Veracyte, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Veracyte is a global diagnostics company whose principal tests include Afirma, Decipher Prostate, Prosigna, Envisia and Decipher Bladder. Percepta Nasal Swab was being used in clinical studies; kidney and lymphoma tests remained in development.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Total revenue | $296.5 million | $219.5 million | +35% |
| Operating expenses | $337.6 million | $301.4 million | +12% |
| Operating loss | $(41.1) million | $(81.9) million | Loss narrowed |
| Net loss | $(36.6) million | $(75.6) million | Loss narrowed |
| Operating cash flow | $7.5 million | $(31.6) million | Improved |
| Cash, cash equivalents and short-term investments | $178.9 million | $177.2 million | Increased |
Testing revenue was $250.5 million, product revenue $12.6 million and biopharmaceutical and other revenue $33.4 million. Total test volume rose 30% to 102,524; diagnostic tests reported increased 32% to 93,340. Approximate gross margin was 65.7%, compared with 66.1% in 2021; operating margin improved to approximately negative 13.9% from negative 37.3%. Veracyte reported a $0.51 diluted net loss per share.
At year-end, total assets were $1.16 billion and total liabilities $81.2 million. The company had no long-term debt outstanding after repaying the remaining amount when its Silicon Valley Bank loan matured in October 2022. Current assets were $248.6 million and current liabilities $62.6 million. Cash from operations benefited from noncash expenses, including $26.7 million of stock-based compensation and $25.9 million of depreciation and amortization.
Changes versus FY2021
- Revenue growth primarily reflected higher Decipher Prostate and Afirma testing volumes and increased biopharmaceutical and other revenue. Decipher Prostate contributed $56.6 million of the increase in testing revenue.
- Biopharmaceutical and other revenue grew 68%, partly reflecting HalioDx; FY2021 included a $4.0 million milestone payment that did not recur.
- Net loss narrowed substantially, while operating cash flow turned positive. General and administrative expense fell 25%, largely because FY2021 included acquisition-related stock compensation and transaction costs. Research and development and selling and marketing expenses increased.
- Foreign exchange reduced FY2022 revenue by $4.7 million, according to management. A $3.3 million impairment charge was recorded after the company stopped commercializing its stand-alone Immunoscore Colon Dx offering.
Outlook, risks and other matters
- Management expects continued net losses in 2023 and potentially later years, while investing in laboratories, research and development, sales and marketing, and product development. It stated that available cash and investments plus expected revenue would cover anticipated requirements for at least the next 12 months; the notes specify through at least February 2024. No numerical revenue or earnings guidance is provided.
- Key risks include dependence on Afirma and Decipher, payer coverage and reimbursement decisions, estimated collections on diagnostic claims, evolving regulation of laboratory-developed tests, competition, and reliance on certain sole-source suppliers.
- International growth depends partly on adapting additional tests to the nCounter platform and manufacturing test kits in Marseille. Management cited foreign-exchange exposure and possible European energy-supply disruptions as risks.
- Commitments included $10.1 million of non-cancelable supplier purchase commitments and $16.6 million of future minimum operating lease payments. Acquisition-related payments remained subject to milestone achievement or continued service. No material legal proceedings were reported.
- The financial statement audit opinion was unqualified. Management and the auditor reported effective internal control over financial reporting at year-end. Diagnostic-services revenue estimates were identified as a critical audit matter because they rely on judgments about payer coverage, collections and reimbursement.
Important facts for investors to verify
- Whether testing-volume growth—particularly in Decipher Prostate and Afirma—continues and translates into cash collections.
- Whether payer coverage, reimbursement rates and collection estimates support reported testing revenue, given the company’s significant reliance on Medicare and UnitedHealthcare.
- Whether operating cash flow remains positive as the company funds operations, clinical studies and manufacturing transitions.
- Progress, costs and commercial results from integrating Decipher Biosciences and HalioDx, including the planned nCounter manufacturing transition.
- Whether European regulatory requirements, energy conditions and currency movements affect Prosigna sales or Marseille operations.
- Potential dilution from equity compensation and the remaining acquisition-related contingent payments and other commitments.