Veracyte, Inc. Q4 FY2021 Earnings Call

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 U.S. 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 U.S. through our CLIA labs and patients in the rest of the world through our enCounter 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 transcriptome 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 the market size, reimbursement dynamics and competitive landscape before developing and launching our tests in the U.S. market through our CLIA labs. Dr. Tina Nova, a renowned diagnostics industry leader, drives this process as President of our CLIA U.S. 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 enCounter 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 and 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, 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 U.S. 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 and precision medicine programs. Jérôme Galon, a Co-Founder of HalioDx, leads our global biopharma business unit. Our work with J&J, AstraZeneca and Immunomedics, 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 Afirma 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 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 its 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 had 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 public data and our test inclusion in clinical guidelines. Additionally, work on the Percepta Genomic Atlas has progressed; we're finalizing our launch strategy and we'll provide an update in the coming months. Our urology portfolio continued to perform well in the fourth quarter, as we reached record levels of test orders and reports. 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 U.S. 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 at 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, 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 enCounter 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 U.S. with detected lung nodules for whom our nasal swab test could help determine whether they are 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 swab's 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 U.S. 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 prospective trial is expected to enroll over 9,000 individuals with lung nodules detected incidentally or through screening, and will include patients who are benign on 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 enCounter 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 for 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 IVD commercial team that is already successfully driving Prosigna sales growth throughout Europe and beyond is poised to drive 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 Massy, 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 Massy. 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 not be more inspired by the impact we're having on patients' lives, where we're headed as a company and the world-class group of employees that are 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 IVD 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 expense 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 equivalents. 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 Omicron 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 year impact of HalioDx, 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 Omicron 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 that would allow us 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 catalysts 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 U.S. business, will join us. Operator please open the lines.

Your first question comes from the line of Brian Weinstein from William Blair. Your line is 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 levers that we have for growth in Decipher, 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 getting included in guidelines. Tina can talk to some of that. Another is the blocking and tackling of working with physicians to sell, and that's adding salesforce, which we are doing. And then, over time, there's also broader indications, which goes a little bit hand in hand with coverage. 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. Tina, do you want to add anything to that?

Sure. So hi Brian, it's Tina. I think that currently only about 20% of the market is penetrated at this time and we believe that we have a majority of the share. 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 customers 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 expansion in the 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, 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 at a 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 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 extraordinary amount of time across our team since we acquired HalioDx in August asking that question and consequently, the timeline has come down very significantly as a result of that. Bear in mind these are not serial, they're happening in parallel and some of the tests are more advanced 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 got to go through the validation, the studies, and the design of the assay itself. And then don't forget the IVDR part of it, the regulatory part as well, which also takes time and some of that is within our control and some is outside of our control. So we squeeze this timeline as much as is humanly possible with some incredibly experienced people across our San Diego and San Francisco teams. So we've had the best scientists on this and we've gone as far as we can in terms of squeezing it. The goal is to come out with very strong tests, well validated with good supporting data, to work the reimbursement and market access challenges in parallel for other markets, which we're already doing for Prosigna of course, and then really drive that cadence of one test per year and potentially go beyond that. If you talk to other companies doing IVD development under an IVDR framework, 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 open.

Hi, this is Yuko 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 will 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. As I said in my script, pulmonology has been most impacted and Decipher least. Rebecca, if you want to add anything.

Yeah, I would echo Marc and say that on Afirma volumes, in general across the broader portfolio, January was light, and we did see a bit of a return to the new norm in February. What our guide contemplates is that at the low end we will have some meaningful business impact from COVID. Over the course of 2022, we aren't necessarily expecting that per se, but we did feel it prudent to try and bracket that for the broader community if that were to occur. If we had meaningful shutdowns that would be reflected in the low end, but if we had a Q3/Q4 type impact, that would be reflected elsewhere. If you look to the mid to high end, the February trends that we have seen continuing would be a fair expectation. I would take the low end as a challenging environment and the mid to high being more in line with what we've seen of late.

Maybe I'll just add two quick things. One on Afirma, it hits in hotspot areas where there are rep access and patient access issues in those hotspot areas. But generally across the board, the procedures are less impacted than they are for lung. In terms of a new normal, I don't know when we'll be in a new normal as long as the pandemic produces variant spikes like Omicron. Also, there are second and third order effects, such as staffing shortages within our customers, and none of us knows when those will abate. So that's one caution — those effects could impact our business. To Rebecca's point, those negative effects are contemplated in the low end of our guidance 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?

Why don't we handle that on the post-call follow-up?

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. Maybe just a high level question for you on capital allocation, given the number of acquisitions you made last year and some of the salesforce you acquired, but also invested in. How are you thinking about capital allocation? Will a lot shift to internal versus external? Any pockets of opportunity you might want to bring in and how do you see the year playing out in terms of how you're going to allocate capital?

I think of it in terms of really two phases. One is our catalysts for the coming years — the things we've talked about, like driving Decipher growth through adding sales team, the projects we're doing around Afirma to continue to enhance that product, continuing to support and fund studies that help drive our pulmonology portfolio. We are taking a portfolio approach, as we are now in eight of the top ten cancers. The second is building the infrastructure — we are a much different company than before we acquired Decipher and HalioDx. We're a company of 750 or more employees now with complexities across multiple countries. We need to invest in infrastructure to support scaling and to be ready for when other major products hit. That's an investment over the next couple of years. The second phase is the longer term investment — the three I talked about: the Nasal Swab, the enCounter portfolio, and bringing manufacturing to Massy.

Just to add, we don't have at this point in time any M&A activities to cite. With recent market dislocations there are opportunities out there. We have a great portfolio that we will invest in, as Marc said, and we will be available for M&A conversations that we feel prudent about, but we're not proactively out there at the moment.

Never say never, but we have a lot to do right now.

Got it. Thank you for that. Helpful color. Maybe on biopharma revenue — you included HalioDx in there and there was a milestone in Q4. But if I were to look at underlying trends in your ability to leverage that biorepository of 350,000 patient samples, how do you feel about progress? You mentioned a couple partners, but would love to hear the momentum in that biopharma business.

Over time, the biopharma business could be a significant growth driver for us. We're already leveraging a large part of that data in the deals we're doing, but there is opportunity to do more. We only put this group together in August and it's very focused on driving that business globally and leveraging all of our assets. Whether it's translational research looking at drug effects on the tumor microenvironment, clinical development and trial selection, biomarker work like we've done with Kite, or companion diagnostics, there are multiple ways we can leverage our skills and capabilities. Karen is focused on building the data assets, the Atlas, to give biopharma what they're looking for to grow that business. I'm very happy with the progress so far putting the businesses together.

Great. Thank you very much.

Thank you. Your next question comes from the line of Nom 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 at this stage, but we have initiated sites and we're returning results to patients. The first thing is we're getting a lot of interest in becoming one of the sites. Sites have to qualify and be the right kind of sites, but the interest level is high. The contracting, initiation and training processes are moving and the feedback we're getting from those that have used it is very good. That is helping to drive momentum. We're looking at up to 50 sites to start; we can go further or fewer depending on needs. We're trying to get to a certain number of patients and we're making good progress on that.

Great. And then for the enCounter strategy, you mentioned launching a product a year. In the past, you guys had some products under development with partners for the enCounter. Does that one-per-year cadence include potential tests from partners as well?

I'm glad you asked that. The one-per-year cadence over 2023 to 2025 does not include partner-developed tests. We're talking specifically about our own tests there. The partner tests remain part of the model and there have been a couple in development, but those timelines are up to the partners, not us. We're continuing to work and support them and we remain interested in that part of the business model.

Got you. And lastly, for me maybe one for Rebecca: you provided gross margin guidance for this year. As you transition manufacturing of the enCounter kits to Massy and launch new IVD products, how should we think about gross margin directionally being impacted by those activities?

Yeah, great question. On the testing side, we think as we bring the three companies together there are efficiencies we can gain through CLIA lab operations in particular. We're not ready to quantify those today, but over the next few years we'll be happy to discuss them. On the product side, I see the benefit to gross margin really coming in the first full year when we have both the logistics as well as the manufacturing. Think of that as less of a 2023 impact and more of a 2024 impact. As volume absorption occurs over 2024, 2025 and 2026, you'll see more benefits. So again, not willing to quantify today, but it will drive meaningful efficiencies.

To be clear, the CLIA lab efficiencies are efficiencies as we scale rather than direct synergies from putting the businesses together.

Great. Super helpful. Thank you so much.

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

Hi Marc, Rebecca, thanks for taking the questions. First, regarding the organic guide you have for the full year, can you remind us how much of that is organic versus the new additions including Decipher and HalioDx that you're baking in for the full year guide?

Puneet, we haven't separated the pieces beyond the commentary in the script at this point in time. I think you can approximate it based on commentary on Afirma and lung as well as Decipher and HalioDx. I will say their business tends to be backend weighted, so you wouldn't necessarily run the math linearly quarter by quarter.

I would add that now those acquisitions are part of our business and our resource allocation decisions for '22 and beyond have been made across the entire portfolio. They're now inextricably blended and that's how we'll talk about the business going forward.

Okay. Got it. And in terms of the J&J payment, was that recognized in Q4?

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

And on the commercial salesforce, can you remind us further investments and expectations for the salesforce? Do you have adequate coverage on all the products now?

Maybe break that into parts. We reorganized in January to focus our commercial efforts on our U.S. CLIA business and our IBD business because they have very different commercial needs. Tina will speak to scaling and growing the commercial activities for the CLIA business and I'll talk about IBD.

I think we're in a really good position starting off the year with our sales reps in all of our indications. I truly believe in finding the best people, not just a lot of people, and making sure they have the depth and knowledge to go in and really sell. We're at 39 reps with Decipher and that team is well versed in urology and can speak to doctors directly because they don't have to go to hospitals. We haven't been as affected by COVID as some other divisions like pulmonology, where you can't get into hospitals. So it's a little unfair to compare them. I feel really good with where we are with our teams right now and I don't think we need to make huge additions to any of the teams for the rest of the year.

Outside the U.S., you need to go country by country. Right now our focus is on where the Prosigna opportunities are. Our team has been very successful driving those, starting with building the structure of a country manager and then reimbursement and market access capabilities. That's now part of Stephen's organization in EMEA. As we launch new menu, we'll staff appropriately in each country to meet the customer demand as excitement grows.

Got it. Okay. Helpful guys. I'll get back into the queue. Thanks.

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

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

It's a great question. Let's break it down. Under U.S. screening guidelines, there are 15 million people who are at high risk for lung cancer and should be getting screened annually. We currently believe only about one in 15 of those people are getting screened. There are many reasons why screening isn't more widely adopted. When a lung nodule is found, many are benign and patients go through an anxiety-filled workup. Low-dose CT screening is very sensitive but not very specific and it's low cost and accessible. Having a test like the Nasal Swab, which is non-invasive and can help determine whether a nodule is low risk and avoid unnecessary procedures, or high risk and should get accelerated diagnosis or treatment, may encourage more patients to undergo screening because there's a better pathway after a nodule is found. That effect could result in more lung nodules being found and every time a lung nodule is found, we believe the nasal swab can help in classification when imaging alone cannot.

Okay. Got it. Thanks. And then on the other pulmonary tests, I hear the comments on the lack of access to physicians, but other companies have talked about virtual training or capturing attention at medical conferences. Are there ways to get in front of these physicians outside of hospital settings and are you pursuing those?

Hi Mike, it's Tina. Absolutely. We do a lot of virtual engagement. COVID has shifted training and education to virtual platforms. Recently there was a large meeting where the physical audience may have been small, but thousands called in. Virtual plays a very big role in training and dissemination of data. There are also online physician communities where docs communicate. So virtual is playing an important role today.

Virtual can continue the cadence of awareness and education, but it won't replace the bronchoscopies and procedures that aren't getting done due to closures or staffing shortages. That will remain a challenge as long as facilities are impacted.

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

Hey guys, thanks for taking the questions. Could you provide any color on how many enCounter platforms are currently installed in Europe? And are there any specific geographies that you plan on targeting initially?

We are focused now on Prosigna in market and we need menu breadth to drive additional installations and placements. The additional tests will help drive more installations. We haven't publicly provided the exact install base number; we can follow up on that separately. Over the next couple of years, with the impending launches, we expect to place more instruments as demand grows.

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 eight out of the top ten cancer indications. Should it be our expectation that you'll try to get the other two or are you content with the eight?

I wouldn't say never; we might go beyond the ten, but the eight is a significant part of the main causes of mortality in the U.S. We're very focused on those. We have portfolio approaches within indications — multiple tests in lung and urology for example — and we'll continue to broaden within those indications and geographically and across the care continuum. We'll continue to add indications as we grow, but right now we are focused on executing on the substantial opportunities ahead of us.

Very helpful. And then my final question is, can you tell us about any publications or presentations that you have coming out?

There's a lot coming up; keep an eye on the major meetings. We'll be participating and publishing results as they arise.

We've got ASCO meetings, chest meetings, lung meetings — with eight cancer areas there's a meeting almost constantly. We plan to continue to roll out publications and presentations. 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 taking the question. On the Nasal Swab and low-dose CT compliance, when you think about driving that higher, it seems like a place to partner with other players and go through different channels. How do you think about partnering to increase low-dose CT screening and the Nasal Swab adoption? What's the openness to working with other players?

When you're developing a new market, you're always looking at different ways to address it and partnerships are one of them. There are many organizations trying to drive more screening — it's better for patients and the nation — so that may present opportunities in the future. We have a corporate development team that looks at those opportunities and the business units also engage on potential partners.

There are no further questions at this time. I'll now hand the call back over to Marc Stapley to make any closing remarks.

Great. Thank you, Lee. Before closing, I'd like to reiterate how pleased we are with our Q4 and full year 2021 results. In 2022, we expect Afirma 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 Percepta Nasal Swab, expanding our enCounter test menu and transferring manufacturing of our IVD kits to Massy. I truly believe we have the strategy and people we need to advance our ambitious plans to become a global diagnostics leader. I also know that we cannot underestimate the power of culture in driving our success. 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 Veracyte to achieve our ambitious goals. I look forward to updating you on our progress in our Q1 earnings call. Thank you.

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