Hi, welcome to the Canaccord GD Growth Conference. I'm Kyle Mixon. I cover life science tools and diagnosis for Canaccord. Please welcome you to a fireside chat with Verisite. Here with us today, Verisite offers a broad range of tests across thyroid cancer, prostate cancer, cancer, and others. With the company we have Rebecca Chambers, CFO. Thanks, Rebecca, for joining us today. Appreciate it. First, maybe just walk through the second quarter results you guys announced like two weeks ago or so. Good quarter. Just walk through the puts and takes, please.

Yeah, happy to do so. And thanks for having us today, Kyle. Before doing so, I would like to refer you all to our safe harbor statement that will cover today's statements that can be found on our investor relations web page at www.verisite.com. And with that, happy to answer your question. The second quarter was a milestone quarter for us. We had anticipated two product launches during the quarter, which came to bear. We launched ProCigna for our breast cancer market as well as MIVC for MRD with our true MRD tests. And so those were quite exciting launches. We also, in the second quarter, delivered $150 million of revenue and raised our guide accordingly. And we're quite pleased with the quarter, albeit some of the dynamics in the quarter, which I know we'll get into, who were a little bit different than expected, but all in all, a strong pricing story and a very reasonable volume growth story. And so additionally, we generated adjusted EBITDA of over 29 percent in the quarter, more than 40 million of cash. And so, you know, while not every single data point was absolutely perfect during the quarter, the vast majority were incredibly strong. And, you know, there are some dynamics here and there that we'll get into. But overall, it was an incredibly solid quarter, specifically really showing the strength of our pipeline with multiple data readouts across the three products.

Yeah. OK, great. One of the like clear bright spots for many quarters has been the adjusted EBITDA margin.

Yeah.

It's like some I mean, it's among the highest like I think we've seen from any molecular diagnostic company in many years, maybe ever. what's been the secret to that? And obviously, maybe just talk a little bit about why you haven't been able to, or you've chosen, sorry, not to push through and get to 40% or something like that, I guess.

Yeah, happy to do so. So our philosophy is that a well-run molecular diagnostic company should be able to sustain an adjusted EBITDA of around 25%. And at the same time, invest in long term growth drivers, right? So the profitability profile of this franchise is not to be at the expense of revenue growth. Revenue growth is, you know, we're delivering 14 to 16 percent revenue growth this year, so obviously very nice revenue growth. And so we are investing heavily in our long-term and medium-term growth drivers. That's why we don't flow more down, because effectively we want to sustain this business for a long period of time, and that sustainability really comes through incremental investment in our ProCigna franchise, in our MRD franchise, international in a longer-term duration. And so we believe that doing so gives us the best of both worlds. We get the revenue growth from high ROIC projects that we're investing in, as well as delivering strong cash generation and profitability to shareholders and effectively sustaining ourselves. That philosophy came about quite from effectively when we joined the company back in 2021. We looked at all the different investments that the company was making across numerous different products, looked at effectively the return on those investments. And we shut down a lot in our portfolio. We shut down, I think, five products in total. And those products were those that we didn't necessarily felt had the ROIC profile that was required. And so we doubled down on Decipher and Affirma, returned Affirma to growth. We invested in an MRD franchise, which effectively we bought in 2024. We invested in the ProCigna product. And so we've really set ourselves up for sustaining this revenue growth profile and also quite the attractive profitability profile. But it all came through active portfolio management and active strategic plan, which we deliver to the organization, to the board year in, year out, and have that high, kind of high financial hurdle philosophy in doing so.

All right, great. And then back to the second quarter, maybe the one, like, less positive point would be the Decipher business. And Decipher is a very impressive test, genomic classifier prognostic test for prostate cancer, also a bladder cancer component as well. But the prostate is the one that's doing really well. You know, it's been growing. I think revenue grew 20% in the quarter, and then volume, you know, kind of just below 20% for the first time. And I think we had it at like 12 or 13 quarters or so, which, again, 17 percent growth, I think it was for volume. That's still very impressive. But there are obviously questions about the sustainability of 20. We can get back to 20. What happened in the quarter? So maybe just walk through what happened and what the path forward looks like for that in terms of volume, at least.

Yeah, happy to do so. So Decipher was an acquisition of the company back in 2021 and has developed and sustained an amazing growth for many, many quarters and years. And the second quarter was no different. But you're absolutely right, Kyle, that we did dip to 17 percent volume growth. And that was not totally unexpected because the comp was so challenging. So the second and third quarter comp last year both were incredibly hard. And we called that out on the first quarter call. But we did miss by about 700 tests in the quarter, which is just over a day. And that was primarily in the low risk setting. So the low risk setting is about 20 percent of total volume. And that is growing more mid-single digits, whereas the other 80 percent is growing 20 percent. What changed there was in December of last year, the NCCN guidelines were updated to take genomic classifiers out of the low-risk recommendation. And so that has happened before, and we didn't necessarily see that impact, and so we didn't expect to see an impact, but we did, obviously. And so we updated our volume guide for the year to be 1,000 tests lower and low risk only, which, again, on a base of more than 120,000 is really not a huge deal. But I think given Decipher has been such a longstanding 20-plus percent grower, I think did dip below a magic number that folks were paying attention to. We do believe Decipher growth is very sustainable on a unit basis. We've always talked about it on a unit basis. We have consistently grown 20,000 tests, plus or minus 1,000, each and every year. Going forward, we don't expect this to change. There's no reason to think it will change. High risk and intermediate will be higher than that on a growth rate perspective. Low risk will be lower, but we do think that 20,000 is quite sustainable. We were only 33% penetrated coming into this year. We think this market should be 80% penetrated, and it's a multi-year trade. But we're well on our way to laying out the claims, both on obviously in the intermediate and high, but also on the low risk to help get us there over that multi-year period.

And there's like no competitive impacts happening recently with the Cypher?

No, not at all on the low risk. Everybody was taken out of guidelines. So there isn't necessarily a competitive dynamic here on low risk.

On the, I guess, the higher risk, you didn't see anything though?

On high risk, absolutely not.

Sounds good. So I guess and you would never think about, you know, removing like de-emphasizing the low risk portion. It's the same. It's just like the full market. Why not just go after the whole thing?

Yeah, well, we think about this absolutely on a risk based risk indication. Right. So the claims are the most developed and high end intermediate and low risk is being developed. They're just harder to develop. So we've started three different trials. We started enrolling these way back in 2020. And so these will read out over the next couple of years. And that's just kind of another incremental growth vector, if you will. And so you need those incremental claims in each of the specific indications to really drive demand for the tests. And so we start with a land and expand approach. We landed in intermediate, then we went up to high, RP, metastatic, now to low. So I think about those with different vectors of growth.

Yeah, and those studies, those readouts, would that possibly impact NCCN to, I don't know, update the guidelines to actually help the low-risk setting?

We would absolutely hope so. Obviously, it depends on whether or not they read out positively, which we can't say here today. But they should read out over the next couple of years. And, you know, they are level 1A and level 2 are level 1A. One is level 1B. So, effectively, they should be enough to get in there at the appropriate point in time post-publication.

And then maybe the… assuming they're positive again yeah well we hope that they will be that Enzimet readouts around ASCO a few months ago that was for Decipher as well I think you know maybe less of a but less of less of an impact let's say but I think like that could translate into like a guideline inclusion maybe like an impact on volume so any like positive expectation for that maybe study to kind of have an impact on that business even though it wouldn't be supermaterial, maybe?

Yeah, so that was for the metastatic population, and that is not yet published. So hopefully it will be enough to get into guidelines for the metastatic population, but it needs to be published first, and that publication is in the KOL's hands. And so we would hope that that would come, and then it would help us drive more metastatic demand. Metastatic, we report in that high-risk setting. So that is a portion of the 20% that grew 20%. percent.

Okay. There isn't too much to really dive into with Afirma, I guess. It's been really consistent. I feel like it's been exceeding our expectations in terms of revenue growth. I think that's a lot of because the prior period collections possibly, but maybe it's getting more and more penetrated each year. What's your kind of commonest level in that business and the health of consistent, maybe high, almost double-digit kind of growth for that being a pretty just consistent contributor?

Yeah, there's really three dynamics going on with Affirma, specifically in 2026. We updated our guide on the second quarter to be 12 to 14 percent revenue growth. Prior periods in ASP gains are a portion of that. We've had 5 million of prior periods in a year to date, and also significant ASP gains, call it, in the low to mid single digits. And so that is the latter of which is sustainable, obviously. The prior periods are more one-time in nature. The other piece is we have moved from an older sequencer to a newer sequencer, novel concept. And that has driven not only much lower cost reduction, but it also has effectively allowed us to report out more test results. And so we have a 300 basis point tailwind this year in volume from that transition. That then is in the base of tests. And so it'll be a headwind to growth, if you will, for 27, but is already, you know, is all in the goodness that is going forward. And most importantly, 300, you know, basis points, more patients are going to get their test results, which if you're going, if you have an indeterminate thyroid diagnosis, that's important for those patients. And then there's organic growth. In the quarter, organic growth was in that six-ish percent range. And so as we look forward to next year, you just have to take volume. We'll have the NRR comp. In any given year, we tend to say mid to high single digits, but you have to take that into account for next.

Is it that the no call rate is much lower with the...

No result rate, yep.

Okay, yeah, perfect. I guess that is pretty meaningful, the V2 kind of...

It's been incredibly meaningful.

And it's going well. Okay, because I was, you know, there was a lot of transitions to different platforms and stuff with the company, like maybe over the past year or so, so that's good that it's going well. and it's on more pipeline type, newer tests. So the Persigna LDT That's also based on NGS, and that has a whole history of being on Encounter and being like an IVD and a European kind of offering and stuff. So basically going forward, now with the Optima study as well, which is also Red Ardasco, what's the expectation for that maybe product in terms of can it be material soon, or is it more of like a base or like a stable base maybe in the U.S. for that product?

Yeah, so to Kyle's point, there's a ton of history here that I won't bore you all with, but the major catalyst for this is we launched a new test in the U.S. in the CLIA lab. So previously, it had been a distributed IBD test. We had data that read out at ASCO this year for the Optima trial that effectively surpassed anyone's expectations, ours included. And now we are offering the test in our CLIA lab as of June 8th. So effectively, this is 225,000 patients that are appropriate for this test. This was the first test. I'm sorry, Optima was the first trial that effectively looked at patients with three or more nodes in the premenopausal population. And so it was very differentiated versus the Rx Ponder and Taylor Rx studies of 2017, 18, 19. And so when it comes down to it, we showed with Optima or the KOL showed with Optima that two out of three women who are getting chemo should not be getting chemo and do not need chemo. It does not impact their outcomes, which is incredibly powerful data. And so we have launched this test now in the U.S. We are getting, we're ramping up the sales force. We have aims of hiring 15 by year end. We'll grow more significantly next year. And volume, you know, should follow. We're in that period where we are signing up different accounts, training them on our portals, our, you know, kind of order to cash workflow, if you will. And that is all going quite well, but does take some time getting the path lines, lab signed up, et cetera. So I think when it comes down to it, you know, revenue is going to be a harder thing to call them volume. We need to get reimbursement still. Hopefully that will be coming this year. We're in the, you know, late stages with mold DX on that conversation. We have a number of commercial payers already lined up from the IVD, which is helpful. But, you know, I think when we get comfortable recognizing revenue, we'll be a different conversation than obviously reporting out volume. We'll do our best to be as transparent as possible on the drivers here. We did cite over 100 customers engaged within the first, what is it, six weeks, seven weeks. And so, you know, those are different centers of varying sizes, but some very large ones in there. And so we're quite excited about the way that this launch has progressed. And now it's just, you know, really making sure that we're off to the races.

Yeah, I mean, just what are some, you know, considerations, you know, I guess competitively in that market with, and you kind of referenced some of this, like Oncotype and then MemoPrint and others. It is, it's been around, maybe it's more mature-ish, I guess, and it's somewhat crowded. Like how does, you know, why are you confident you can kind of be successful?

Yeah, so I think we can be successful because we have the most compelling data and we are a data-driven story. We are going KOL top-down and effectively helping them understand the data so they can help us evangelize why this is the better test. Oncotype and Mammoprint have been successful. This market is relatively, it's fully penetrated in my mind. So this is more of a share gain conversation than it is kind of a penetration conversation. And in my mind, you know, hopefully that will be a more compelling conversation given the strength of the data as well as the recency of the data. The other two tests, to my knowledge, haven't had, you know, prospective level one evidence here for many, many years. And so, you know, we're out there telling folks about Optima, and we think we'll be able to gain, you know, decent share over the time frame. It's not going to take a lot of share for us to make our investment back here, given we already had the product and we just really had to put it into our laboratory workflow. That being said, we do view it as a nice growth driver. And, you know, that will take years to play out, but we'll be contributing in the meantime.

And then the other test that was recently launched is the true MRD test for MRD. All right, so you guys bought C2I, I think it was like early 2024. before, and then, you know, I guess been iterating and developing that test to date, it's a whole genome, it's like a fully whole genome test for MRD, and you just launched a reimbursement in MIBC, which is muscle-invasive bladder cancer. I guess, like, it's, so, you know, initially, you've had this MIBC kind of strategy for a while, you talked about that as being the first indication, I think. It seems like a small indication, however, now we've seen a lot more, like, positive news flow in MRD, as well as in therapeutics and bladder cancer as well, it almost seems like potentially a smart move to kind of go after that area because it's like a little hanging fruit. Because now there's guidelines, there's FDA approval for one of these MRD tests. So yes, maybe, you know, what's the next steps with the MIBC indication? And then beyond that, what's your thoughts on expanding to other indications in tumor types?

Yeah, so MRD is obviously a very successful market. Natera has done an amazing job in that market. Hats off to them. We are very much looking for areas of differentiation. MIBC is a great one for us because we have the Decipher sales force, which is serving 70% of MIBC patients are actually served in the urologist's office. So we think that given our scientific, our brand of being incredibly rigorous from a scientific perspective, great commercial relationships, and whole genome every step of the way, we will be able to propel this into that environment. Now, right now, we are not trying to do so active, like, in an aggressive way by any stretch of the imagination. We've taken a handful of Decipher reps, trained them on the—we have had them out in the field talking about MIBC for—our MRD solution for MIBC, and effectively, we're working out the kinks in this workflow. This is a harder workflow than any of the other tests. You have to get blood from one place, tissue from another, et cetera, et cetera. So I would think in kind of this time next year, we'll have trained the entirety of that team and really be going after that MIBC market for MRD. Why we think we are competitively differentiated is also because we have the classifier. To your point, that classifier is very important given all the different advancements in the pharma space to have many different drugs appropriate for different bladder cancer patients. And our whole goal is to own the entire cancer care continuum from prognostic, post-diagnostic, all the way through MRD. And we think that we are optimally set up to do the whole transcriptome and then transfer to the whole genome and really understand the biological underpinnings that will play out here in the MIBC and bladder cancer market in general. Okay. And to answer your question, where would we go from there? Well, it'll be a similar type of approach where we think we have a competitive differentiation where whole genome matters and, you know, where studies are available. Those three things will converge to answer your question.

Well, then in the near term, do you kind of intend on trying to match revenue to investment in that for this test? I mean, the COGS profile is probably a little bit higher than the other tests. Absolutely. So, yeah, how do you think about that?

I think the way we think about the COGS profile is that there's many levers that we have to drive them down. In addition to there's multiple different platforms we could be on, cloud compute is coming down quite significantly. So we think at scale we'll be able to maintain a 25% adjusted EBITDA margin. It will be a drag to gross margin, but we'll, given kind of the whole model on Decipher, where you get incremental research gains from doing the whole transcriptome, in this case, it will be the whole genome, we think we'll be able to sustain that 25% at scale.

Yeah. And how quick visibility will you kind of give on per signal LTT and true MRT, like kind of going forward?

So I think it's going, we will give as much commentary as we can. They'll be reported in the other line. And so, you know, I think we won't break them out from a revenue basis until they are material. But, you know, right now they are not in the guide. That's very purposeful because we don't have a pattern of revenue yet. But I would hope ProSigna will most likely be in the guide before TrueMRD, just given their relative sizes. I mean, once it's in an order of magnitude larger of a market to go after. So we will be, you know, including that in the guide, but I wouldn't expect it this year. I would hope at some point in time next year.

And then speaking of the guides for this year, I think you referenced increasing the raised a bit, or it's at almost $600 million, which is great. However, I guess with the reduction in the Decipher sort of guidance, maybe you estimate that at like a few million or several million as a headwind. So what were some puts and takes when you had this 2Q update looking towards the second half of the year?

Yeah, so Decipher guide didn't actually change. Revenue growth has been 20% since we came into the year. The components of the 20% changed. Price is more of a tailwind. And again, those 1,000 units on volume were taken down. So those are the puts and takes. But the net net of it is still that 20 percent. Affirma was updated to 12 to 14 percent, as we talked about. And then, you know, our product business and our biopharma business make up the delta. We also have bladder and cytology in there. Those are around 10 million.

Gotcha. And, you know, honestly, with, of course, margins around that 70 type range, how could, I mean, I guess if MRD is not going to be so material to volume, it wouldn't be impacted too much. But could that fluctuate a bit or be kind of staple over the next few years? Or how do you think about that?

I think in this type of business, you're going to have great gains like we had with the new transcriptome. And then every year, you're going to have to be able to try and either offset cost of living increases, pricing increases from suppliers with overhead efficiencies. And so in any given year, depending on the mix of different tests, that's the equation. Yes, MRD, as it comes in, will take down gross margin. But I think the most important thing is the incremental margins on Affirma and Decipher allow us to invest quite nicely in the long-term profile of the company. And so we manage absolutely on an annualized basis to that 25% adjusted EBITDA goal. And, you know, gross margin will fluctuate. But the beauty of our strategic planning process and our budgeting process is it allows us to pull different levers on their operating lines to effectively continuously deliver that 25%. So I worry less about gross margin. Obviously, we have tons of programs between price and cost to continuously, you know, improve that, assuming a difference, depending on the mix of tests, if you will. But really what our focus is on is maintaining the P&L to that 25 percent adjusted EBITDA.

All right. And then, like, kind of rounding out the long-term growth drivers. So quickly on Percepto Nasal Swab, what's the next catalyst, let's say, as it relates to the Nightingale?

Yeah, so Nightingale was fully enrolled this time last year. It's a one- to two-year follow-up. So I think when it comes down to it, that's probably a 28-29 conversation. We then will have to get reimbursement. So it's not in our three- to five-year numbers. So I wouldn't necessarily focus too closely on it.

And then internationally expanding, maybe Decipher. That's what the U.S. How does that look?

Well, so Persigna is actually the near term growth driver there, and that's getting moved to an NGS distributed test, and that's going quite well. And so we're excited about that. And obviously, in the meantime, Persigna and Encounter is also with post the Optima data is quite exciting, too. That comes at a lower ASP, which is fine. The gross margin isn't materially different at scale on NGS. And so that would be where I would put my focus if I was doing work. Decipher is a longer-term play. You still need reimbursement country by country. But, you know, we have multiple different ways to bring that test to market and are focused on those, and we'll talk more about them when they're getting closer.

And so your cash position continues to expand. We talked about the investment to kind of drive growth and have these, like, new products and stuff. But in terms of, you know, PIVAX, M&A, other ways to allocate capital, how are you guys thinking about that given, you know, diagnostics? is there's a lot of growth areas that are exciting. You could be touching a few of them. Okay, Margie, for example, just what's your thoughts on that whole?

Yeah, so our order of operations for capital allocation is internal investment, organic investment, M&A, then buybacks. You know, I think there still is a wealth of opportunity across the different indications we care about, across the cancer care continuum, or different platforms, or geographical expansion. There's so many different vectors that we can invest that cash that's a high ROI. that that's what I would expect above and beyond the organic profile, investment profile to be. Buyback is something that isn't off the table by any stretch of the imagination, but isn't a priority.

Okay. All right. Let's leave it there, Rebecca. Thanks so much for joining. Thanks, Val.

Thanks to see you all.