Veracyte, Inc. (VCYT) CEO Marc Stapley on Q1 2022 Results - Earning Calls Transcript

Veracyte, Inc. (NASDAQ:VCYT) Q1 2022 Earnings Conference Call May 3, 2022 4:30 PM ET

Company Participants

Marc Stapley – Chief Executive Officer

Rebecca Chambers – Chief Financial Officer

Giulia Kennedy – Chief Scientific & Medical Officer

Tina Nova – General Manager of Thyroid & Urologic Cancer

Sheila Goldman – Director of Investor Relations

Conference Call Participants

Brian Weinstein – William Blair

David Hein – Goldman Sachs

Mason Carrico – Stephens Inc.

Tejas Savant – Morgan Stanley

Paul Knight – KeyBanc

Joseph Stringer – Needham & Company

Puneet Souda – SVB Securities

Operator

Good afternoon, ladies and gentlemen, and welcome to Veracyte's First Quarter 2022, financial results conference call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press [Operator's Instruction] on your touch tone telephone. If anyone should require assistance during the conference, please press [Operator Instructions]. As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to Sheila Goldman, their sites Director of Investor Relations. You may begin.

Sheila Goldman

Good afternoon, everyone. And thanks for joining us today for a discussion of our first quarter 2022 financial results. With me today are Marc Stapley, Veracyte's Chief Executive Officer. Rebecca Chambers, our Chief Financial Officer, Dr. Tina Nova, President of our U.S. CLIA business, and Dr. Giulia Kennedy, Global Chief Scientific Officer and Chief Medical Officer. Veracyte issued a press release earlier this afternoon detailing our first quarter 2022 financial results. This news release, along with a business and financial presentation, is available in the Investor Relations section of our website at Veracyte.com.

Before we begin, I'd like to remind you that various statements that we may make during this call will include forward-looking statements as defined under applicable securities laws. Forward-looking statements are subject to risks and uncertainties. And the company can give no assurance. They will prove to be correct. Further we are not under any obligation to provide further updates on our business trends or our performance during the quarter. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Veracyte filed with the Securities and Exchange Commission, including Veracyte's most recent Forms, 10-Q and 10-K.

In addition, this call will include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures are included in today's earnings release, accessible from the IR section of Veracyte's website. I will now turn the call over to Marc Stapley, Veracyte, CEO.

Marc Stapley

Thanks, Sheila. And thanks, everyone, for joining us today. I'm delighted to share an update on our strong first quarter results, which included revenue of $67.8 million, an increase of 85% year-over-year. We announced our new organization in January, and it is clear that this new structure is already enabling our team to execute and deliver impressive results. Veracyte's success is built upon our ability to answer important clinical questions that enable physicians to make better-informed care decisions, helping patients avoid unnecessary surgeries or other interventions, and accelerating time to appropriate treatment.

Our tests address eight of the 10 leading cancers by U.S. incidents, as well as interstitial lung disease, or ILDs, and have benefited over 350,000 patients to-date. I recently had the privilege of speaking with one of these patients, Mr. Keith Boil. Keith is an idiopathic pulmonary fibrosis patient in Southern California whose story demonstrates the challenges in diagnosing ILDs, including IPF, and the important value our Envisia test provides. IPF is one of the most serious types of ILD and is often very difficult to diagnose with high resolution CT imaging alone. This can lead to delayed diagnosis and treatment. In 2017, Mr. Boil had a persistent cough which led him to a medical clinic, marking the beginning of his diagnostic journey.

After the initial incorrect diagnosis of pneumonia, Keith sold five pulmonologists and underwent additional tests and midst diagnosis over a span of 18 long months. Finally, his new pulmonologists at UCLA, an early user of Envisia, offered him our test. Keith was aware of Envisia and has been eagerly awaiting its launched, so this was welcome news. Envisia confirmed an IPF diagnosis, giving Keith and his family the clarity they so desperately needed. I asked Keith why this clarity was so important. He was extremely clear in his response, it not only validated his use of anti-fibrotic treatment that can be damaging in some other pulmonary conditions. But it also enabled him to join a lung transplant list, a list that he is still on to this day hoping that at some point he will benefit from this important surgery.

Keith is doing well at the moment and is enjoying extensive travel with his wife Lorna, we wish them both well and thank them for allowing us to share Keith's story. With patients like Mr. Ball in mind, we were encouraged to see that an updated clinical practice guideline highlights the role of our Envisia Genomic Classifier in the diagnosis of IPF and other ILDs. Additionally, a review article on separate commentary on the Envisia classifier appear online in Anil's ATFs. All three articles are published in official publications of the American Thoracic Society and reinforce the intended clinical value of our test, which is to enable physicians to make a confident diagnosis of IPF without the need for invasive surgery.

Having a confident IPF diagnosis can help patients like Keith Ball obtain the treatment they need in a timely manner. We look forward to continuing to engage with the pulmonology community to advance understanding of the role our test can play in patient care, and to further reinforce the evidence supporting the testability to positively impact patient outcomes. Turning now to our first quarter results. We continue to execute well against our near-term and long-term corporate imperatives. Our Decipher Prostate test again outperformed our expectations as we continue to gain significant traction in a competitive market that we estimate is only about 20% penetrated.

We believe our continued growth has benefited from key publications, particularly of clinical utility data from a randomized Phase III trial, which were presented at the recent ASCO GU symposium, and confirmed a key role for the test as a prognostic that can help physicians and patients make first-most treatment decisions in the intermediate risk setting. We are looking forward to the ASCO meeting in Chicago next month where additional clinical utility data will be shared, characterizing the Decipher Prostate test usage and association with treatment decisions for men with prostate cancer in both the post-biopsy and post-surgery phase. The findings are based on data for the Decipher Prostate test which were linked to the National Cancer Institute's Surveillance, Epidemiology, and End Results. or SEER, program.

Additionally, at the upcoming American Urology Association meeting, our KOL partners will share data to provide new insights into the genomic underpinnings of prostate and bladder cancers. These data are derived from analysis of our extensive and growing decipher grid database, which contains genomic profiling information for over 100,000 clinical samples used in the development and commercial use of our Decipher prostate and Decipher bladder test. Turning to Afirma, our most established and highest volume diagnostic test we were pleased with our test growth of almost 10% during the quarter and our ability to impact more patients. We also added over 50 new accounts in Q1 further penetrating the long tail of endocrinologists who had not previously utilized Afirma.

Our ongoing investments in our flagship product will ensure that we're able to continue to engage even more physicians. Moving to our lung portfolio in addition to the new ILD guidelines, we are encouraged by early signs of recovery for our Envisia test, which saw a 27% increase in volume compared to the first quarter of 2021. In lung cancer, our team has done a tremendous job to prepare the Percepta genomic Atlas tests for launch. Having carefully evaluated the optimal utilization of this test to address the unmet clinical needs for lung cancer patients, where time to result in precious tissue sample at key factors and to optimize reimbursement, we have made the decision to explore novel channel opportunities for PGA that leverage its unique sample type tissue from diagnosis bronchoscopies directly into our preservative.

This channel opportunity will take a number of quarters to evaluate so we hope to share more about this at a later date. On the IVD side, we are also looking forward to the ESMO breast cancer meeting this week in Berlin. Researchers there will present consensus findings from procure trial demonstrating European breast cancer experts’ beliefs regarding the role of gene expression profiling tests, including Prosigna, to inform treatment decisions among women with early stage breast cancer. We also delivered very strong quarterly growth in biopharma in tandem with further solidifying our offerings for biopharma partners, which are intended to leverage our robust multiomics and immuno-oncology capabilities along with our extensive clinical data.

At the American Association for Cancer Research or AACR meeting last month we introduced our new Veracyte biopharma Atlas, which we believe is uniquely positioned to help advance the next-generation of precision medicine in oncology. This novel metastatic Pan Cancer database is designed to be populated by leveraging our best-in-class essays to provide insights that help inform drug development efforts for participating companies. This template offering is modeled on bespoke programs that are already in place with major biopharma partners.

Of note, we are particularly excited by some of the novel immuno -oncology insights that we are uncovering through our biopharma and academic partnerships, and look forward to revealing more in several abstracts being presented at ASCO and through other exciting publications that we anticipate in the coming months. Moving to our longer-term growth drivers. We remain very optimistic about our Percepta Nasal Swab test for patients who are facing a potential lung cancer diagnosis. As the largest cause of death amongst all cancers by far, lung cancer is a disease that particularly affects smokers or former smokers, and one that can often be successfully treated when caught early.

While a highly-sensitive imaging approach low dose CT under existing screening recommendation is very effective at identifying patients with potentially cancerous lung nodule s, physicians need a more objective, accurate tool to determine next steps for those patients. This is when Nasal Swab comes in. Already clinically validated, our test could be used to assess patient risk, noninvasively, alongside the CT imaging standard of care to help avoid unnecessary procedures for low-risk patients while accelerating time to treatment for high-risk patients. We believe that Nasal Swab could help drive earlier identification of lung cancer amongst the 15 million people in the U.S. alone who are eligible for annual screening and the 1.6 million annually who present with an incidental lung nodule.

We believe that the ILDs screening paradigm is here to stay given its high sensitivity, proven reduction in mortality rates, inclusion in U.S. PSTF guidelines, and relatively low cost to the healthcare system. We encourage further screening for patients who qualify under guidelines beyond the very low 6% that we believe are currently being screened. With diagnostic tools like our Percepta Nasal Swab, we anticipate the more and more physicians and their patients will achieve greater confidence in annual screening.

We look forward to the presentation of new data at the American Thoracic Society meeting this month, which evaluate the ability of the Percepta Nasal Swab test to accurately assess lung cancer risk among current and former smokers with lung nodules, regardless of best smoking burden history. Meanwhile, I'm pleased with the progress we are making with enrolling sites for our clinical utility study, and with our headway to date on our path to reimbursement. We are also making solid progress in our efforts to expand our IVD testing menu on the encounter analysis system to fuel our global expansion for years to come.

Our IBD development and R&D teams are working closely together to launch our Envisia test as an IBD on the encounter instrument in 2023, followed by our Decipher prostate and Percepta Nasal Swab test in each of the subsequent years respectively. As we build this menu on the encounter, we will be creating opportunities for labs in many countries to make these tests available to their patients. Meanwhile, our commercial and market access teams are working hard to pave the way for reimbursement of these tests country by country, and our scientific teams continue to build a body of evidence needed to support both reimbursement and adoption, leveraging the work that is already done for the U.S. market via our centralized CLIA lab model.

This is a perfect illustration of the flywheel effect that is enabled by our Naval clear and IVD based strategy. Finally, we are advancing the manufacturing transition of our IVD kits, beginning with Prosigna, to our facilities in Masai. We are tracking ahead of our year-end goal of handling our own inventory management and global customer fulfillment. By the end of next year, we expect to be fully manufacturing the kits in France, enabling us to benefit from the end-to-end management of the supply chain for these kits. In summary, Q1 was a great quarter marked by strong execution by our team. We're excited about our progress and where we are heading. With that, I will turn the call over to Rebecca to review our financial results for the quarter, and expectations for 2022.

Rebecca Chambers

Thanks, Marc. As Marc mentioned, our strong first quarter performance exceeded our expectations with total revenue of $67.8 million, an increase of 85% over the prior year. We grew total volume to over 23,200 tests of 61% increase over the same period in 2021, and a 4% increase compared to the fourth quarter of last year. We delivered over 8800 Decipher urology tests, which exceeded our expectations, leading in part to testing revenue of $56 million, an increase of 69% versus the prior year quarter. Testing ASP was approximately $2,650 per test, up slightly sequentially. Testing volume was approximately 21,000 tests, including close to 11,000 Afirma tests of almost 10% year-over-year, as Marc mentioned. Due to the change in the billing code for Afirma in 2021, we have had some delays in collections that impacted ASP in the quarter.

First quarter product volume was approximately 2,200 tests, resulting in revenue of $3 million, down slightly compared to Q1 2021 as volume growth with more than offset by a decline in the Europe. Biopharmaceutical and other revenue equaled $8.8 million, as growth in our immuno-oncology offering was bolstered by the timing of biopharma milestones and contract IVD activities. This timing impact, as well as better than forecasted urology cash collections added approximately $2 million of revenue to our first-quarter results. Moving to gross margin and operating expenses, I will highlight non-GAAP results which exclude the amortization of acquired intangible assets and other acquisition-related expenses.

But do include routines, stock-based compensation. We've chosen to call out, select non-GAAP measures to provide useful supplemental information about the financial performance of our business and enable comparison of financial results between periods where certain items may vary independent of business performance. I encourage you to review the GAAP reconciliation of these non-GAAP measures, which can be found in today's release available on our website. Non-GAAP gross margin was 65%, a decrease of 100 basis points sequentially driven primarily by the fourth quarter, $4 million J&J Nasal Swab milestone. Excluding this impact, gross margin was a 100 basis points higher sequentially.

Testing gross margin was 69% approximately flat sequentially and product gross margin was 47% higher sequentially driven by lower startup costs for the manufacturing transfer of our IBD kits compared to the prior quarter. Biopharmaceutical and Other gross margin was 49%, exceeding expectations given the timing of milestone and IVD development revenue, and lower sequentially due to revenue from the milestone recorded in the prior quarter. Non-GAAP operating expenses, excluding the cost of revenue, increased $2.9 million sequentially to $49.1 million, primarily driven by higher compensation-related expenses associated with annual merit increases and the timing of payroll taxes.

Accordingly, sales and marketing expenses grew $1.4 million to approximately $22.5 million, and G&A expenses were up $2.6 million to $18 million. Research and development expenses declined by $1.1 million to $8.5 million, driven by the timing of clinical trial and project spend. Non-GAAP cost of revenue and operating expenses included $5.6 million of stock-based compensation. We recorded a GAAP net loss of $14.5 million. Net cash used in operating activities was $8.9 million, and we ended the quarter with approximately $164 million of cash and cash equivalents. Turning to our 2022 guidance. We now expect revenue of $265 million to $275 million, or 21% to 25% growth versus the prior year. This range, compared to our previous guidance of $260 million to $275 million, reflects our strong performance in the first quarter.

For the remainder of the year, we are projecting slightly higher Q2 revenue, followed by a sequential decline in Q3 given summer holidays before finishing 2022 was quarter-over-quarter Q4 growth. In closing, we are very pleased with our performance so far this year, we continue to have confidence in our financial position and remain focused on execution in 2022 and beyond. I will now turn the call back to Sheila.

Sheila Goldman

Thank you, Rebecca. We'll now go into the Q&A section of the call. And Tina Nova, President of our CLIA U.S. business, and Giulia Kennedy, Global Chief Scientific Officer and Chief Medical Officer will join us. Operator. Please open the lines.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Brian Weinstein with William Blair. Your line is open.

Brian Weinstein

Hey, guys. Thanks for taking the question. Excuse me. Good afternoon.

Marc Stapley

Good afternoon.

Brian Weinstein

Hey, I was hoping maybe Tina or somebody could just jump into some of the performance and decide for me to get a little bit more information about what's continuing to drive that growth better than your expectations. Is it some sort of a utilization metric that's better? Is it deeper penetration inside of new accounts? Just any insights on Decipher would be great. And then the second question is, good to see Afirma up around 10% that seems like that's also a little bit better than maybe you guys were thinking about there. I think we were thinking maybe mid to high-single-digits if things went well for a growth rate for the year so the 10%, a little bit above that, can you just talk about how we should be thinking about Afirma trends through the year as well? Thanks.

Rebecca Chambers

Sure, Brian. Thank you so much. Yeah, we're very excited about that performance of Decipher and it's just continue to improve and grow and as you said, increase penetration into the market. And for this last quarter, the sales team productivity was at an all-time high. And we have continued to bring sales reps in as you know, and do a lot of very, very extensive training and we're really making headwinds out in the field. The other thing is that we continue to build a lot of clinical evidence which really makes it very nice for our sales team to go to physicians time and time again and share the new data from the studies that we have generated data from. And that really makes a big difference.

They really like that. And as Marc mentioned, we have an abstract coming out at ASCO soon. And just as a reminder, the market is still only 20% penetrated, so we still have a lot of room to grow in the future, which makes it a very exciting product. On the Afirma side, you're right. It was really great to see that 10%. Again, more training going on and just deeper penetration once again. And also, I'm starting to see a lift of being able to get into more hospitals. January was tougher and it got easier in February and almost back to normal by the end of March. And Afirma was affected by COVID just on access more than anything else. So we're almost back to normal there, so it's great to see that increase in Afirma.

Marc Stapley

Brian, one clarification. Just -- so we saw a 10% volume growth, which I think is great, and our team is doing a really nice job there of getting new physicians and continuing to go off to the long tail there. We did see some headwind on the ASP side that Rebecca mentioned in her comments, and so we're going to continue to focus on that. So when you net it all out, the revenue growth, I'd say, was roughly in line with our expectations, maybe a little bit lower, but it doesn't really change our perspective for the rest of the year.

Rebecca Chambers

And I think the trend that you saw this quarter plus or minus a bit is what we're expecting for the rest of the year. So on a volume basis, I would say an expectation in the high single-digits, maybe not all the way to 10, but we are expecting volume in the high single-digits, but that to be biased down slightly because of some of the ASP items that we're improving on the revenue basis. So that more in the mid to high as you mentioned.

Operator

Our next question comes from Matt Sykes from Goldman Sachs. Your line is open.

David Hein

Hey, guys. This is Dave. How are you doing?

Marc Stapley

Hey, Dave.

David Hein

Any additional color you can give for a clear idea of the contribution from Halio into Decipher that factored into the solid beating rate you had?

Rebecca Chambers

Yeah. I'd be happy to and Decipher -- think about the organic and inorganic drivers of this business as being one, happy to give the disclosure that you require -- that you requested. But before we get there, we are managing the business from a portfolio perspective and make resource decisions across the portfolio accordingly. We have a portfolio business that it has different products, each of them are in their respective portions of the life cycle. And when you stack those effectively, what happens is in any given quarter you have pluses and minuses across the board.

And that's exactly why the company was foreshadowing and did by the Decipher and Halio assets, and effectively gain the growth that they are offering here. So when it comes down to it, Decipher contributed the vast majority, not the vast majority, but the majority of growth on a year-over-year basis, just over $20 million. You can actually see the full-year number is in the Q I'm sorry, not the full-year number, the total quarterly numbers in the Q and Halio was just over $7.5 million. So you can parse out the bits and pieces there. But this was very purposeful on our point and the acquisitions recognized the strategy of the company and will aid us to that end, and we are pleased with their contribution in the quarter and our expectations for them going forward.

Marc Stapley

Maybe thanks for back or maybe something to add on the life cycle comment. I mean, as you know, we talked about this before that Afirma is a very mature, we believe the markets over 50% penetrated by test like Afirma. And so it's towards the latter pub is still growing as you just heard, part of it slides cycle Decipher is a product that's an inflection point of its life cycle. And really starting to go up that S-curve and take some great share. And then we have the pulmonology portfolio in the IVD product portfolio that are much earlier stages of their life cycle. So we've got pretty good coverage as a portfolio business. across the various stages here. And we're continuing to invest in all those different products to maximize the growth opportunity in return product.

David Hein

Great, that's helpful, thanks. And, Dan, really good to hear about the continued evidence generation for the Percepta Nasal swab. Could you give us any additional color on the new data to be presented at ATMs?

Marc Stapley

We can't get any more detail than we've already provided because obviously it's going to be presented, but I don't know Julie, if you want to spend any time on the evidence development that we're doing and our philosophy and approach there. And then what we've been able to provide so far as a teaser on ATS and how the studies go.

Giulia Kennedy

Sure. Sure. So for the Percepta Nasal Swab, I can't say that the test has been clinically validated and we continue to look at the data and provide more and more detailed information about how the tests can be used in various populations. And specifically, some of the work that we're going to be presenting at ATS is going to speak to how the nasal swab performs in people with varying smoking burden. So I think that's an important factor in developing confidence in the test. And we look forward to sharing that with you at the ATS.

Marc Stapley

Thanks, Giulia.

Operator

Our next question comes from Mason Carrico with Stephens, your line is open.

Mason Carrico

Hey, guys. On the Percepta Nasal Swab as we progress through 2022 and into 2023 and potentially get closer to that broader commercial launch. What are some of the incremental investments that still need to be made ahead of that launch, whether it's expanding your footprint, lab stuff, sales reps, equipment, any color on how to think about that would be helpful.

Marc Stapley

Yeah. Thanks for that, Mason. Maybe I'll take a step back and just talk about the long-term opportunity here. I mentioned it in the remarks, but Nasal Swab is really a first-of-its-kind test in terms of it really is one of the -- it is a noninvasive test for people who are facing a potential lung cancer diagnosis. There are 15 million people who should be screened in the U.S. alone for lung cancer using a well-proven and very effective method. And then there's about 1.6 million a year of incidental findings. And so that's the target market for this test. And as Julia mentioned, this test has been validated for people who have a lung nodule who are smokers or former smokers.

And so that's the target market here. In terms of the things that we need to do, we're going to spend the time over the next couple of years building the -- continuing to build the clinical utility evidence that is needed, getting KOL support, working our way towards guidelines and further evidence development. All those things, tried and tested, well-proven paths to getting a test reimbursed, which clearly is the end goal here. And appropriately so, this test will make an incredible difference in the lives of many patients, and it provides something extremely valuable to the physicians who are dealing with these patients themselves.

So we want to do this and it's exactly the right and thoughtful way and so that's what we're doing. In terms of actually operationalizing, as you know, because we have a broad pulmonology portfolio, we have the sales team already and we'll add salespeople as we need to. That's pretty straightforward as following the formula we're already deploying it and have deployed in Afirma and Decipher. The lab is primed and ready to go, and again, it leverages a lot of the work that we've done for many, many years. And so really that's what we've got to focus on over the next period to get the test out as many patients as possible, which is the ultimate goal.

Mason Carrico

Got it. Thank you. Maybe one more for me here. On decipher prostate. I'm not sure if you have this level of granularity, but is there any color you could provide on the proportion of growth from this test that's coming from maybe expanding the market, converting doctors from traditional methods to utilizing a genomic test versus taking share from competitor tests out there?

Marc Stapley

Yeah. I mean, it's just the data is actually hard to get after in terms of share, but we believe that Decipher prostate is doing a very good job at gaining share, but also importantly increasing the overall market. There's no question the market itself is growing in terms of the number of docs who -- the number of urologists who are using molecular diagnostics. And we think the majority are using -- a significant share of them using Decipher. Its 20% penetrated, as we said. So, if you think about, as I mentioned earlier, Afirma, which is one of our most successful molecular diagnostics launched has gotten significant penetration, that overall market is, is around 50. If I use out of an analog, there's no reason that we shouldn't expect prostate to get there and beyond, so that's what we're working on. So I think it's a little bit about to be honest.

Mason Carrico

Got it. Thanks for that Mark. That's it for me. Thanks, guys.

Marc Stapley

Thank you.

Operator

Next question comes from Tejas Savant with Morgan Stanley. Your line is open.

Tejas Savant

Hey, guys. Good evening and thanks for the time here. Maybe to kick things off, as we think about your lung portfolio, can you just share with us, how should we think about the relative contributions from Envisia versus Percepta? On the one hand, the Envisia, you now have the updated clinical practice guidelines, but there's relatively limited therapeutic options for IPF. But on the other hand, lung cancer screening adherence remains relatively low. So as you think about the medium-term here, any color you could share on the relative sizes of Envisia versus Percepta. And then of course eventually nasal risk.

Marc Stapley

Yes. At this point, the relative contribution from both of them in terms of revenue is relatively small because of two reasons. One there at the early stage, and two, for the last couple of years, they were both severely impacted by COVID given the physician s that we're targeting there and the procedures. As I mentioned in the remarks, Envisia grew really nicely this quarter. So I would say Envisia is starting to show good traction. And then getting those guidelines out with so much extensive discussion around Envisia and such a significant number of respondents actually recommending the use of Envisia, I think that's a really encouraging sign for that product. So I think Envisia is going to be a decent grower as time goes on. And it's a little early to say post - COVID in terms of Percepta GSC how that's going to perform. And, of course, Nasal Swab, if you think about it, that's by far the largest market that we're tackling with our pulmonology portfolio, and that's where we're putting the bulk of our investment in order to grow this entire lung portfolio.

Tejas Savant

Got it. Fair enough. And then, Marc, just given the broader market backdrop here and the geopolitical uncertainty, etc., even concerns of a recession, are you revisiting any of your expansion plans with a focus on perhaps near-term revenue generating opportunities versus perhaps something which is important that potentially is not going to move the needle for you for, let's say, like two-and-a-half years or three plus years? And so a similar question on the margin side as well as you think about optimizing your for the near-term.

Marc Stapley

Let me answer the first part and then Rebecca, you can answer the part of around margin, but you're coming in. I came here in the middle of last year and worked very hard with the team to put together the 2022 plan. Of course, we went out multiple years because we have some of the large vectors of growth for the business that a multi-year. So we already made a lot of those decisions around what we would invest in a more we wouldn't and allocated our resources accordingly. I'd say the current macroeconomic environment doesn't make us revisit any of those at this point in and of itself because of the what we've already done.

I would say by far the majority of our investment is going on those longer-term vectors of growth right now. But we're also not starving the on-market products investment, which is what you would ask s -- expect us not to do. And so those long-term opportunities to grow, I think our goal,-- I believe our goal is to move as quickly as we can to bring those products to market, whether it's Nasal Swab, all the IVD products outside the U.S., make them available to patients, we know what it's going to take to get there. So I really short of something catastrophic. I don't see us revisiting those plans to do that. Meanwhile, we're making sure that Afirma, Decipher and the rest of our products are continuing to get the appropriate level of investment

Rebecca Chambers

And on the margin side, Tejas, not just a similar answer. So outside of wages and we haven't necessarily seen a large impact on our cost of goods. And obviously we do have opportunities to increase efficiency of the lab, which we are actively undertaking as well as increased efficiency of our collections process which I commented on the script. So those two things will benefit margin accordingly, and we're setting ourselves up for really having a nice profile on a go-forward basis based on the activities we are working on in hand. Another important factor is, that we also are decently very well capitalized.

So we did burn a very small amount of cash in the quarter. But when it comes down to it, we're managing this business to be plus or minus, breakeven and we will burn a little bit of cash this year is as we go through some of the contingent consideration of the Halio acquisition. And but when it comes down to it. We are very well capitalized we have the cash we need in hand to invest in this business and to run this business to profitability. And we're excited to see where our products deliver for patients and shareholders.

Tejas Savant

Got it, very helpful. Thanks guys, I appreciate the time.

Marc Stapley

Thank you.

Operator

Next question comes from Paul Knight with KeyBanc. Your line is open.

Paul Knight

You commented earlier on the increasing volume post-January, February, March, how was that trending? And should we assume some sequential testing volume growth year in 2Q, 3Q?

Rebecca Chambers

So Paul, maybe I can take that. So we did -- in my portion of the script, we did comment that we do expect to see sequential growth in the second quarter and then to see a step back in the third quarter as we experienced typical summer holidays and as the associated seasonality. The area where of our business, where we see the most impact from COVID is in the pulmonology. The pulmonology franchise. And when it comes down to it, whether that's growing gangbusters are impacted by COVID, it's really within the scope of our guidance range. Afirma, we saw access improved throughout the first quarter, but effectively where access for our reps was a challenge and perhaps January by the end of the quarter, we made it up. So I would think about Afirma growth being more driven by typical seasonality than really related to COVID at this point in time.

Paul Knight

And then Decipher, what would you guide us to in terms of the organic growth on test volume at Decipher?

Rebecca Chambers

Yeah. I think we've given a lot of disclosure on the Decipher franchise and the components of our portfolio. We're not going to get in the habit of guiding each product line-by-product. Decipher is contributing very nicely to the total company overall growth rate, and I would say is additive to it but I wouldn't want to go beyond that.

Paul Knight

Okay. Thanks.

Operator

Our next question comes from Mike Matson with Needham & Company. Your line is open.

Joseph Stringer

Hi, guys. This is Joseph on for Mike. One question about the manufacturing transition. Obviously, a year -- obviously more than a year more than a year out from that, but is there any biopharma services or IVD development services that you guys will be ramping up or is there -- are these tied down right now during the transition at all? Or is this purely manufacturing for the test kit? And then maybe just building off of that for biopharma services, can you maybe talk a little bit more about the interest from pharma and your immuno - oncology offerings? You guys have mentioned that a little bit in the prepared remarks. Is there anything else with immunogram, whether it'd be expanding into different countries or adding new services that you guys are looking at? Thanks.

Marc Stapley

That's a great question. A couple of things I would actually break apart the manufacturing transition from the biopharma services offerings. They are really, in many respects very separate. Start with the manufacturing transition for starters. The work that we're doing to be able to make our own kits for the end counter system at our facility in Masai in France and that's the work that's going very well we're doing it in several stages. And so you're ultimately will own the whole end-to-end supply chain. But we have full continuity of supply during that time with our strong partnership with NanoString.

So whatever we need to service that IVD business, which is point is primarily Prosigna, next year will be Envisia. We're able to get that. On the other hand, thinking -- talking about the biopharma business, what's really great about biopharma now is we've put the biopharma organizations of three companies together into one global organization. And so yes, absolutely, where we are driving hard internationally in the U.S., outside the U.S., in other parts of the world. And offering our services to biopharma partners who -- we're getting, we're getting a lot of traction with those partners at this point. We announced, as I mentioned, the Alice and you brought that up and that's one of the one of the areas of I think strong interest that we're seeing in biopharma.

I mean, using our proprietary assays we're able to populate these databases with multi-cancer data, metastatic initially, and that's a great interest to biopharma partners as they're looking at their clinical trial development that companions their drug development, looking at clinically relevant biomarkers, trying to identify patients, etc. So lots of great work going on in our biopharma business, and we'll talk more about that in the future. And one thing is -- I think, one of the great things that comes out of those relationships actually is publications. We're excited about some of the things that are going on there. Nothing we can really talk about at this point too much, but I think we'll look for some really interesting potential opportunities in the future there.

Joseph Stringer

Okay. Great. Thank you. And then one more. Obviously, you guys just announced the inclusion of Envisia into those ATS guidelines. Maybe looking towards the future, the next year or so, is there any of your tests that you're hoping, expecting for clinical guideline inclusion, whether it'd be certain club guideline or, I guess, maybe the bigger one, the NCCN guidelines? I know Decipher is already in there. I believe Afirma has also mentioned they're included in the guidelines. So yeah, maybe any test in the future that could dramatically improve awareness or adoption?

Marc Stapley

Yes, I mean, let me start with the kind of macro pointed then, Tina, maybe you want to talk about the approach with Decipher, which I think is really a good illustration of the power of this but typically what we're trying to do with the evidence development that we invest in is to gain KOL support, educate physician, and end up in guidelines as well and that formula has worked very well for us in the past. So whether it's Nasal Swab in the future, which of course we think should be in guidelines and we'd like to get it there or continuing growth in the number of respondents who recommend in busier or continuing on our other products. And of course here we are going to want to do this outside the U.S as well. And we do this outside the US as well with our products. But Tina, do you want to talk a little bit about the success so far and what's you got more room to go as far as the guidelines.

Rebecca Chambers

I don't think we ever stop thinking about guidelines. And I think they're very important and continuing to work on trials and to produce more and more clinical evidence to strengthen those guidelines, that's something that we continually think about. And where Decipher is took several times to get to that point. We started out just with RP and then started getting more and more strength in biopsy. And that will continue, we will continue to do that over time. And I think that fits in really well with what we just observed with Envisia guidelines.

And they just -- they all have to start some place and I think that the discussion that was highlighted on that was actually quite good. It just really focused on the key clinical value of our tests, and that gives us something to go to the physicians and talk about and they are very, very interested in those kind of discussions. There's nothing better than talking to them about guidelines. And Envisia now house that start and we will continue to do everything we can to strengthen that over time just like the same approach we used with Decipher.

Joseph Stringer

Thank you. Absolutely makes sense. All right. Well, thanks for taking our questions.

Marc Stapley

Thank you.

Rebecca Chambers

Thank you.

Operator

Our last question comes from Puneet Souda with SVB Securities. Your line is open.

Puneet Souda

Hey, guys. All right. Thanks for the questions. Maybe the first one, I don't know if this was covered already, but in terms of labor costs, we're obviously seeing that labor inflation happening in a number of labs. But just wondering, I wanted to make sure I cover that with you first. Is that something you are seeing and is that reflecting into the margin expectations this year?

Rebecca Chambers

Yeah. Thanks for the question, Puneet. Yes, we are seeing that to some extent, just like everyone else is in the industry. I would say that we are managing it, however. We obviously just delivered great gross margins in the quarter and our outlook for the full-year is in the low-60s to mid-60s on a blended basis depending on revenue mix in any given period. While we are expecting to continue to see that at its current state, it's not necessarily really biasing our margin expectations at this point in time. We are offsetting it with efficiencies in the lab as well as really honing in on our collections and ensuring we're optimizing those components of our business. So it's manageable, but it's there.

Puneet Souda

Okay. Okay. Thanks. That's helpful. In terms of -- I am sure you provided -- you have provided some details on Nasal Swab, but I just wanted to understand. We have seen different datasets on Nasal Swab from its inception. Maybe just help us understand; how should we think about this upcoming dataset versus what you have presented, and from a -- in terms of the performance of the data or how meaningful it could be, just help us understand where we stand in terms of the data here.

Marc Stapley

Pretty on that one, I mean, Julia talked a little bit about this earlier on, but I wouldn't -- that dataset isn't going to replace the great data that's already been presented recently it's another cut of the data that looks at smoking burden. So it will continue to do that like produced cuts of the data we have done in the past. That's why we launched a second set of data that showed the performance of the test when you took into account people with prior cancers and so on. So we're continuing to look at that. But in terms of the overall performance of the tests, I mean, remember, this is a test that is for, it's highly sensitive and highly specific.

It's good for rolling in and rolling out, as I mentioned in the script. And the way we see it being utilized in the market is for any patient who has had a lung nodule found bio LDC, which as I mentioned earlier, is very sensitive of finding lung nodules. We'll be able to use this test and I think it is the sensitivity and specificity make it very attractive for that situation. Because we're going to want to build confidence in the diagnosis there. So the classifier enables us to do that by the way that our team built it. And the incredible work that they did. And so I think that's the right way to think about it. And so I don't anticipate necessarily new data that changes that perspective.

Puneet Souda

Okay, that's helpful. And then Decipher continues to obviously do well, but maybe this question is more about Afirma. I think you guys have pointed out number of times that this is now a very maturing product. So maybe just can you sort of elaborate, how should we be thinking about the growth rate on Afirma, longer-term given the sort of the magnitude of this, it contributes to your revenue. Thank you.

Rebecca Chambers

Thanks, Puneet. I think we did our best to address that question a little bit earlier on where we shared that in the quarter, Afirma grew close to 10% from a volume perspective, albeit slightly less than a revenue perspective for the reasons that I stated in the script. As we look forward throughout the course of 2022, I think the mid to high single-digit estimate that was throwing out there is not unreasonable. This is obviously later in its late life cycle and we are excited about the contribution that the product does provide to the overall portfolio of our products from a growth perspective. That being said, we're all in the stage of having it be one of the most successful diagnostics out there.

And therefore obviously the curve does start to flatten at some point and we are there. I think the good news with Afirma of though is it is also an incredibly profitable product in to that end it as long as well as Decipher really do help fund some of the great innovation work that Giulia and her team and then the broader R&D organizations are really offering to the overall portfolio and offering to Tina and her team to commercialize so well. So I think every product has its place and we love Afirma for that. And its overall financial profile of not just the revenue side.

Puneet Souda

Okay. Got it. And just last one, if I can squeeze in for Tina. Great to see the performance here and the momentum you have behind Decipher. But just anything that we need to know in terms of data or anything that we'd be optimally watching out at DW or ASCO? Thank you.

Tina Nova

Yeah. As Marc mentioned, we definitely will be presenting at ASCO, and we certainly try to do everything we can to be at every major meeting and to have a presentation. Obviously, I can't go into the details of that, but we will be showing data that really demonstrates that Decipher increases utilization in the area of active surveillance. And that is an area that has been hard to show over the years. So we're very excited about the study that we're doing in combination with Dr. Spratt from Case Western and with the NCI SEER program.

Puneet Souda

Okay. Great, guys. Thank you.

Marc Stapley

Thanks, Puneet.

Operator

This concludes the question-and-answer session. I'll return the call back over to Marc Stapley for any closing remarks.

Marc Stapley

Great. Thank you very much, Michelle. Appreciate it. In closing, I'd really like to express my appreciation for my leadership team and for all our employees throughout the company. We introduced the brand new organizational structure in January and through the collective team's hard work, dedication, and collaboration, we're already seeing the benefits, and that reflected in our strong Q1 execution. The clear focus of our team and bright lines of accountability are ensuring that we are optimizing our near term opportunities while delivering on those really important long-term strategic imperatives we talked about today.

We're also investing in our corporate culture, we completed some important work during the quarter to define the culture we want to enable us to drive our performance and achieve our ambitious goal of becoming a global diagnostics leader. Employees at all levels and across all the geographies have been enthusiastically embraced this opportunity to help shape our company's culture and our future. It's exciting to see their collective passion driven by that desire to continue to see patients like Keith Paul and their families all over the world benefit from Veracyte suite of diagnostic tests. I couldn't be proud of our team or more excited about where Veracyte is headed, and I look forward to updating you on our progress in our next earnings call. Thank you.

Operator

Thank you. This concludes the conference call. You may now disconnect.