Veracyte, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Unaudited results; comparisons are with Q1 2022. Veracyte develops and sells diagnostic tests, with revenue primarily from Afirma and Decipher testing.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $82.4 million | $67.8 million | +22% |
| Testing revenue | $72.4 million | $56.0 million | +29% |
| Product revenue | $3.9 million | $3.0 million | +31% |
| Biopharmaceutical and other revenue | $6.1 million | $8.8 million | -30% |
| Gross profit and margin | $56.2 million; 68.2% | $44.1 million; 65.0% | Margin +3.2 percentage points |
| Operating loss | $10.5 million | $15.2 million | Improved $4.8 million |
| Net loss | $8.1 million | $14.5 million | Improved $6.4 million |
| Net loss per share, diluted | $0.11 | $0.20 | Improved |
| Operating cash flow | $(2.2) million | $(8.9) million | Improved $6.7 million |
| Total test volume | 28,788 | 23,245 | +24% |
Gross profit is calculated as revenue less the three reported categories of cost of revenue. Other income, net, increased to $2.4 million from $0.8 million, mainly reflecting higher interest income, foreign currency gains and French research tax credits. R&D expense rose 39% to $12.8 million; selling and marketing rose 10% to $26.1 million; and G&A rose 7% to $22.5 million.
Financial position and liquidity
- Cash and cash equivalents were $177.9 million at March 31, 2023, up from $154.2 million at year-end. The company held no short-term investments at quarter-end, compared with $24.6 million at December 31, 2022.
- Current assets were $251.5 million and current liabilities $56.0 million. The balance sheet shows total liabilities of $75.9 million, including contingent consideration and operating lease liabilities. A separate debt balance is not clearly reported in the supplied filing text.
- Cash, cash equivalents and restricted cash increased $23.6 million during the quarter. Investing cash inflow of $24.1 million mainly reflected sales and maturities of short-term investments; it was not equivalent to operating cash generation.
- Accumulated deficit was $401.8 million. The company reported no income tax expense for the quarter.
Changes, outlook and key risks
- Revenue growth was led by Afirma and Decipher Prostate; those tests contributed $16.8 million of the increase in testing revenue. Diagnostic tests reported rose 23%. Remaining testing revenue declined $0.4 million, partly due to discontinuing Immunoscore and reducing active marketing of Percepta GSC.
- Biopharmaceutical and other revenue fell mainly because customers reduced projects amid industry-wide spending constraints. Product revenue growth reflected increased kit sales.
- Veracyte recorded a $1.4 million impairment of right-of-use and fixed assets related to exiting its Richmond facility.
- Management expects additional losses for the remainder of 2023 and potentially future years, but said existing cash and expected cash flows from revenue should cover anticipated requirements for at least 12 months from the filing date. No specific revenue or earnings guidance is provided in the filing text.
- Management plans continued investment in R&D, clinical studies, the IVD platform, and Marseille manufacturing. The planned Marseille facility lease was expected to commence in Q3 2023, with approximately $1.3 million in annual rent over an initial 12-year term, subject to final construction.
- The March 2023 Silicon Valley Bank closure did not restrict the company’s access to its funds, according to management. Veracyte says it is diversifying deposits, though deposits may exceed insured limits.
- Key exposures include payer coverage and reimbursement changes, reliance on Medicare and a limited number of payers, test adoption and collections, single-source suppliers, regulatory changes affecting laboratory-developed tests and international products, competition, and execution of acquired-business integration and nCounter manufacturing plans. Inflation, interest rates, foreign exchange, banking-system instability and potential European energy disruptions are also cited risks.
- Management reported disclosure controls and procedures were effective at the reasonable-assurance level and no material change in internal control over financial reporting occurred during the quarter. The company said no pending litigation was expected to have a material financial impact.
Important facts for investors to verify
- Whether Afirma and Decipher volume growth continues and translates into collected revenue at expected reimbursement levels.
- Cash conversion and working-capital trends, particularly receivables, accrued liabilities and deferred revenue; operating cash flow remained negative.
- Progress toward profitability as operating expenses and continued R&D investment rise.
- Medicare and commercial payer coverage, reimbursement rates, prior-authorization requirements and payer concentration.
- Execution and costs of the Marseille lease, IVD platform and manufacturing transition, and remaining acquisition-related payments.
- Exposure to uninsured bank deposits, sole-source supplies, foreign exchange and regulatory changes.