Veracyte, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Veracyte is a genomic diagnostics company offering tests in thyroid, lung, interstitial lung disease and breast cancer; most historical revenue came from Afirma testing.
Financial results
Amounts are in millions of dollars except per-share data and test volumes.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $31.1 | $31.0 | $82.9 | $90.6 |
| Gross margin | 67% | Not stated | 64% | Not stated |
| Operating loss | $(4.1) | $(1.8) | $(27.3) | $(6.9) |
| Net loss | $(4.1) | $(0.7) | $(26.9) | $(5.1) |
| Basic and diluted loss per share | $(0.08) | $(0.02) | $(0.52) | $(0.11) |
| Operating cash flow | $1.8 | Not stated | $(12.0) | $(5.0) |
- Q3 revenue comprised testing revenue of $28.3 million, product revenue of $2.0 million and biopharmaceutical revenue of $0.8 million. There was no collaboration revenue.
- For the nine-month period, testing revenue was $70.5 million, product revenue $7.1 million and biopharmaceutical revenue $5.3 million.
- At September 30, cash and cash equivalents were $345.1 million; total current assets were $370.3 million and current liabilities $13.9 million. Management said existing cash, the available credit line and expected revenue should cover anticipated requirements for at least 12 months from the filing date.
- Debt principal outstanding was approximately $1, with a $0.8 million end-of-term obligation recorded; a $1.2 million final payment is due in 2022. The $10 million revolving facility was undrawn. The company reported covenant compliance.
- Total liabilities were $31.4 million and stockholders’ equity was $422.7 million. The company reported an accumulated deficit of $273.6 million.
Material changes versus comparable periods
- Q3 revenue was essentially unchanged year over year, while net loss widened to $4.1 million from $0.7 million. Testing revenue grew 6% and reported genomic classifier volume increased 3% to 10,242; Prosigna contributed $2.0 million of product revenue.
- Nine-month revenue declined 8%, primarily as reported classifier volume fell 9% amid COVID-19 disruption and prior-year biopharmaceutical and collaboration milestones/data revenue was higher. Prosigna, newly commercialized after the NanoString transaction, contributed $7.1 million.
- Nine-month net loss increased to $26.9 million from $5.1 million. Operating expenses rose 13% to $110.3 million, including higher R&D, G&A and intangible amortization. Nine-month operating cash use increased to $12.0 million from $5.0 million.
- An August 2020 public offering of 6.9 million shares generated $193.8 million net proceeds. Cash and cash equivalents increased from $159.3 million at year-end 2019 to $345.1 million.
Outlook, commentary and risks
- Management reported recovery in testing volumes after an April low: Q3 reported volume was up 90% sequentially and 3% year over year. The filing gives no numerical full-year revenue or earnings guidance and emphasizes that COVID-19 makes forecasting uncertain.
- Management planned four 2021 product introductions: a nasal-swab lung classifier, Percepta Atlas, Envisia on the nCounter platform, and LymphMark if FDA De Novo classification is granted. These are plans, not guaranteed launches.
- COVID-19 reduced patient activity and sample volumes, and management cited October supply interruptions involving plastic sample-processing materials. The company also recorded a $1.1 million supplies write-down for potentially expiring reagents tied to anticipated lower volumes.
- Other key risks include dependence on Afirma and a limited number of payers, reimbursement and Medicare-rate uncertainty, reliance on single-source suppliers and TCP for cytopathology, regulatory and clinical-development uncertainty, and execution risks integrating NanoString assets and expanding internationally.
- NanoString-related contingent consideration was revalued to $6.4 million, generating $0.3 million of expense; milestone achievement was not forecast within the next 12 months. The company disclosed no pending legal proceeding expected to have a material adverse effect.
- Management expects ongoing losses. It may need additional financing if revenue or cash generation falls short; equity financing could dilute shareholders. The filing reports no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether testing volumes and revenue sustain their recovery, and the extent to which COVID-19 or supply constraints affect operations.
- Reimbursement levels and payment outcomes, including the new Medicare pricing for Envisia and pricing for Afirma-related codes.
- Prosigna growth and progress integrating the NanoString platform, including whether planned product launches occur on time and obtain required approvals.
- Cash use, ongoing losses, dilution from equity issuance, and the timing and terms of the $1.2 million debt-related payment.
- Whether the $6.4 million contingent consideration milestones are achieved and how estimates or remeasurement affect reported expenses.