those other tests you know, there've been a couple in development there and we haven't talked about the timeframes. That's really up to them to talk about those timeframes, not, not us, but we're, we're continuing to work and support them.

And you know, looking forward to more of those that, that is certainly part of the business model that we're very interested in..

Got you.

And then lastly for me maybe one for Rebecca, thank you so much for the growth margin guidance for this year, as we think about next year, as you guys transition the manufacturing, the encounter manufacturing to France and you know, of launch some of the new IVD products, how should we think about gross margin, gross margin you know, even if, if you can comment on it kind of directionally being impacted with those activities..

Yeah, it's a great question. So think thank you for it. But I'm going to brought it a little bit and, and start both on the, the test coverable testing and product gross margin.

If that suits you on the testing side, we do think as we bring the three companies together, that there are efficiencies that we can gain through the CLIA lab operations in particular and, and while we're not necessarily ready to quantify those today you know, I think in the future or years, we'll, we'll be happy to chat about that.

Is something that the team's focused on and, and we're working through on the product side. I see the benefit to gross margin really coming in that first full year when we have both the logistics, as well as the manufacturing. So think about that as less of a '23 impact and more of a, any four impact.

And then as we have volume absorptions over the course of '24, '25, '26, you'll see even more of a benefit for it. So again, not willing to quantify it today, but that will definitely drive some significant efficiencies through that line,.

Maybe one punctuation on the CLIA lab operations and the efficiencies to be real clear. That's efficiency as we scale versus synergy of putting the businesses together..

Great. Super helpful. Thank you so much..

Thank you. And your next question comes from the line of Puneet Souda from SVB Leerink. Your line is now open..

Yeah. Hi Marc, Rebecca, thanks for taking the questions.

So the first one is really and I don't know if this was covered already, but in terms of the organic, guide that you have for the full year, can you just remind us how much of that is, sort of organic versus the new additions, including the DX and others that you're baking in for the full year guide?.

Yeah. Puneet, we haven't, we haven't separated the pieces beyond the commentary and the script at this point in time. I think you can back into it based on the commentary on Afirma and lung, as well as decipher and, and ha obviously we have a full year benefit of that. I will say their business tends to be tends to be backend weighted.

So I wouldn't necessarily just run right. That when doing your calculation..

Yeah. And I think just one thing for us and how we look at the business going forward, obviously the capital deployment for those acquisitions was a key part of our strategy in putting the pieces together.

And so now I can totally understand why you're asking the question, but we really think of that as that's now part of our organic business and our resource allocation decisions have been made for '22 and beyond across the entire portfolio at this point.

So, it's been, become inextricably blended if you like and that's probably how that's, how we're going to talk about it going forward..

Okay. Got it. And in terms of I believe at one point, and I don't know if this was you covered it already, but in terms of J&J there was an expectation for a payment and biopharma and the fourth quarter can just remind me that came through this year..

Yes. Puneet, it did come through in the fourth quarter of this year. It was $4 million in the biopharma line..

Okay. And then the last one for me in terms of commercial Salesforce, can you just maybe remind us you know, further investments and expectations to Salesforce and sort of what are you expecting in terms of overall expansion or do you have enough adequate Salesforce coverage on all the products now,.

Maybe break that into key parts. As you know, we reorganized in January to really focus our commercial efforts on our us clear business and then our I B D business, because they're very different businesses with very different commercial need.

I'll allow Tina to talk to, you know, her thoughts around, scaling and, and growing the commercial activities for the clear business. And then I I'll talk about the IBD..

So I actually think that we're in a really good position starting off the year with our, with our sales reps in all of our indications and what I truly believe in its finding the best people, not just a lot of people and making sure that they have the depth and the knowledge to go in and really, sell.

And I think that's really the key to success and we've, we're at 39 with decipher. And I think that team is, is really well versed in urology and they get to go in and actually speak to the doctors because they don't go to hospitals. They go to where the urologists are.

And so we haven't been as affected by COVID as you know, some of the other divisions like the pulmonology division, where you can't get into hospitals. And so it's a little unfair to compare them because, you know, some of them were more affected by that than, than others, but I feel really good with where we are with our teams right now.

And I don't think they, we need to make huge additions to any of the teams. At this point, as far as rest of year goes,.

Thanks, Tina couldn't agree more. And then outside the US, obviously you got to go country by country. And right now our focus is very much on where the Prosigna opportunities are.

And our team has been very successful in driving those that starts with, of building, the structure of a country manager and then the reimbursement of market access capabilities. And then, that's all now part of Stephan's organization and still being driven by across Morgan [ph] of EMEA.

And then, as we launch new menu, then of course, you know, we're going to make sure we're prepared for where, where the opportunities are to meet the customers where the needs are. And so as, as we come out with Envisia and decipher and by the way, there's a lot of pent up demand for decipher.

We'll make sure that we are appropriately staffed in each of the countries to be able to lodge those products as quickly as, as the excitement level grows..

Got it. Okay. Helpful guys. I hope back into the queue. Thanks..

Thank you. Your next question comes from the line of Mike Matson from Needham & Company. Your line is so open..

Yeah, thanks. So I wanted to ask about the Nasal Swab test.

I think Marc, you said something along the lines of that it might actually drive more screening, which I thought was interesting because, you know, I kind of thought, well, more screening will lead to more Nasal Swab, opportunity, but maybe you could just talk about that and is there some way you can kind of, market the product with that, to your customers on that basis?.

Yeah. It's a great question. Thanks for picking up on that. I think, let's break it down. Today under the US SPTF guidelines, there are 15 million people who are high risk for lung cancer smokers, former smokers, current smokers, etcetera, who should be getting screened on an annual basis.

We currently believe one in 15 so call a million people are currently getting the screening that they should. And I think there's a lot of reasons why it's not being driven, access to screening people's reticence, whatever, when you do get screened and the lung nodule is found, so many of those nodules are actually benign.

And so you go through this whole journey of could it be lung cancer and in the majority of cases, of course, it turns out that it isn't. Low dose CT for screening is very sensitive, but not very specific. It's also very low cost.

So it's accessible in that regard to a large degree, but, having a test like Nasal Swab, which is clearly, I mean, first of it's kind very noninvasive. I mean, we've all got used to having a swab stuck up on noses over the last few years and it truly non-invasive.

Having a test like that, that can actually help kind of figure out if a, if a nasal of a lung nodule and a patient is at low risk for cancer and can avoid unnecessary procedures or is at high risk and should get accelerated diagnosis or treatment that ability to, to do that without having to do a bronchoscopy necessarily in and of itself might encourage more screening.

So just one of those effects that, that an opinion I think could happen and, and would, would potentially position the nasal swab in the future to, to help achieve that.

Anytime that, that in of itself would result as you quite rightly say, in more lung nodules being found, and every time a lung nodule is found, we believe if it's imaging alone can can't assess it, which in many cases, it can't, we believe a nasal swab should be used..

Okay. Got it. Thanks. and then just, just on the, the other pulmonary tests upon cancer tests I hear the comments on the lack of access to the physicians or clinicians, but I've heard other companies talking about things like virtual training or maybe capturing them at medical conferences or things like that.

I mean, are there places, are there ways to get in front of these physicians and educate the him about the tests outside of the kind of hospital setting and are you pursuing any those?.

Hi Mike it's Tina. I mean, absolutely. We do that ourselves. The COVID has put us all in a different training realm than we used to be in. And so we actually do a lot of virtual. I mean, recently there was a very large Terminology meeting and I think there were, it was an audience that would fit about 500 people.

And there were about five in the audience, but there were thousands of people that had called in for the meeting. So we're still seeing that. And virtual plays a very big role in training and a big role in dispersion of data and what people are seeing.

And there's also a lot of communities online where docs talk together, we just pulmonologists talk or just end those talk together and communicate that way. But you, you're absolutely right. It plays a very important role today.

And that can do a great job of continuing that cadence of awareness and education.

But, but what it won't do is replace the bronchoscopies that aren't getting done and the procedures that aren't getting done, and that that'll continue to be a challenge as long as we're in either the situation of variance shutting down locations or staffing shortages resulting in these procedures, not being able to get done..

Thank you. Your next question comes from the line of Mason Carrico from Stephens Inc. Your line is still open..

Hey guys, thanks for taking the questions. Just one or two quick one from me. Appreciate the detail on the rollout of the additional encounter tests.

I think you may have previously mentioned this, but could you provide any color on how many encounter platforms are currently installed in Europe? And are there any specific geographies that you guys plan on targeting initially?.

Well, yeah, again, we're back to, we're very much focused on. Right now there is Prosigna that's on the market, of course, as we've said before, we need menu in order to drive more installations and placements. So these additional tests will help drive more, more of the same.

And yeah, it's important that the sites, the lab sort of purchasing the encounters are able to utilize those in multiple different tests and am size that cost across. I don't know if we've talked publicly about the number of sites. We can always follow that up. A number of install base.

We can follow that up, but it clearly over the next couple of years, we are getting ready to launch first invasive Percepta [indiscernible]Nasal Swab. We, we will -- that will enable us. The impending launch will enable us to place more instruments as well..

Thank you. Your next question comes from the line of Thomas Flaten from Lake Street Capital Markets. Your line is now open..

Hi guys. This is Travis filling in for Thomas. Congrats on the quarter you said that you were covering 8 out of the 10 top cancer indications.

Should it be our expectation that she'll try to get the other two or are you good with the eight?.

No, I not necessarily. I mean, I wouldn't, again, never say never, and we might go beyond the 10 top, but the eight is a very significant part of the from a patient standpoint, the, the main causes of, of mortality in the U.S. And so we are very focused on those, not only, I mean, we actually have within our portfolio, we have a portfolio of approach.

I mean, if you think about it we have a lung portfolio of multiple tests.

We have a urology portfolio of multiple tests, and so we'll continue to broaden within those indications and continue to make those tests accessible to more patients with, with more different types of disease within the indication and continue to broaden geographically and across the care continuum.

So you'll see us continue this portfolio approach, but again, we never say never. I mean, we'll continue to add indications.

That's one of the things as we grow our business, we, we look to do, but right now we are very much focused on executing on the opportunities that are ahead of us with what we've got, which is, which is very substantial, thanks to all the great strategic work that's been put in place over the last six years to build that..

Very helpful.

And then my final question is, can you just tell us on any like publications that are coming out or any kind of presentations that you guys are getting ready for?.

I mean, there's, there's, there's a lot I think just kind of keep an eye on, on those big markets, that those, those educations that we're in, but there's a lot coming up..

We've got ASCO meetings, we have test meetings, we have chest meetings, we have lung meetings. That's a problem with having all eight cancers. There's a meeting every time you, you turn around. So yes, of course we, we plan to have publications continue to roll out that should never stop results from clinical trials and we will participate in meetings.

It's very important..

Thank you. And your last question comes from the line of Andrew Cooper from Raymond James. Your line is now open..

Hi everybody. Thanks for the, the question. I lost being covered. So maybe just to drill in a little bit more on a prior question in terms of the nasal swab and, and LoDo, CT compliance.

When you think about the potential of, of driving that higher, it seems like it might be a nice place to partner with, with some other players and maybe go through some different channels a little bit further removed from sort of your core.

How do you think about whether there's a partner opportunity that can kind of be that rising tide for LoDo CT and the nasal swab, or kind of what's the openness to working with with other players out in the field?.

Yeah, I mean, when you're, you're developing a new market, you're always looking at different ways to, to address that market. And I think partnerships are one. I mean, there's a lot of people that not just, I mean, actually way more, there are people outside of us, a lot of them who are trying to drive more screening, it's better for the nation.

It's better for all the patients who are being missed, who, who aren't getting diagnosed early with lung cancer. And so we are just part of that, but there's a lot of other people who are focused on that as well. And so that may present opportunities in the future and something that, that we might consider.

And we have a, we have an organization, a business development, corporate development organization that, that spends their time literally looking at that kind of stuff, as you can imagine, not to mention the focus from the business units..

And there are no further question at this time. I'll now like to hand the call back over to mark safely to make any call to remark..

Great. Thank you, Lee. Appreciate it. Before closing, I'd like to reiterate how pleased we are with our Q4 full year 2021 results.

In 2022, we expect a firmer and decipher to be the primary drivers of our business with new clinical data, continuing to drive reimbursement and guideline inclusion across our broad suite of products resulting in greater adoption.

We're also investing this year in our key long term growth drivers, which again are our Percept Nasal Swab expanding our IBD test menu and transferring manufacturing of our IBD kits to Masai. I truly believe we have the strategy in people. We need to advance our ambitious plans to become a global diagnostics leader.

I also know that we cannot underestimate the power of coal in driving our success to that end. One of my top priorities for 2022 is to ensure that we have a strong culture that draws from the best of our legacy organizations and enables us to move forward as one vari site to achieve our ambitious goals.

I look forward to updating you on our progress in our Q1 earning score. Thank you,.

Ladies and gentlemen, this includes our call today. Thank you for joining us. You may disconnect..