Veracyte, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; unaudited. Figures below are in U.S. dollars unless noted.
Business context
Veracyte is a genomic diagnostics company offering tests in thyroid, urologic, breast and lung cancers and interstitial lung diseases, alongside products and biopharmaceutical services. Most revenue comes from Afirma and Decipher testing, primarily in the United States. The 2021 Decipher and HalioDx acquisitions affect year-over-year comparability.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $75.6 million | $60.4 million | $216.2 million | $152.2 million |
| Testing revenue | $64.6 million | $50.9 million | $180.3 million | $134.8 million |
| Operating loss | $9.7 million | $16.7 million | $35.7 million | $69.6 million |
| Net loss | $8.7 million | $14.1 million | $32.7 million | $65.0 million |
| Net loss per share, diluted | $0.12 | $0.20 | $0.46 | $0.97 |
| Operating cash flow | Not separately presented for the quarter | $(2.2) million | $(40.1) million |
Q3 revenue grew 25%; nine-month revenue grew 42%. Diagnostic tests reported rose 27% in Q3 and 35% for the nine-month period. Total Q3 gross margin was approximately 65.6%, versus 64.1% in the prior-year quarter; nine-month gross margin was approximately 65.4%, versus 66.1%. These are calculated from reported revenue and cost-of-revenue line items.
At September 30, cash and cash equivalents were $170.1 million; there were no short-term investments. Current assets were $238.5 million and current liabilities $58.4 million, yielding working capital of about $180.2 million. Total assets were $1.126 billion and stockholders’ equity $1.048 billion. The balance sheet included $1.2 million of debt obligation, primarily the end-of-term payment; the loan matured and the $1.2 million outstanding amount was repaid in October 2022.
Changes versus the prior comparable period
- Revenue growth reflected higher test volume and continued adoption of Decipher and Afirma. Nine-month testing revenue included a $41.4 million contribution from Decipher following its 2021 acquisition.
- Nine-month biopharmaceutical and other revenue increased $17.9 million, primarily reflecting HalioDx. Product revenue rose modestly.
- Operating and net losses narrowed, helped by higher revenue and lower acquisition-related general and administrative expenses than in 2021. Research and development and selling and marketing expenses increased.
- Nine-month operating cash use fell to $2.2 million from $40.1 million. The prior-year investing and financing cash flows included large acquisitions and a public stock offering; 2022 cash flows did not.
- Accumulated other comprehensive loss increased to $54.1 million from $15.1 million at year-end 2021, largely reflecting $39.0 million of nine-month currency translation losses.
Outlook, risks and unusual items
- Management provided no specific revenue, earnings or test-volume guidance in the supplied filing text. It expected existing cash and cash equivalents, investments and revenue to fund anticipated requirements for at least 12 months from the filing date, while also expecting additional losses for the remainder of 2022 and potentially future years.
- Veracyte recorded a $3.3 million impairment charge in the first half of 2022 after deciding to cease commercialization efforts for its stand-alone Immunoscore Colon Dx offering. No goodwill impairment was recorded.
- Key risks include payer coverage, reimbursement levels and collections; dependence on Medicare and a small number of payers; continued adoption of core tests; competition; integration of Decipher and HalioDx; single-source suppliers and supply-chain disruption; regulatory changes, including EU IVDR requirements; and COVID-19, inflation, interest rates and foreign-exchange movements.
- Medicare represented 31% of revenue and UnitedHealthcare 10% in both the Q3 and nine-month periods. Management noted that reimbursement estimates involve judgment and actual collections may differ.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It stated that no pending legal proceedings were believed likely to have a material adverse effect.
Important facts for investors to verify
- Whether test-volume growth and adoption of Afirma and Decipher continue, and how much growth is organic versus acquisition-related.
- Whether payer coverage, reimbursement rates and collections support recognized testing revenue and cash conversion.
- Whether operating cash flow improves and cash remains sufficient as the company continues to report losses and fund research, commercialization and integration.
- Whether the nCounter manufacturing transition and international expansion progress, and whether regulatory requirements affect commercialization.
- Whether further impairment charges, foreign-exchange effects, or supplier and reimbursement risks materially affect results.