Good afternoon, everyone, and welcome to Veracyte's financial results conference call for the third quarter of 2020. All participants are currently in listen-only mode. Following the presentations, there will be a question-and-answer session. I will now hand it over to Tracy Morris, Veracyte's Vice President of Corporate Communications and Investor Relations. Please proceed.

Thank you, Terry. Good afternoon, everyone, and thanks for joining us today for a discussion of our third quarter 2020 financial results. With me today are Bonnie Anderson, Veracyte's Chairman and Chief Executive Officer; Keith Kennedy, our Chief Operating Officer and Chief Financial Officer; Giulia Kennedy, Chief Scientific Officer and Chief Medical Officer; and John Hanna, our Chief Commercial Officer. 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 include those regarding our future plans, prospects and strategy, financial goals and guidance, product attributes and pipeline, drivers of growth, expectations regarding reimbursement and other statements that are not historical facts. It also includes statements regarding the potential impacts to our business resulting from the COVID-19 pandemic, the potential timing for a recovery of our business and anticipated timing of the launches of new products, availability of our tests internationally and our total addressable market. Management's assumptions, expectations, and opinions reflected in these forward-looking statements are subject to risks and uncertainties that may cause actual results and/or performance to differ materially from any future results, performance, or achievements discussed in or implied by such forward-looking statements, and the company can give no assurance they will prove to be correct and will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. Please refer to the company's November 2, 2020 press release and the risk factors included in the company's filings with the Securities and Exchange Commission for a discussion of important factors that may cause actual events or results to differ materially from those contained in our forward-looking statements. Prior to this call, we announced our second quarter 2020 financial results, which are available on our website at veracyte.com under Press Releases in the Investor Relations section. We also published a business and financial presentation, which we will reference during our remarks. This presentation is also available on our website under Events and Presentations in the Investor Relations section. I will now turn the call over to Bonnie Anderson, Veracyte's Chairman and CEO.

Thank you, Tracy, and thank you everyone for being here today. We achieved impressive results for the third quarter of 2020 across various metrics of success. Our revenue and volumes saw significant increases compared to the previous quarter, returning to pre-pandemic levels ahead of our expected timeline. Our total revenue reached $31.1 million, marking a 50% increase from the second quarter of 2020 and slightly exceeding our results from the same time last year. We have detailed our key takeaways for the quarter in our presentation, and with that context, let's review the highlights starting with commercial growth. Revenue from genomic testing and products amounted to $30.3 million, which is a 79% increase from the second quarter of 2020 and a 13% increase compared to the third quarter of 2019. Our Afirma business was a key driver in this recovery, with volumes up 6% from the third quarter of last year. Our pulmonology franchise is also on the mend, though at a slower expected pace. We performed well with our Prosigna breast cancer test; notably, the revenue from Prosigna in the first nine months of 2020, primarily from our European operations, has already met our full-year revenue objective set before the pandemic. We are expanding our EMEA team to foster Prosigna growth and preparing for the international launch of our Envisia test on the nCounter instrument in late 2021. Additionally, our partnerships with biopharma and diagnostics companies are progressing, particularly with J&J, Acerta Pharma, and our Loxo/Eli Lilly program in thyroid cancer. MAVIDx is also moving forward with high-volume COVID testing using the nCounter, targeting an EUA submission to the FDA by year-end. We achieved significant progress in reimbursement expansion this quarter, which is crucial for our business. In October, the German government granted bid coverage for our Prosigna breast cancer test through the Federal Joint Committee, allowing access to our genomic tests for women in this large European market, which can be conducted locally via the nCounter platform. Additionally, we reached important reimbursement milestones for our genomic tests in our CLIA lab. In September, the CMS conferred ADLT status on our Envisia classifier under PAMA, recognizing the unique nature of this test that enhances the diagnosis of idiopathic pulmonary fibrosis and other interstitial lung diseases. This designation triggered a market-based pricing strategy for Medicare, based on the median price paid by private payers, with CMS setting the test price at $5,500, which we believe will remain stable when the market-based rate is initiated on July 1, 2021. We also received favorable preliminary national Medicare pricing for new CPT codes for our Afirma medullary thyroid carcinoma classifier and Xpression Atlas, and we anticipate these will facilitate both Medicare and private payer reimbursement expansion. Furthermore, we are pleased to report a positive medical coverage policy for the Afirma Xpression Atlas from a major Blues plan in New York State. Evidence development is a third metric of success, and we made noteworthy strides in this area during the third quarter. In Europe, we initiated a significant study called PROCURE that unites thought leaders and clinicians to reach consensus on the evidence and clinical utility of commonly used genomic breast cancer tests, including Prosigna. This study is overseen by a respected scientific committee of 12 breast cancer experts and will involve 180 clinicians across Europe, employing the Delphi methodology to foster consensus on complex issues. The PROCURE study is planned to last about 12 months, after which the committee will publish its findings in a peer-reviewed journal. Recently, data were published in the Journal of Clinical Oncology showing that the underlying biology of our test may explain its better prediction of long-term recurrence risks among eligible women compared to other breast cancer tests. We also bolstered our library of clinical evidence for tests in thyroid cancer, lung cancer, and interstitial lung diseases, which is expected to enhance physician adoption and payer coverage. This quarter, our tests were presented in two publications and five abstracts at significant conferences, showcasing a strong presence. Two studies demonstrating the real-world clinical utility of our Afirma and Percepta classifiers appeared in Cytopathology and Chest. Moreover, external researchers presented real-world data through three e-posters at the American Thoracic Society's Virtual Annual Meeting, reinforcing previous findings about our Percepta and Envisia classifiers' effectiveness in diagnosing lung cancer and ILDs. At the recent CHEST meeting, two abstracts on our pulmonary R&D initiatives were shared, including an oral presentation focused on the foundational field of injury science underpinning our upcoming nasal swab test for early lung cancer diagnosis. We continue to progress our pipeline development and remain on track to launch four new genomic tests next year, including our nasal swab classifier, the Percepta Atlas in lung cancer, the Envisia classifier on the nCounter system for international markets, and the LymphMark lymphoma subtyping test pending FDA de novo classification approval. We are particularly enthusiastic about expanding our lung cancer portfolio, which we believe will revolutionize early diagnosis and treatment, equipping physicians and patients with essential tools to combat this leading cause of cancer-related deaths. Our non-invasive nasal swab test will provide clearer insights earlier in the diagnostic process for those with lung nodules, potentially allowing for quicker interventions if lung cancer is present or minimizing unnecessary invasive procedures if nodules are benign. The Percepta Atlas will deliver comprehensive gene alteration data in lung cancer to guide patients to suitable targeted therapies, whether they are already available or under development, at the point of diagnosis. Importantly, this test will also serve as a platform for creating the first biorepository of lung cancer biology, including early-stage cases. We will host a virtual investor R&D day on December 16 to discuss our lung cancer portfolio. This event will provide updates on our nasal swab test and the Percepta Atlas during their ongoing development. Investors will hear from leading physicians on the positive impact of our lung cancer portfolio on patient care and receive an in-depth look at our scientific approach and findings. We will share updates on our lung cancer projects, which we estimate have a substantial global market. Stay tuned for more details about this upcoming event. I will now pass the call to Keith for a detailed review of our third quarter 2020 financials.

Thank you, Bonnie. I'll also refer to our business and financial presentation, which you mentioned earlier and which is available on our website. Turning to slide 6, the table and footnotes shown here along with the details in our SEC filings further explain how we recognize and report revenue under US GAAP. For discussion purposes, we may combine testing and product revenue to describe our diagnostic testing business and biopharma and collaboration revenue to describe our strategic arrangements. As a reminder, net sales of data or other services to our customers are classified under biopharmaceutical revenue and all other non-customer revenue are classified under collaboration revenue in our consolidated statements of operations and comprehensive loss. Turning to slide 7. Our performance against six key performance indicators or KPIs for the third quarter of 2020 compared to the prior-year third quarter was as follows. Total revenue of $31.1 million was in line with the prior-year quarter. Testing and product revenue of $30.3 million increased $3.6 million or 13%. Biopharma revenue of $0.8 million decreased $3.4 million, principally due to the recognition in the prior-year quarter of $4 million in revenue from Johnson & Johnson. Gross margin of 67% declined 400 basis points, principally due to the decline in biopharma revenue. Gross margin, excluding biopharma revenue, was 66% in both the current and prior-year quarter. Operating expenses, excluding cost of revenue, of $24.8 million increased $1.2 million. Net loss of $4.1 million increased $3.4 million due principally from lower biopharma revenue, a reduction in interest income on invested cash and higher amortization of our intangible assets. Net cash provided by operating activities was $1.8 million compared to $1.6 million used by operating activities in the prior-year third quarter. The $3.3 million increase in cash flow from operations relative to the prior-year quarter is due to a $4.9 million reduction in net working capital, a $1 million increase in depreciation and amortization, a $0.4 million increase in stock-based compensation and a $0.4 million increase in other operating cash flow items, offset by a $3.4 million increase in our net loss. Genomic volume of 10,242 increased 3% and included 9,437 Afirma, 502 Percepta and 303 Envisia reported tests. From the second to third quarter of 2020, sequential reported test volume increased 97% for Afirma, 52% for Envisia and 30% for Percepta. As Bonnie has mentioned, we expect the pace of recovery to remain more gradual for Percepta, principally from fewer underlying procedures performed during the pandemic. Slide 8 provides a further breakdown of revenue into testing and product revenue, biopharma and collaboration revenue and total revenue. As previously mentioned, testing and product revenue increased 13% or $3.6 million for the third quarter of last year, offset by a $3.4 million decline in biopharma revenue. Total revenue was slightly above the prior-year quarter. Testing revenue of $28.2 million includes $2 million in cytopathology services. Slide 9 and 10 illustrate our pacing and performance year-to-date against these same KPI metrics, as well as break down our revenue into testing and product, biopharma and collaboration and total revenue. Year-to-date, revenue is down 8% and genomic volume is down 9%, principally due to the impact of COVID in the second quarter. For the three months and nine months ended September 30, 2020, we accrued on average between $2,800 and $2,900 for both the Afirma classifier and Xpression Atlas, which met our revenue recognition standard. This was between 90% and 95% of the reported Afirma classifier test volume. The next eight slides outline the sequential and year-over-year results underlying each of the KPIs. Consistent with prior quarters, we present genomic volume trends on slide 12. Genomic volume includes commercial volume for our Afirma, Percepta, and Envisia genomic classifiers. Genomic volume represents tests we perform in our CLIA laboratory. In December 2019, we acquired Prosigna breast cancer prognostic gene signature assay, which is the only commercial test we sell on the nCounter platform as of September 30, 2020. We intend to expand our offering of diagnostic tests sold or distributed to third-party laboratories to run on the nCounter platform, which we also intend to include in product revenue. To give investors insight into our total test volume trends, we added tests sold to third-party laboratories that met our revenue recognition standard to our genomic volume and showed those trends on slide 13. On the right-hand graphic of slide 13, we identified the quarterly volume of commercial Prosigna tests sold since we acquired the test in December 2019. For those of you that are not viewing the presentation, those volumes are 680 in Q4 2019, 2,482 in Q1 2020, 1,249 in Q2 2020, and 1,448 in Q3 2020. From the second to third quarter of 2020, the sequential reported test volume increased 16% for Prosigna. We expect the pace of recovery to remain more gradual for Prosigna, principally from fewer underlying procedures performed during the pandemic. We continue to see a rise in reported COVID cases and expect governments to continue to evaluate restrictive measures to attempt to contain the spread of the virus. We are uncertain that inter-quarter or seasonal trends we typically see in the business will hold in light of COVID. And we have been encouraged by the recovery to date. As a result of continued rise in cases and the impending flu season, we remain cautious about predicting the slope of the recovery. In light of uncertainty in the market, we are not currently returning to giving guidance. We continue to expect minimum corporate travel and expense associated with large group meetings, and we plan to continue to leverage digital and virtual selling. We believe it's prudent to plan for the impact of the pandemic through 2021 and we hope to continue to update you each quarter as we manage through this very challenging time. As shown on slide 18, we have $340 million in cash, and we believe we have significant resources available to manage through the pandemic.

Thanks, Keith. In closing, I'll refer you back to our key takeaways on slide four of our business and financial presentation. We are very pleased with our third quarter results as our business is rebounding from the pandemic ahead of schedule. We have significant momentum across all of our products. Both our original tests performed in our CLIA lab, and our Prosigna breast cancer assay. This includes strong revenue and volume growth along with reimbursement milestones and evidence development to further fuel progress. We are on track to launch four novel genomic tests in 2021, including our nasal swab test in Percepta Atlas as part of our expanding lung cancer portfolio. And we continue to exercise strong financial discipline, with margins in line with expectations and positive cash flow from operations in the third quarter of 2020. Importantly, with our successful equity raise in August, we now have $345 million in the bank, and no debt, giving us extensive strategic flexibility as we establish ourselves as a global genomic diagnostic leader and position the company for long-term profitable growth. With that, I will now ask the operator to open up the call for questions please.

Your first question comes from the line of Puneet Souda from SVB Leerink.

First of all, congrats on the strong quarter here in terms of volumes. Afirma volumes obviously came in strong. But pulmonology volumes were a little bit weak. And as you pointed out, it could be due to the procedures. So, I just wanted to understand. I know you mentioned bronchoscopists were distracted with COVID. I assume that's what's continuing to be the case here in the third quarter and I'm wondering if you could confirm that. What are the expectations for improvement in light of this continuing as we continue to deal with COVID? And then, on Prosigna, good to see that you're reaching the volumes for the full year already and in terms of the revenue. But wondering how should we view that in light of the recent EU shutdown?

On the back of COVID, that's why we keep taking costs with everyone. The historical actuals are what they are, but it's still difficult to predict the future. But, look, back when this all hit, we projected our Afirma business would be the first to rebound. And we were correct on that. Afirma has a large percentage of the market that is physician offices and it's very easy for physician offices to open to patient care and control the flow of patients very easily. We continue to see hospital environments taper constraints and the flow of patients has not reached what it should be both by our data and other folks' data. I think Envisia is doing well. But keep in mind the prior year numbers were really low on Envisia because it was just getting off the ground. So all in all, I think we're very pleased with all of those products. And then, when you add to that the tremendous progress in hitting Prosigna's original annual number through the first nine months, I'd say we're really pleased on all of those fronts. I think that the lung cancer workups will slowly – assuming COVID doesn't create more shutdowns, which hit in May, we will begin to continue to see those procedures unfold, like we are. Certainly, there's been growth there over the prior quarter, but just not to the magnitude of the others. And I would say our European market is obviously the strongest for Prosigna. It is both the fact that we have continued to gain great reimbursement coverage. Had a really big win this quarter in Germany which is a huge market. We're super excited about that. And keep in mind, when we brought the team over for Prosigna, we kept all of the people associated with the EMEA business in place. We've since actually added a few positions, and we continue to plan on adding a few more positions here and there as we go into 2021 in anticipation of launching our second menu item, Envisia, on the nCounter in addition to Prosigna. So, all in all, we're super pleased with where things are and we think we're in a great position to continue the momentum.

On the nasal swab, I know you're providing a complete update here on the lung cancer portfolio in December. But just in terms of going into that event, if you can lay out for us how should we be looking at this data? Traditionally, Veracyte has taken an approach, historically, where you steadily build data and clinical evidence behind an assay over time. Should we expect this to be any different? And should the data by year-end that you're expecting here, should that be sort of – should we assume that is going to be a little bit more accelerated for potentially publication and reimbursement after that? I know you have provided the 2021 timelines for this, but just trying to understand, as we go into this data set, how should we be actually viewing this data in light of past assays that you have delivered?

I'll give an intro and then I'm going to bounce the ball over to our Chief Science and Medical Officer, Giulia Kennedy, and let her actually walk you guys through how this works. We've been down this road a few times. We're not doing anything different this time than what we've done in the past. And you're right, it is an entire series of data that starts in the early feasibility work, like what we presented last year at CHEST and goes ongoing through the whole process of launching the test. But typically, final validation data for publishing the validation of a study is not going to come until late in the process because there's still additional studies and work that has to be done before you're ready to unveil that. But let me turn it over to Giulia, have her walk you through that and then maybe give you a little peek at the nature of some of the data we expect to show on R&D day as well. Giulia?

We've been training our algorithm which has included developing many candidate algorithms and then we obviously refine them to ensure that we're accounting for all the various lung biologies that we would encounter in the real world clinical practice, different cancer stages, nodule locations and other factors. We continue to explore those. And right now, we're still in algorithm training, but we do expect to lock our algorithm within the next several months. The next steps would be to do – is typical to what we do with all of our products, extensive analytical verification studies, and these are designed to provide a view toward the robustness of the test. And then, once we're satisfied with that, in advance of commercializing, as Bonnie said, we would be unblinding the independent validation tests that late in the process when we're sure that we have the algorithm that we've locked that we're satisfied with. And just a color into what we'll be presenting at the R&D Day in December, since we've last unveiled data at CHEST 2019 where we showed some early feasibility for the nasal swab classifier, we've since then acquired additional samples, cohorts to add to the training and have added both their genomic data and the clinical data to our various algorithm development exercises. So, what we're going to be presenting in December is what's called cross-validation data. It's not an independent test that is within the training set and on various versions of the algorithm because, of course, we haven't locked yet. We'll continue to refine these draft algorithms until we determine we're ready to lock and pick a final choice. Investors should see more data on more patient samples, a view some of the development hurdles that we've encountered along the way and how we've solved some of those hurdles and how close we continue to believe that we'll be close to the early feasibility data, which the key opinion leaders that we work with are quite excited about. At that time, we'll also highlight clinical positioning, data, patient benefit for all of our tests in the Percepta lung cancer portfolio across that portfolio. So, that's what we can expect at R&D Day next month.

Last one, if I could squeeze in, Bonnie, Envisia ADLT, that was great to see. Great to see the reimbursement here. But just trying to also understand, how are you thinking about uptake of that product and now with ADLT? And if Keith could elaborate how accretive could this be longer term in terms of gross margin at peak levels on nCounter? Thanks so much.

This was a great success. The test was priced at $5,500. As you know, the eligible patient population for Envisia is about 70% Medicare eligible patients. So you can kind of do the math. Having an ADLT in what we believe will be a stable PAMA array out of the commercial calculated data that will be – go into effect next July, that sets us up to see some nice expansion in reimbursement per test going through 2021 and beyond. Keith, anything to add to that?

No, you covered that. Thanks, Bonnie.

Your next question comes from the line of Sung Ji Nam from BTIG.

Congratulations on the quarter. Maybe, Bonnie, I'm just curious to hear your thoughts in terms of potential delays in terms of lung cancer diagnosis and what are the implications do you think for Veracyte going forward over the next 18, 24 months or even beyond that?

Well, sadly, I would say that the implications of COVID to any cancer workup, certainly, and we spoke to this early on in breast cancer, patients weren't running out to get their mammograms done. And I think that it's sad to imagine that three years from now, we may actually be in a position where we see more later diagnosis on these cancers that are big killers. So, I hope that we can get the health institutions and patients kind of rally behind the call to make sure these patients do go get the screening protocols that are designed to save their lives, whether it's a mammogram for breast cancer patient or a low dose CT for a patient eligible for free screening for lung cancer. And as we amp up our efforts on both of these clinical indications, we are certainly going to be advocating for that because the last thing we want is to start to see those cancer rates and late-stage diagnosis go up two to three years from now.

It's great to see the Afirma volume recovering very nicely. And I realize that there is still pandemic-related uncertainty going forward. But would you guys be able to share, even if qualitatively, what the volume trends look like for Afirma for the month of October?

I think that we're pretty comfortable that the trends that we saw in this quarter, we expect could carry through Q4. We're obviously wanting to shine light as giving any guidance in that regard. But maybe Keith has a few words he could point to on the Q4 peak. Keith, anything you can add there?

I think we had a really good, strong quarter, and there's a lot of uncertainty. October, you start to see the case load go up. And then, obviously, election and a lot of politics going on as well. And so, we don't really know what's going to happen in November and December, but October trends were similar to what we saw in the third quarter. And we're encouraged by that. So, Afirma was doing well, and then Percepta still maintained similar sort of declines relative to the prior year, but still good numbers, and Envisia is doing well. So, we'll see what happens for the quarter. But if it comes out in line with the third quarter and then testing and product revenue will be – it'll end up being what it was in the prior year, which should be a big win for us in light of all the pandemic.

Just lastly from me, I'm not sure if this will be discussed at the investor meeting in December, but the NOBLE study, just kind of curious, is that largely to continue to enhance your existing tests? Or is that to develop new tests in lung cancer?

The NOBLE study is for the future. We have not been dependent on any of our developments for building new cohorts, which is why all of that work could continue uninterrupted with COVID. But because we're doing so many great things in lung cancer and we ultimately want to be able to move upstream, we have a slide in our deck that illustrates this so elegantly that once we're able to intercept a patient with a known nodule and guide that patient to get people with cancer in the surgery or treatment early, keep the people with benign nodules out, we then want to move upstream and see if we can use the nasal swab to identify patients pre-cancer. And that's a big part of our work with J&J. And so, the NOBLE program is built around that future.

Your next question comes from the line of Brian Weinstein from William Blair.

I think we just start with a couple on NasaRisk and then one on nCounter for you, Bonnie. But on NasaRisk, can you just go through the TAM here and how you build up to the – I think it's 750,000 patients and how the new USPSTF draft changes the way that you view what that opportunity is? And then, can you talk about the minimum performance levels that you think are necessary from the PPV and NPV side? I believe that the data was 76% on the PPV and almost 98% on the negative predictive value from the data last year at CHEST. But how should we think about that relative to kind of where things ultimately need to be?

Well, I would say, first of all, the feasibility data that we put out sort of showed our cards in terms of where we think roughly the ultimate test needs to be. But the critical level for the cut off on the low-risk side is obviously sensitivity, while the key aspect of cut off on the upper end is specificity. I think we're very comfortable. We're going to get to cut off that have those two ends characterized very well. And then, the question just becomes the number of patients that we can put into those buckets. So, how many of the true benign patients can we keep from undergoing a workup, making sure that we continue to drive a cut off that's going to be highly sensitive. I think our NPV on the early set of data was something like 98%, which was remarkable. And then, on the upper end, sort of the opposite, if we're going to cut off and create a highly specific test, we want to make sure that we're not putting a lot of benign patients falsely into that bucket. And so, the question will become, do we continue to move 50%, 45%, 55% into that bucket. I would say, on both of those, we wouldn't need to get to the same numbers that we've got to the move to high risk or low risk for feasibility to have a very, very acceptable test. The key is not letting the sensitivity on the low end or the specificity on the high end suffer. Those are the key metrics. So, we'll look forward to moving the data along, showing a little more data on the cross-validation side of our R&D day and giving people a little more flavor to that.

On nCounter, we're about a year in here, can you just talk about the updated view on that product and the opportunity and how well it has advanced over the last year?

First of all, I would say we have to – we definitely reconfirm that we picked up the best platform for doing distributed testing that exists. There's no doubt in our mind. This platform is incredibly robust. Of the hundred plus customers that we have around the world running Prosigna on this platform, we have one technical service person that supports all of those customers. That tells you how incredibly robust this platform is. Now, when we acquired the platform, we were very clear that we weren't going to go out and early on proliferate a lot more accounts with a lot more instruments because, quite frankly, that was the challenge NanoString had, is it's very difficult to justify a high-cost piece of equipment on one single menu test on that platform. And so, instead, we put our effort into accelerating menu. We've advanced the Envisia test. That will come out late next year as a new menu item on the platform. We've advanced our lymphoma test through our collaboration with Acerta Pharma in lymphoma and look forward to adding that menu to the test. And then, we remain on track to move the nasal swab test over to the nCounter following its launch in the US market which will happen the second half of next year out of our CLIA lab. But we've got partners now that are looking to expand that menu, including CareDx whose work is still underway. We've got the COVID testing with our partner MAVIDx. And I would say we also have a tremendous pipeline of interest from pharma companies that are working and collaborating with NanoString today. We built a bridge, so that as those companies reach a point where they're ready to entertain moving CDx along, they get handed off to us and we will determine at what point should we then enter the situation and migrate that customer from a NanoString research customer to a Veracyte clinical diagnostic customer. I'd say every lever we pointed to as value creation when we announced that deal has been confirmed that that still is the case. And we're very excited about where we are. I think, next year, as we come toward the end of the year and begin to unfold these new menu items and begin to just re-accelerate Prosigna on the back of new coverage decisions – as I said, we've hired a couple new country managers, we've hired an additional marketing lead for EMEA – we're set up very nicely to see the win off of this deal that we did less than a year ago.

Your next question comes from the line of Thomas Flaten from Lake Street Capital.

Just one for Keith. On the gross margin excluding biopharma, can you talk a little bit about what you think we should be or how we should be thinking about that? You're kind of back to where you were mid-last year. It seems like a happy place for the gross margins to be. Particularly as we roll into 2021, can you give us some flavor for how you see that evolving?

As we said before, we try to keep, call it, 64% to 66% margin here as we're launching multiple tests. Obviously, Afirma, the more we do in our mix, it's further along the reimbursement curve. That obviously helps. But 64% to 66% is where we'd like to see that. And we obviously – Q2, we got to test what the bottom of that may look like and a shock in the volume. So, we have some downside protection there. So, feel pretty good about it.

I know you guys are incredibly busy with an exciting 2021 coming out, but I'm trying to balance that against this cash balance that you have. Are there thoughts – from a strategic perspective, how are you thinking about best utilizing that cash position? Are there additional tests that you're looking at bringing on board? Or how should we think about how you might utilize that cash you have on hand?

That's a good question. We think, ultimately, we're set up with incredible strategic flexibility now, having no debt and having substantial cash in the balance sheet. We feel good about that. Look, over the next few years, we're going to be executing on all sorts of fronts to accelerate this business, take advantage of what we now have, and what we have the ability to accelerate. And that's going to mean taking on some new capabilities, and certainly, expanding menu everywhere we can to become a global advanced genomic testing company with the broadest menu reaching the global markets. And so, I think there's multiple ways we could use the cash, but will, I'm sure, be smart and pull the trigger on things that seem to make the most strategic sense for the business.

Your next question comes from the line of Tejas Savant from Morgan Stanley.

This is Edmund asking about your outlook for Q4 and beyond. I appreciate the insights you shared regarding your cautious stance and the decision not to provide guidance. Given your performance in the third quarter, is there more behind this caution than just being conservative? Are you observing any changes in trends among your physician practices or hospital settings, or is it simply a matter of being careful?

Yeah, we aren't. But I think as you pick up the newspaper every day, or I guess you don't pick that up anymore, view online, and look at the news every day, it's just a really uncertain world we live in out there. I think we don't feel like we have any greater crystal ball than anyone else. And then, it just behooves us to not provide guidance in a world that's incredibly uncertain. That said, we're really pleased with where things are. As Keith said earlier, October remained strong, which is great. But clearly, it's hard to see out a couple months in the environment that we're in. And then, we probably will provide guidance for next year. As we come off of our Q4 call, I think we'll have a lot greater line of sight to what might be possible for next year at that point.

I guess, in similar lines of looking forward, you guys didn't mention that you were rehiring some people ahead of your product launches that you're expecting coming up. But just in terms of your OpEx side, how should we think about your scaling up of your sales force given that you had to lay off some of the employees earlier in the year? How should we think about this in Q4?

I'll let Keith get into some of the numbers. But, look, we're living in a different world now. We have embraced and our clients have embraced a whole new world of digital and virtual engagement, digital education. Medical education has always been our number one marketing program because continuing to have peer-to-peer education on our products is what moves the needle on adoption. So, we've embraced that. John Hanna pivoted very early on. And with that working so well, you just have to be smarter around the number of feet you have in the ground, et cetera. Keep in mind, though, that next year we are going to be moving toward the introduction of new products. That's going to mean market opportunities to expand. And I'm sure that we will continue to layer in more reps in our sales and marketing organizations as we get organized around exactly how to bring these four products to market on the backdrop of what we're doing today. I don't know if you have any operating expense insight there?

I think, this quarter, we've always talked about sales and marketing or our acquisition costs getting to a target of around 35%, which is where we ended up this quarter. I think we're in a point where people aren't traveling and digital is taking over. We think that's great. I do believe our sales and marketing as we ramp multiple tests will go back up to 45% of sales. But long term, I think the point of what's possible this quarter is indicative of that. And so, I'm less concerned with the amount of money we have and how disciplined we tend to be that if John Hanna goes from, say, $11 million this quarter and he spends $14 million or $15 million in a quarter as we ramp that that that's not a problem, right? We need to penetrate those markets. We need to get physicians using the tests. This is not a perfect world. The reason we have this capital is so that we can go in there and smartly address each of those markets. And so, I'm pretty optimistic about the future.

And just one last one for me. Can you provide us with a little more color on your collaboration with MAVIDx on COVID-19? I know you guys have stated that you still expect to submit your EUA submission by year-end, but has the fact that the FDA stopped issuing EUAs impacted this at all? And given that rapid antigen tests have scaled up rapidly and GPCR is still considered the gold standard, where do you see the MAVIDx solution filling the gap in here? Thank you.

First of all, MAVIDx isn't exactly a collaboration. We basically granted MAVIDx the rights to use our technology and platform to develop a very high ultra-high throughput COVID testing machine and they are doing that. You may or may not recall, the founders of MAVIDx were the original inventors and founders and CSO of NanoString. So, they know the technology behind the product probably better than anybody. And what they're doing is taking advantage of the multiplexing capability that we like in the test. We like being able to put 800 genes into a single test. What they're doing is taking advantage of that sophisticated large-scale multiplexing and multiplexing many patients to a single COVID gene, and that's going to allow them to get to thousands of patient throughput in a given run. And the EUAs from FDA have halted with the exception of very high throughput testing because that is exactly the unmet need out there. They're still doing the work, advancing their feasibility. I believe they remain making good progress and believe that they're on track to continue to file that EUA by the end of the year, which I think FDA will accept because of the significant product differentiation they're going to bring. And also, keep in mind, this technology doesn't require any amplification or anything. It's super, super simple. And to be able to have a single technician run thousands of patient samples for a single instrument in a given day is pretty remarkable. So, we'll keep you posted, as I'm sure they will, as that moves along.

Our last question comes from the line of Steve Unger from Needham.

First question just on Germany. Congrats on a positive coverage decision. I'm just curious if Prosigna was getting decent volumes in Germany already. And I know there's a couple of competing tests now that have positive coverage in Germany. Like, one has a distributed platform and one was supposed to, but isn't now. And I was just wondering, what are your thoughts on sort of how this rolls out for you. Is Germany supposed to become a meaningful revenue stream?

Yeah. I think Germany will be a strong market for us. It's very hard to drive adoption of a test when there's only one test in the market that's covered. And that was the situation in Germany, and that got shaken up. And now, there are multiple tests covered. But we believe we have a very strong relationship with some of the top centers, some of the KOLs that actually advocated for Prosigna to get this coverage decision. And we're in a very strong position, being able to provide nCounters for local testing within the market, which is a big desire for Germany as well. We have a really great team that will be able to pivot and cover Germany very immediately and look forward to that contributing to next year.

You asked about the lung revenue, which is approximately $1.7 million. You might have calculated that number for Q3 based on lung revenue. Regarding revenue per test, we've seen some improvement there, especially with Envisia performing well. With ADLT status, which covers 70% of the Medicare market, we'll return to discuss our model as we approach next year. For Q4, I expect to maintain the current rate until we assess the impact and the billing process. We've just begun billing for the test, and although the volumes are currently low, they won't significantly affect Q4. We'll provide a clearer picture during the Q4 call for the remainder of the year and our projections. Yeah. You can imagine there could be up to $1,000 of tests. And we'll have to – I want to do the math and really get into the numbers next year and we'll lay that out for all the analysts, so that people can build the models. I don't want to pencil with that on a call, but it'll be very positive.

No, no, no, no. There's no FDA decision that happens in a week. In fact, the shortest would be a 510(k) route where have to respond to you in 90 days. So, no, I think what we've been pointing to is the expectation that we will commercialize LymphMark in the first half of next year. We think we're probably still on track for that.

I am showing no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you all for participating and have a wonderful day. You may all disconnect.

Thank you.