Veracyte's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar.18.14 | About: Veracyte, Inc. (VCYT)

Veracyte, Inc. (NASDAQ:VCYT)

Q4 2013 Earnings Conference Call

March 18, 2014 05:00 PM ET

Executives

Shelly Guyer - CFO

Bonnie Anderson - President and CEO

Julie Brooks - General Counsel

Chris Hall - CCO

Giulia Kennedy - CSO

Analyst

Dan Leonard - Leerink Swann

Amanda Murphy - William Blair

Doug Schenkel - Cowen and Company

Operator

Good day ladies and gentlemen and thank you for standing by and welcome to the Veracyte Fourth Quarter and Full Year 2013 Financial Results Conference Call. At this time all participants are in a listen only mode and later we’ll conduct a question-and-session and instructions will follow at that time. (Operator Instructions) As a reminder today’s conference call is being recorded.

I will now like to turn the conference over to your host for today, Ms. Shelly Guyer, Chief Financial Officer. Ma’am you may begin when ready.

Shelly Guyer

Good afternoon and thank you for joining us today for our fourth quarter and full year 2013 financial results conference call. Joining me today are Bonnie Anderson, President and Chief Executive Officer; Julie Brooks, General Counsel; Chris Hall, Chief Commercial Officer and Giulia Kennedy, Chief Scientific Officer.

Before we begin I would like to remind you that various remarks that we make on this call that are not historical including those about our future financial and operating results, our plans and prospects, the success of our business strategy, attributes, benefits and value of our tests to patients, physicians and payers, growth opportunities and the size of potential market. Future products, product launches and our product pipeline, international expansion, demand for our tests and drivers of demand, payer coverage and progress reimbursement and patient access and clinical outcomes and timing of clinical studies, constitute forward-looking statements within the meaning of the safe-harbor provisions of the private securities litigation reform act.

We refer you to our quarterly reports on Form 10-Q for the quarter ended September 30, 2013 filed with the SEC and in particular to the section entitled risk factors. For additional information on factors that could cause actual results to differ materially from our current expectations. These forward looking statements speak only as of the date of this call and we disclaim any obligation to update these forward-looking statements.

Our earnings, press release for the fourth quarter and full year ended December 31, 2013 financial results and financial outlook crossed the wire a short while ago and is available on the investor relations page of our website at www.veracyte.com.

I will now turn the call over to Bonnie.

Bonnie Anderson

Thank you Shelly, Good afternoon everyone and thank you for joining us today. We’re thrilled that we have had an opportunity to meet many of you in one-on-one discussions over the past several months and we look forward to continuing to address your questions as we go forward. We’re pleased with the progress we have made in achieving the milestones needed to continue to grow the business. With the updated guideline recommendations from the National Comprehensive Cancer Network or NCCN and over 120 million lives now under positive medical coverage policy, we’re positioned to accelerate adoption and revenue growth for our Afirma solution in 2014.

In January of last year, we announced that the NCCN has updated their guidelines from managing patients with thyroid nodules and included a recommendation that uniquely points to the use of the Afirma Gene Expression Classifier or GEC to help move patients from diagnostic thyroid surgery to watchful waiting. The NCCN is an alliance of 23 of the world’s leading cancer centers. The NCCN guidelines indicate that when a thyroid nodule fine needle aspiration or FNA biopsy result is indeterminate using traditional cytopathology, physicians should consider using molecular testing to identify patients that could be safely monitored in lieu of diagnostic surgery, provided the test performance is similar in accuracy to benign diagnosis using cytopathology.

This recommendation can enable tens of thousands of patients each year who avoid surgery that removes all or part of their thyroid potentially also saving them from lifelong thyroid hormone replacement therapy. We believe Afirma is the only thyroid diagnostic test with proven clinical validity published and well-designed prospects of multi-center clinical studies to meet the criteria established by the NCCN guidelines.

We also believe the authors thoughtful recommendation provides an important thought leader perspective for many payers evaluating Afirma’s level of evidence and provides further confirmation of the value Afirma delivers to improving patient outcomes while lowering healthcare cost. With the NCCN guideline update and Medicare coverage in hand, we announced a series of coverage decisions throughout 2013 including Aetna, Humana, Intermountain Health, UnitedHealthcare and in December, Cigna. These commercial payers all updated their medical policies to include Afirma as a medically necessary test available to the patients they cover. With the addition last month of EmblemHealth, a leading health plan in New York State, we now have over a 120 million lives covered for the Afirma GEC.

Turning to our financials, we are pleased to report strong year-over-year revenue growth and FNA volume increases for both the fourth quarter and full year. Our fourth quarter 2013 revenue was $6.8 million compared to $4.5 million for the fourth quarter of 2012, an increase of 53%. We received 14,059 thyroid FNAs during the fourth quarter of 2013 compared to 9,303 FNAs during the same period of 2012, an increase of 51%. Our full year 2013 revenue grew to $21.9 million compared to full year of 2012 revenue of $11.6 million, an increase of 88%. Total FNAs received in 2013 were 49,670 compared to 25,890 in 2012, a year-over-year increase of 92%. Lastly in the fourth quarter, we raised $59.2 million in net proceeds in our initial public offering.

Turning to 2014, we continue to look forward to positive coverage decisions from other payers and anticipate inclusion of the Afirma GEC in additional clinical practice guideline based on the growing library of evidence supporting its clinical validity and clinical utility. Against this backdrop to accelerate growth of Afirma, we previously indicated that we plan to double our internal sales team by the end of 2014.

I am pleased to report that as of March 1st, we are already more than halfway toward that goal. We believe this increase will give us more granular market coverage including added momentum in large attractive markets like New York for example. We are pleased with the strong reception we continue to receive for Afirma amongst physician to recognize the value it brings to patient care. We are currently on track to launch our new Afirma Malignancy Classifiers in the second quarter of 2014. The Afirma Malignancy Classifiers will be our second product offering in endocrinology and we believe will further establish our Afirma Thyroid FNA analysis as the most comprehensive way to manage patients with thyroid nodules to help reduce unnecessary surgeries and lower healthcare cost. Our Afirma Malignancy Classifiers are intended to further inform physicians pre-operatively on patients’ whose FNA cytopathology or Afirma GEC results are malignant or suspicious for malignancy and who are thus likely heading to surgery.

The Afirma Malignancy Classifiers will use the same FNA sample to pre-operatively provide physicians with important information to help guide surgical strategy. This can help ensure that the patient gets the right surgery the first time and can also help these patients avoid thyroidectomies when appropriate. Currently, doctors often lack specific diagnostic information about thyroid nodules that appear likely malignant until after the patients undergo surgery, which limits physicians ability to plan appropriately. As a result, patients with aggressive forms of thyroid cancer who need a more thorough surgery often require a follow-up completion surgery. This is the case with medullary thyroid cancer or MTC where the literature suggest that today nearly half of MTC cases are not diagnosed until after the thyroidectomy is completed. This results in suboptimal care, increases risk of surgery complications and adds to healthcare cost.

Similarly, certain cases of malignancies may not be best treated with the thyroidectomy, an example is a metastatic lesion that presents in the thyroid nodule which is a primary cancer from another site. The Afirma Malignancy Classifiers will include a specific test for MTC, a relatively rare but aggressive form of thyroid cancer that will also offer physician the ability to order a BRAF test to inform mutational status of the BRAF gene on the FNA. Knowledge of a BRAF mutation often prompts physician to perform a complete versus partial thyroidectomy on patients with a positive result. Lastly as part of our overall Afirma GEC assessment, Veracyte will continue to alert physicians when a suspicious thyroid nodule may actually be caused by a different condition such as parathyroid disease or a metastasized cancer from somewhere else in the body.

The GEC contains a series of classifiers that flag results showing such a rare conditions in an informational use only mode which permits our medical director to a lot of the treating physicians by some in advance of surgery. This information can potentially help physician avoid performing an unnecessary thyroid surgery.

We believe that our ability to derive additional genomics information from a single FNA that help guide surgical decision-making will provide further value to physician, patients and payers and will strengthen the position of our Afirma solution in the marketplace. We are highlighting our Afirma malignancy classifier, at approximately a dozen sites and plan to fully launch the MTC and BRAF test as part of our enhanced overall Afirma solution at the American Association of Clinical Endocrinologist, or AACE meeting, in May. We anticipate that this launch will coincide with a presentation of new data in support of the Afirma malignancy classifiers.

In summary, two specific tests will be offered with the malignancy classifiers, MTC and BRAF. The MTC test result will be included as part of the patient report when a GEC is performed on any indeterminate cytopathology FNA. However, it will also be available for physicians to order separately on a cytopathology malignant FNA. We will bill for test performed on the cytopathology malignant cases. The BRAF test will only be performed when ordering specifically by the physician on either an indeterminant or malignant by cytopathology FNA. The BRAF test will be billed when it is performed. We have not finalized our specific pricing for these tests on an individual basis.

In line with these planned enhancements to Afirma, on January 1, 2014 we implemented a 14% price increase for the Afirma GEC, the first increase in two years bringing the list price from $4875. We believe this amount reflects the value that the Afirma GEC brings to patients, physicians and payers. I should note that as is typical with the diagnostics test, payers generally reimburse the rates below the list price.

We’re also on track with selective launches of our Afirma GEC in international markets during 2014. Specifically, we have obtained required registrations, and in Europe a CE mark for the Afirma GEC collection kit to enable us to introduce the Afirma GEC in select countries, once we have received positive reimbursement decisions. We believe our Genzyme partners will be especially helpful in international expansion given their deep knowledge about the local customers in the reimbursement landscape is an already market Thyrogen to endocrinologist in 42 countries.

Finally, for Afirma we recently received our second patent. U.S. patent No. 8669057, which comprises 22 claims and forms the core of our DNA intellectual property claims. As a reminder, our first patent was issued in September 2013 and includes over 60 claims that are fundamental to our work with RNA. These two issued patterns provide significant progress in our efforts to build an IP fortress to protect the important and broad advancements we have made in using cytology samples to extract which genomic information that can inform early decisions in improving patient care. We also have seven pending U.S. non-provisional patent applications related to thyroid.

We are pleased to report that we continue to make strong progress in our Research and Development efforts for our first product in our next vertical, pulmonology. As previously indicated, our first product in this area is in interstitial lung disease or ILD, which comprise a number of disorders that affect the tissue and space around the microscopic airsacs of the lung and cause progressive lung scarring. Since some of these difficult-to-diagnose conditions are benign while others are potentially fatal, early differential diagnosis can lead to significant improvement in treatment decisions for virtually all of these clinical cases.

ILD’s are often challenging to diagnose with having invasive and risky surgery, which many patients are not able to withstand. As a result many patients are left with the ambiguity in their diagnosis resulting in suboptimal and often harmful treatment. We’re developing a molecular classifier for use on bronchoscopy samples to tease apart these interstitial lung diseases to provide a more accurate diagnosis that today can only be obtained with surgery. We believe this can improve outcomes and lower the cost of care for a significant number over the estimated 200,000 patients suspected of having an ILD including idiopathic pulmonary fibrosis or IPF.

We are in the link stage biomarker discovery for IPF and are now working with more than a dozen clinical sites including one site in Europe. Based on promising early results in surgical tissue samples, we anticipate further site expansions through 2014. Samples are being accrued under IRB approved prospective clinical protocols and will fuel both our discovery in development activities for ILD classifier, with these sites also serving as a prospective validation study site as well. This is similar to the approach that we use in thyroid.

In our work in ILD we have learned that excellence in diagnosis can only happen when an expert multi-disciplinary team including pulmonologists, radiologists and pathologists is deployed as it’s done in the major ILD centers. We believe these multi-disciplinary teams, or MDTs, are critical to the development of our test and we have thus build our own virtual MDT comprised as leading experts across these disciplines. We look forward to sharing preliminary data at a scientific meeting in the second quarter of 2014 and remain on track to launch our first pulmonology product in 2016.

Finally, I would like to take a moment to welcome two new members to our leadership team, Julie Brooks, joined Veracyte as Executive Vice President, General Counsel and Secretary and Andy Thorson joined as Executive Vice President, Corporate Strategy and Business Development. A press release about their appointment went out last yesterday and we are delighted to have such strong executives join our talented management team.

I will now turn the call back over to Shelly who will review our financial results for the fourth quarter and the full year.

Shelly Guyer

Thanks Bonnie. As Bonnie indicated, we made significant progress in revenue growth and increases in estimated volume for the fourth quarter and full year 2013. Revenue for the fourth quarter ended December 31, 2013 was $6.8 million, up from $4.5 million for the same period in 2012, an increase of 53%. Full-year 2013 revenue was $21.9 million compared to $11.6 million in 2012, an increase of 88%. Quarter-over-quarter and year-over-year increases were due to increased clinician adoption of our Afirma solutions combined with increased coverage of and reimbursement for our Afirma GEC.

Cash collections, particularly with commercial payers, were especially strong in fourth quarter. We received 14,059 FNA samples in the fourth quarter compared to 9,303 samples during the same period in 2012, an increase of 51%. Total FNAs received in 2013 were 49,670 compared with 25,890 total FNA samples received in 2012, a year over year increase of 92%. The percentage of GEC tests in the quarter was slightly above our guided range of 18% to 20% of FNAs received. This was due to a relative increase in the number of samples submitted directly for GEC testing and was predominantly came from our academic customers.

I’d like to take a moment to again address seasonal factors that affect our business. Our business is subject to fluctuations and FNA volumes throughout the year as a result of physician practices being close for holidays or medical meetings that are widely attended by our ordering physicians. Like other companies in our field vacations by physicians and patients can negatively affect our volumes more during the summer months and during the year and holidays compared to other times of the year. As we anticipated in our third quarter call, December FNA volumes were light for the last two weeks of the year because Christmas and New Year’s both fell in the middle of the week with doctor’s offices and patients extending their holidays for up to two weeks. Additionally, we have also seen some dampening due to severe weather with January and February on FNA volumes with increased numbers of patients not able to get the doctor’s office.

Our reimbursement rates and cash collections are also subject to seasonality. The fourth quarter is historically our strongest quarter as third party payers tend to clear pending claims toward year end. At the beginning of each year we tend to have lower collection rates from individuals as patient deductibles are generally reset at this time mainly the patients are responsible for greater portion of the cost of our cash while our first quarter is thus traditionally lower in revenue than the fourth quarter receiving it we believe that in light of the coverage decisions payers issued last year we may not see the same deep that we’ve experienced in previous years. Additionally, three small payers that were previously recognized on a cash basis have been moved to accrual which we believe reflects growing awareness of and confidence in from including Medicare accrual accounts now represent approximately 30% of our revenue.

Research and development expenses for the year ended December 31, 2013 were $7.8 million compared to $6.6 million for 2012. The increase was primarily due to increases in personnel and licensing expenses to secure intellectual to augment our existing Thyroid patent portfolio. Selling and marketing expenses for the full year 2013 were $12.5 million compared to $8.4 million in 2012. This increase was primarily due to a $3 million increase in net expense recognized under our co-promotion agreement Genzyme. The remainder is attributed mostly to increased headcount and marketing and promotional activities in material. General and administrative expenses for the year ended December 31, 2013 were $12.1 million compared to $7.9 million for 2012. This increase was primarily due to expenses associated with the 63% increase in headcount. IPO related expenses that were non-capitalized and increase in stock-based compensation expense related to 2013 option grant, rent and other expenses due to opening of our Austin, Texas facility and insurance expenses related to being a public company.

Net loss for fourth quarter ended December 31, excellence in diagnosis can only happen when an expert multi-disciplinary team including pulmonologists, radiologists and pathologists is deployed as it’s done in the major ILD centers. We believe these multi-disciplinary teams, or MDTs, are critical to the development of our test and we have thus build our own virtual MTD comprised as leading experts across these disciplines. We look forward to sharing preliminary data at a scientific meeting in the second quarter of 2014 and remain on track to launch our first pulmonology product in 2016.

Finally, I would like to take a moment to welcome two new members to our leadership team, Julie Brooks, joined Veracyte as Executive Vice President, General Counsel and Secretary and Andy Thorson joined as Executive Vice President, Corporate Strategy and Business Development. A press release about their appointment went out last yesterday and we are delighted to have such strong executives join our talented management team.

I will now turn the call back over to Shelly who will review our financial results for the fourth quarter and the full year.

Shelly Guyer

Thanks Bonnie. As Bonnie indicated, we made significant progress in revenue growth and increases in estimated volume for the fourth quarter and full year 2013. Revenue for the fourth quarter ended December 31, 2013 was $6.8 million, up from $4.5 million for the same period in 2012, an increase of 53%. Full-year 2013 revenue was $21.9 million compared to $11.6 million in 2012, an increase of 88%. Quarter over quarter and year over year increases were due to increased clinician adoption of our Afirma solutions combined with increased coverage of and reimbursement for our Afirma GEC.

Cash collections particularly with commercial payers were especially strong in fourth quarter. We received 14,059 FNA samples in the fourth quarter compared to 9,303 samples during the same period in 2012, an increase of 51%. Total FNAs received in 2013 were 49,670 compared with 25,890 total FNA samples received in 2012, a year-over-year increase of 92%. The percentage of GEC tests in the quarter was slightly above our guided range of 18% to 20% of FNAs received. This was due to a relative increase in the number of samples submitted directly for GEC testing, which predominantly came from our academic customers.

I’d like to take a moment to again address seasonal factors that affect our business. Our business is subject to fluctuations in FNA volumes throughout the year as a result of physician practices being close for holidays or medical meetings that are widely attended by our ordering physicians. Like other companies in our field, vacations by physicians and patients tend to negatively affect our volumes more during the summer months and during the year and holidays compared to other times of the year. As we anticipated in our third quarter call, December FNA volumes were light for the last two weeks of the year because Christmas and New Year’s both fell in the middle of the week with doctor’s offices and patients extending their holidays for up to two weeks.

Additionally, we have also seen some dampening due to severe weather with January and February on FNA volumes with increased numbers of patients not able to get the doctor’s office.

Our reimbursement rates and cash collections are also subject to seasonality. The fourth quarter is historically our strongest quarter as third party payers tend to clear pending claims toward year end. At the beginning of each year, we tend to have lower collection rates from individuals as patient deductibles are generally reset at this time mainly the patients are responsible for greater portion of the cost of our cash while our first quarter is thus traditionally lower in revenue than the fourth quarter preceding it, we believe that in light of the coverage decisions payers issued last year we may not see the same dip that we’ve experienced in previous years.

Additionally, three small payers that were previously recognized on a cash basis have been moved to accrual which we believe reflects growing awareness of and confidence in from including Medicare accrual accounts now represent approximately 30% of our revenue.

Research and development expenses for the year ended December 31, 2013 were $7.8 million compared to $6.6 million for 2012. The increase was primarily due to increases in personnel and licensing expenses to secure intellectual property to augment our existing Thyroid patent portfolio. Selling and marketing expenses for the full year 2013 were $12.5 million compared to $8.4 million in 2012. This increase was primarily due to a $3 million increase in net expense recognized under our co-promotion agreement Genzyme. The remainder is attributed mostly to increased headcount and marketing and promotional activities in material. General and administrative expenses for the year ended December 31, 2013 were $12.1 million compared to $7.9 million for 2012. This increase was primarily due to expenses associated with the 63% increase in headcount. IPO related expenses that were non-capitalized and increase in stock-based compensation expense related to 2013 option grant, rents and other expenses due to opening of our Austin, Texas facility and insurance expenses related to being a public company.

Net loss for fourth quarter ended December 31, 2013 was $5.9 million, or $0.42 per common share, compared to a net loss of $4.8 million, or $7.27 per common share, for the same period in 2012. Net loss for full-year 2013 was $25.6 million, or $6.15 per common share, compared to a net loss of $18.6 million, or $28.68 per common share, for 2012.

As discussed in our third quarter earnings call, I want to again note that the net loss for full-year 2013 included net other expense of approximately $2.4 million which was comprised of several components. First, we incurred $256,000 in interest expense and amortization of deferred financial cost related to our long-term debt obligation. These costs will continue in future years for life of the debt obligation through mid-2017. Second, we incurred an approximate $2.2 million related to the re-measurement of the fair value of our preferred stock liability connected with the second tranche of the Series C preferred stock. That was extinguished in the quarter ending June 30th and the re-measurement of the fair value of our preferred stock warrant liability that was extinguished at the time of the IPO.

Both of these were noncash items and neither will occur in the future. These amounts will offset by small amount of interest income on cash invested in money market fund. Cash and cash equivalents totaled $71.2 million at December 31, 2013, which includes total net proceeds of $59.2 million during the fourth quarter from our IPO. And the quarter ending December 31, 2013, we again began to pay Genzyme cash under our co-promote agreement. As we disclosed previously, an amendment to Genzyme agreement signed in April 2013, allowed us to delay payments through March of 2013 which preserved cash.

Effective as of November 2013, we have begun paying Genzyme again and thus our cash burn rate increased during the quarter and will continue to increase in the coming quarters. I would note that the rate at which we pay Genzyme is reduced from 40% of net revenues to 32% effective March 1, 2014. In terms of guidance for 2014, we are only providing annual guidance. We currently expect to receive between 76,000 and 83,000 FNA samples during 2014. We anticipate that revenue for 2014 will be in the range of $38 million to $43 million, which at the midpoint would represent an 85% year-over-year revenue growth.

I will now turn the call back over to Bonnie for closing remarks.

Bonnie Anderson

Thanks, Shelly. We are pleased with our fourth quarter and full-year 2013 results and believe we’re well positioned to accelerate growth of our pharma solution 2014 and to significantly advance the development efforts of our first product in pulmonology, our next clinical area. We are truly excited about pioneering this new field of molecular cytology which we believe has a potential to transform diagnosis for a range of diseases to greatly improve patient care and reduce healthcare cost.

With that operator please open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And presenters at this time, I’m showing our first question and it will come from the line of Dan Leonard with Leerink Swann. Please go ahead, your line is open.

Dan Leonard - Leerink Swann

On reimbursement, congratulations on getting a few small payers under contract. What are your expectations for contracting in 2014 with additional payers, and what is baked in the guidance?

Bonnie Anderson

Hi, Dan. Thanks for joining us and thank you for the call. So just to clarify the announcements that we made were more for additional coverage decisions, so as of right now Medicare is still the only contracted payer that we have. As you know because of those contracted rates, Medicare is the only revenue that we have accrued in addition to a couple of the small payers that we wouldn’t call out specifically that got added to that. I believe the accrued revenue rate was about 30%. Timing of these contracts as you know is always challenging to predict.

Our first coverage decision of the major commercial payer was announced last March and that was United Healthcare and then we had a few larger commercial payers about midsummer and Cigna at very end of the year. We have certainly open discussions with some of these payers as appropriate but it is really just a process and a journey and difficult to predict exactly when those will happen. We will certainly as we did in this call bring those to your attention. Shelly is there anything else you would like to add to that.

Shelly Guyer

In terms of our guidance so forward-looking, we do not make assumptions within our model on when we believe various payers will flip over to accruals, we think it’s very difficult to predict precisely when they will flip. In the quarter that we will begin to accrue, we will have an uptick in that and the bolus in that one particular quarter and it will sort steal from the next quarter and the quarter after that as you bring in those payments over time today and in the future with accruals it would come in one quarter. We thought it was unwise to predict that moving forward and so our models don’t predict exactly when accruals will cause a bump, but we will as Bonnie said let you know that when we do begin accruing.

Dan Leonard - Leerink Swann

Got it, thank you. And then, as we think about the volume -- the FNA volume cadence in 2014, given some of the seasonality you called out, and in particular with weather in the first quarter here, should we expect to see a wider gap between FNA volume in Q1 and Q4 than we've seen historically -- just a much wider range between those two?

Bonnie Anderson

Yes, so historically we have talked about seasonality and the F&A volume coming more between the Q2, Q3 area when the summer months hit us and the vacations that impact that. Now you might recall we mentioned on our Q3 call that we had anticipated that given Christmas and New Year’s both fell on Wednesdays last year that we may see a little softening in December of F&A volumes and I think the F&A volumes although you know quite exciting for us in Q4, we actually did see a softening in those last two weeks of December. So Q1 is typically a little flat, a little up from Q4, we usually see better growth in Q2 with a bit of a flattening due to summer vacations and seasonality going into Q3 and then as we saw last year Q4 tends to be our highest volume. So that’s how we would see the cadence through the year. Does that help?

Dan Leonard - Leerink Swann

That's helpful. And then my final question, do you have any feedback you could offer from your Afirma Malignant pilot program, whether or not docs are acting on the info, or is it too soon to tell?

Bonnie Anderson

The purpose of the pilot program is twofold, one is to certainly get physicians who are clients familiar with the product, and give them a chance to kind of test case when they would order the MTC and BRAF and how they would react to these results that are coming out, the MTC, specifically as part of the GEC results. Keeping in mind that we actually have provided the MTC as well as some of the other rare Neoplasm results we mentioned on the call earlier we have been providing all of that on an informational basis since we launched the GEC, so we’ve had a chance to see how doctor’s reaction to getting these results has been by making phone calls and informing them when these triggers occurred. And there has been a lot of enthusiasm with the MTC results being able to be provided preoperatively because today with cytopathology alone over half of those cases are not fully diagnosed as the aggressive form of MTC till after the patient’s gone to surgery. So these tend to give the doctors the information they have the consults with the surgeons and really plan even some work up on these patients before taking them into surgery.

The second thing that we wanted to test during the pilot was just around internal processes, the patient report, which has changed, the ease of operating and understanding all the information and so far we’re getting very good feedback although this pilot has only been underway for a few weeks. We’re looking forward though in May at AACE in unveiling this in a larger scale and certainly expect that some of the impressions from our clients as well as more data will be unveiled as part of that launch.

Operator

Thank you, sir, our next phone question will come from Amanda Murphy with William Blair, please go ahead, your line is now open.

Amanda Murphy - William Blair

A quick question on the accrual, so, the number last quarter was just Medicare, right, at the 22%? I'm just trying to recall the number.

Shelly Guyer

Yes, and actually the Medicare amount is about 23% and 24% of the test volume and then on the amount collected it has been more like 33% and it was the primary accrual that we did historically, this time we added a couple of very small payers and the amount was 30%, it’s lower because the other commercial payers that are paying on a cash basis were much higher in the quarter so that’s why you see that trending down a little bit from accrual perspective. We’d expect over time obviously that that would increase as more come under contract or we have predictability of their payments and we can begin to accrue them because of that predictability.

Amanda Murphy - William Blair

Got it. And then, in terms of 2014, what are you seeing now around ASP, if you think about those -- what you're booking on an accrual basis and what you're getting on a cash basis for the GEC? And then, the FNA reimbursement I think was pretty decent for 2014. So, just curious how to think about that, 2014, and then obviously going forward into 2015?

Bonnie Anderson

So I’ll start it now. I’ll hand it over to Shelly on the accrual question; we were really pleased with the cash collections in Q4 of course and we believe that that is the beginning of what we will begin to see once these coverage decisions are made. We would expect going forward in ’14 to see more of an impact given the number of other payers that came on board with coverage decisions midyear last year as well as Cigna as late as December. Shelly in terms of the accrual question.

Shelly Guyer

So, I think one of the other questions that you had was basically the moving between the contracted payments amount of the general amount that we have been collecting, so I’d remind you that Medicare is the only contracted amount and that is between 3000 and 3500 and that’s very predictable and obviously been accrued. With the other ones who are under coverage and that would be the United and the Aetna and the Cigna. Our experience today is that we’ve seen that we’ve been paid a lot more quickly than historically we would have been before they had a coverage decision. So in the order of six to eight months historically and now, we see it more like three to four months. So we’re seeing a very big change and how quickly they’re paying.

From the perspective how much they’re paying, it’s a little bit harder to tell since it’s early in the year and we are trying to do encourage them to pay under miscellaneous codes for 2013 which was different than the 2012 amount. On the blended rates then you also have those that do not yet have any coverage and those can pay across the broad at all different levels. When we look at a blended GEC reimbursed amount, the average reimbursement amount has moved up to about $2000 per GEC and that’s including everything from Medicare with the known amounts to those are paying zero on the test. So that’s the blended amount that for the GEC.

Bonnie Anderson

We expect to get some more color on how the coverage changes this dynamic as we go through the year and as we get more history beyond these payments.

Amanda Murphy - William Blair

How about the FNA side?

Shelly Guyer

The FNA side has been quite stable and as you know it’s an amount that we are reimbursed by Medicare at about $150 per the global fee. And then beyond that the commercial payers can pay anywhere from out of network and they would don’t cover up to $490, which is our list price as you know. And so on average that has held up well for the commercial payers more on the order of about $200.

Amanda Murphy - William Blair

Got it. And then just last one on Genzyme: The color there was helpful in terms of the cash payments, but I'm curious how you're thinking about that relationship going forward, particularly as you continue to focus on international growth. I'm curious how your conversations with them are going around whatever payment structure you have in place.

Bonnie Anderson

Well, I think to-date I mean 2014 such a focus on accelerating growth, and as we mentioned, we’ve already effectively more than halfway met our goal of doubling our own sales team. But that really just augments the Genzyme team and gives us just much a deeper ability to serve the territories and a lot more granular coverage. So we really don’t see anything changing there this year. We’re excited about what Genzyme has brought to the table in terms of international expansion. We have made a lot of progress as we noted on product registrations and CE mark to cover Europe and some countries beyond that.

And filings of dossiers around reimbursement all which has really been enabled through the local Genzyme team that has 20 people that are representatives and part of the Thyrogen business that can handle all of this for us. So we see that their priorities in terms of Afirma are going to maybe shift with more emphasis on helping us achieve these international milestones which are really important. But fully expect to continue to have a very fruitful and positive relationship as we’ve had with them since we announced the deal back in 2012.

Operator

Thank you, ma’am. (Operator Instructions) And our next phone question will come from the line of Doug Schenkel with Cowen and Company. Please go ahead. Your line is open.

Doug Schenkel - Cowen and Company

A clarifying one: The three payers that you mentioned you're now accruing, are those not contracted? Did they just meet another threshold for you to now treat them from an accrual accounting standpoint?

Chris Hall

Exactly, yes. So there was predictability and we looked at stability and predictability of the amount of the payment overtime. And I would note that they were quite small payers and that there was not a big bump in the quarter as we talked about from accruals. So that’s why I specifically noted that in our script.

Doug Schenkel - Cowen and Company

Okay. You did talk about the historical difference between moving from non-covered to covered to contracted, in terms of what we should anticipate in terms of pricing differences. Is it worth talking about what type of pricing you're getting from these three small payers relative to CMS, or would you view that as not really indicative of where you can head moving forward?

Chris Hall

Yes, it’s not really, that’s not what will determine, it’s not the rate at which they pay, it is the consistency that they paying at.

Doug Schenkel - Cowen and Company

Okay and then on a, from a policy from a disclosure standpoint I guess I should say, I think the expectation of many of us on the line is that you move forward with contracted lives this year I think including you guys, will you make those announcement inter quarter or should we expect those only on the quarterly calls.

Bonnie Anderson

It most likely will be on the quarterly calls Doug, because it’s this is kind of a confidential discussion that takes place many times in negotiating these contracts and it’s not something that we would put out in our public press release but we will certainly note it on the calls.

Doug Schenkel - Cowen and Company

Okay. And then one more on guidance. It looks like, as I'm playing with my model a little bit, that you guided FNA volumes a bit higher than we expected. Revenues also a little bit higher, but maybe not as high as I would have expected on the higher FNA volumes, and that's in spite of the addition of the Malignancy Classifier, progress you're making with covered lives, and an increase in list price. In response to one of Dan's questions earlier, you said you're not factoring in additional accruals into guidance, but it doesn't seem like you're factoring in much when it comes to the impact from the increase in the list price, the progress I think you're making towards contracted lives, which, as we talked about earlier, would likely bump up ASPs, and also the upside potential associated with additional revenue from the Malignancy Classifier. So, I just want to make sure we're not missing anything here, because it looks pretty conservative.

Bonnie Anderson

We’re pleased, actually this is our first guidance since becoming a public company and like many of the others in this space we’re providing guidance on revenue and F&A volumes but on an annual basis. The revenue guidance is actually in being between $38 million and $43 million of 2014 represents at the midpoint about an 85% increase in revenue year over year and we believe that’s quite respectable. Our guidance on test volume being between 76,000 and 83,000 at that midpoint represents about a 60% growth rate, again what we believe is pretty respectable given the run rates coming into the year and where you have to end the year on run rate to exiting in order to achieve that overall annual growth. The revenue is expected to increase greater than F&A volume but much of that is due to the factors around reimbursement rates that we believe will improve based on all the coverage decisions we have in place.

Doug Schenkel - Cowen and Company

Now then, that makes sense, it’s helpful, it’s rare that I would ever say someone’s guiding conservatively when they’re guiding close to doubling revenues year over year but it did -- there’s some other things that could drive some upside so thank you.

Operator

Thank you, sir. And presenters currently at this I’m currently showing no additional phone questions in the queue, I’d like to turn the program back over to Bonnie Anderson, President, Chief Executive Officer for any additional or closing remarks.

Bonnie Anderson

Thank you, in closing we’d just like to thank all of you for joining us today. We also want to continue to thank our patients and physician clients, our employees and all of our shareholders whose strong support continues to help us achieve our goals of delivering the promise of molecular cytology. We really appreciate the confidence that you have in us and our business and we look forward to reporting our first quarter 2014 results in the spring, thank you.

Operator

Thank you presenters, and thank you ladies and gentlemen, this does conclude today’s call, thank you for your participation and have a wonderful day, attendees you may log off at this time.

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