Veracyte, Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports fourth-quarter results. Figures are in U.S. dollars unless noted.
Business context and reporting period
Veracyte is a molecular diagnostics company focused on genomic tests using cytology samples to help resolve diagnostic uncertainty before surgery. In 2015, Afirma thyroid testing remained the company’s only source of revenue. Veracyte launched Percepta, a lung cancer diagnostic test, in April 2015; it was in early commercialization and had not generated reported revenue. The company planned to launch an idiopathic pulmonary fibrosis (IPF) test in the fourth quarter of 2016.
Financial performance and liquidity
| Metric | FY 2015 | FY 2014 | Change |
|---|---|---|---|
| Revenue | $49.5 million | $38.2 million | +30% |
| Cost of revenue | $21.5 million | $16.6 million | +29% |
| Gross profit / margin | $28.0 million / 56.6% | $21.6 million / 56.5% | Margin broadly stable |
| Operating expenses | $83.0 million | $67.2 million | +23% |
| Operating loss | $(33.5) million | $(29.0) million | Loss widened |
| Net loss | $(33.7) million | $(29.4) million | Loss widened |
| Net loss per share, basic and diluted | $(1.30) | $(1.36) | |
| Cash used in operating activities | $27.0 million | $27.6 million | |
| Cash and cash equivalents at year-end | $39.1 million | $35.0 million |
- At December 31, 2015, working capital was $33.2 million, total assets were $75.3 million, and stockholders’ equity was $51.3 million. The accumulated deficit was $148.7 million.
- Year-end long-term debt was $5.0 million principal, reported at a net carrying value of $5.03 million. The loan bears 5% interest, matures in December 2018, and is secured by substantially all assets other than intellectual property and certain other assets.
- Cash used in investing activities was $6.7 million, primarily for the new South San Francisco facility and laboratory. Cash provided by financing activities was $37.7 million, principally from a private placement that generated $37.3 million net proceeds.
- Fourth-quarter 2015 revenue was $14.0 million versus $12.2 million in Q4 2014; net loss was $8.0 million versus $8.1 million. Q4 diluted loss per share was $0.29 versus $0.36.
- Revenue increased alongside Afirma adoption and test volume: FNAs received rose to 78,548 from 65,848, and GEC test volume increased 38% year over year. The average GEC reimbursement was approximately $2,200 in Q4, unchanged from Q4 2014.
Material changes versus the prior comparable period
- Revenue growth slowed to 30% in 2015 from 75% in 2014, while the net loss increased by $4.3 million. Operating expenses grew more slowly than revenue, but remained substantially higher than revenue.
- Research and development expense rose 31% to $12.8 million, and selling and marketing expense rose 15% to $25.3 million. General and administrative expense increased 20% to $22.6 million. Percepta-related intangible amortization added $0.8 million in 2015.
- Revenue recognized on an accrual basis rose to $27.0 million from $12.5 million; revenue recognized when cash was received declined to $22.5 million from $25.6 million. The filing cautions that timing of payer notifications and collections can make quarterly revenue volatile.
- The company raised $40.0 million gross through a private placement of 4.91 million shares at $8.15 per share in April 2015, increasing shares outstanding and providing $37.3 million net cash proceeds.
- Capital spending increased as Veracyte built out its new approximately 59,000-square-foot South San Francisco facility. The new lease extends to March 2026; disclosed total future minimum operating lease payments were $22.1 million.
Outlook, management commentary, risks, and unusual items
- Management expected cash and cash equivalents of $39.1 million, together with anticipated revenue, to cover cash requirements for at least the next 12 months. It also expected additional losses in 2016 and future years and did not provide a numerical revenue or earnings forecast.
- Management anticipated increased 2016 research and development, selling and marketing, and general and administrative expenses, including spending to develop the IPF test, support Percepta, expand the sales force, and complete the facility build-out.
- Veracyte gave notice in March 2016 that it would end its U.S. Genzyme co-promotion agreement effective September 9, 2016. Genzyme’s fee was then 15% of U.S. Afirma GEC cash receipts; the transition requires Veracyte to assume sales and marketing responsibilities. This is a subsequent event, not a 2015 financial-statement adjustment.
- Afirma’s separate CPT code became effective January 1, 2016. Medicare’s 2016 gapfill process was ongoing, and the company said the effect on Medicare payment rates was not yet known. Percepta had no contracted reimbursement at the time of the filing; Veracyte planned to seek Medicare reimbursement in 2016.
- Revenue depended heavily on a small group of payers: Medicare represented 26% of 2015 revenue and UnitedHealthcare 14%; Aetna represented 9%. The filing describes payer coverage, reimbursement levels, appeals, and collection timing as important uncertainties.
- At year-end, approximately $134 million of cumulative billed amounts for tests without recognized revenue remained uncollected, unnotified for payment, and unwritten-off. This is not reported revenue or a receivable balance; the company said collection timing and ultimate recovery were uncertain.
- Key risks include continued losses and potential need for additional financing; possible reimbursement reductions or loss of coverage; evolving FDA oversight of laboratory-developed tests; reliance on sole-source suppliers and Thyroid Cytopathology Partners; execution of the Genzyme transition; and the ability to validate, launch, and secure reimbursement for new tests. No material legal proceedings were reported.
- Audited financial statements received an unqualified opinion. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control attestation because of the company’s emerging-growth-company exemption.
Most important facts for investors to verify
- Whether Afirma test volumes, payer collections, and realized reimbursement continue to support revenue growth, particularly after the 2016 CPT-code and Medicare gapfill changes.
- How much of the $134 million in previously billed, unrecognized amounts is ultimately collected, and how collection experience affects reported revenue and cash flow.
- Whether operating losses and cash burn improve or require additional capital, considering the facility build-out, lease commitments, and planned commercial and product-development spending.
- Whether the Genzyme transition preserves Afirma volume and whether Percepta obtains reimbursement and broader adoption.
- Whether the IPF test meets clinical validation, launch, and reimbursement milestones, and whether future FDA or other regulatory requirements affect commercialization.