Good afternoon, ladies and gentlemen, and welcome to Veracyte Fourth Quarter and Full Year 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-session and instructions will be given at that time. As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to your host, Ms. Shelly Guyer, Chief Financial Officer. Ma'am, you may begin.

Good afternoon, everyone and thanks for joining us today for our Fourth Quarter and Full Year 2014 Financial Results and 2015 Financial Outlook Conference Call. Joining me today are Bonnie Anderson, President and Chief Executive Officer, Chris Hall, Chief Operating Officer and Giulia Kennedy, Chief Scientific Officer. Before we begin, I'd 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 markets; future products, product launches and our product pipeline; execution of our sales and marketing strategy; demand for our tests, drivers of demand and expansion of our customer base; payer coverage, contracts and progress in reimbursement and patient access; our ability to collect from payers for tests performed; impact of the Affordable Care Act in Medicare, clinical outcomes and timing of clinical studies; and the impacts of potential FDA regulation 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 report on Form 10-Q for the quarter ended September 30, 2014, 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 financial results press release for the fourth quarter and year ended December 31, 2014, crossed the wire earlier and is available on the Investor Relations page of our website at www.veracyte.com. I will now turn the call over to Bonnie.

Thank you, Shelly. Good afternoon, everyone, and thanks for joining us today. We wrapped up a great year of successful execution in 2014 and I would like to give you some of the highlights. We have 30 million covered lives for the Afirma GEC bringing the total to 145 million covered lives today. We secured in-network contracts with two of the largest commercial payers; United Healthcare and Cigna and now have nearly 100 million lives under contract and we received a coverage policy from our first Blue’s payer followed by seven more. We are not aware of any other genomic test that has achieved this level of rapid success with payers including Medicare coverage within the first year of commercialization and believe this reinforces are underlying strength of our reimbursement strategy. We amended our co-commercial agreement with Genzyme enabling us to reduce the percentage of fees paid to them by more than half while maintaining the engagement of their sales force and tripling the size of our own highly productive sales team. We grow our thyroid nodule FNA volume in the community physician office market and we make major in-roads with institutional customers which hold 40% of the thyroid FNA market and heavily influence the other 60% demonstrating that our two models for offering Afirma of working. We accelerated our move into pulmonology by acquiring Allegro Diagnostics and our Percepta launch on our lung cancer tests earlier than expected and at a time when the lung cancer screening market is primed to rapidly expand because of new payer coverage requirement. Our test will be ideally situated in the clinical pathway where it can help patients avoid surgery as the next step in their diagnostic workout and where it fits cleanly with the physician’s current factors. And we’re on track to…

Thanks, Bonnie. As Bonnie indicated we experienced strong revenue growth during 2014 driven by growing adoption of Afirma and increased reimbursement from payers. Our revenue for the fourth quarter was $12.2 million, up from $6.8 million for the same period in 2013, an increase of 78%. Our revenue for the full year of 2014 was $38.2 million, a 75% increase compared to full year 2013 revenue of $21.9 million. Of note in the fourth quarter we accrued revenue of $5.1 million or 41% of our total revenue and for the full year we accrued $12.5 million or 33% of our total revenue. The increase in the fourth quarter percentage accrued was due to our beginning to accrue two new significant payers during that quarter along with some smaller payers. We received 18,236 thyroid nodule FNA samples during the fourth quarter of 2014, compared to 14,059 FNA samples during the same period in 2013, an increase of 30%. The total FNA volume for 2014 was 65,848, compared to 49,670 total FNAs received in 2013, an increase of 33%. We performed 4,071 Afirma GEC tests during the fourth quarter, a year-over-year increase of 42%. Total GEC tests performed during 2014 were 14,061, a year-over-year increase of 45%. We expect this higher growth rate in the GEC test performed versus FNAs received to continue during 2015. Put that another way as Bonnie mentioned, the number of GEC only samples increased to 9% of all FNAs received during the fourth quarter, compared to 6% early in the year which reflects our growing success with the Afirma enabled model and traction with institutional customers. We caution that this percentage will continue to vary as the number of full solution FNAs versus GEC only FNAs fluctuate. We note that the amount of GEC only samples received…

Thanks, Shelly. We believe 2015 will be a year of execution for Veracyte as we further grow the Afirma business through additional payer coverage and contract, our expanded sales team and two Afirma models which are working across all market segments. We also look forward to expanding molecular cytology franchise into pulmonology with the launch of Percepta for improved lunch cancer diagnosis. We believe our success with Afirma is already demonstrating the incredible ability of our molecular diagnostic test, when it answers is the right clinical question and is placed at the right point in the clinical pathway to dramatically change patient care and reduce healthcare costs. I’d now like to ask the operator to open up the call for questions.

Thank you. [Operator Instructions] Our first question comes from Dan Leonard from Leerink. Your line is open. Please go ahead.

My first question, I am trying to reconcile your commentary on pricing in 2015, you said you expect no change in price, you're excepting volume growth to outpace revenue growth by quite a bit and I can’t get there without assuming price goes down?

No, we are continuing to predict that the GEC rate will stay pretty consistent with this year unless we would happen to get a larger coverage decision that might change that at which point, we are depending on when that might happen in the year, we would provide an update to that. But also keeping in mind that on our Q3 call we also indicated that we expect cytopathology rate to be suppressed as well as we enter into in some of these national contracts with some of our in-network contract. We do expect that cytopathology ASP to be suppressed and so that together with the guidance that we’ve given on test volume growth gets us to where we’re confident in guidance.

Oaky and then my follow-up question, what are you assuming regarding new rep production in 2015, are you assuming an adequate lag period before reps are fully productive?

So I’ll let Chris take a shot at that, we -- I will mention we brought about half the new sales force on the beginning half of the year and the other half on the last half of the year, so some of them may have a couple of more months to get up to speed, but Chris?

Yes, that’s exactly right Dan, we’re assuming that there is a lag in getting up and being productive and like Bonnie said you know roughly half the field force expansion was early in the year. We’re starting see them hit on all strides and firing really well right now and feeling really good about that and then the other force that brought in are coming up that curve like way. Now, I’d remind that second force of sales rep that came in, we hired to focus on the institutional market and that’s where a lot of the greatest growth we see -- untapped potential that we're really attacking this year and so we expect that rep group to be productive throughout the year but certainly become more productive as the years goes on; because they're moving out of segment that we’ve got relatively low market share in because we just have not attacked it until now.

And keeping in mind for those as well that we still have the full engagement of the Genzyme team across the entire market segment as well. So we're very pleased with how our positioned with the sales footprint coming into '15 versus where we were at back end at this time last year.

Our next question comes from Amanda Murphy from William Blair. Your line is open. Please go ahead.

Just a question on the kind of broader market, you made some comments about market penetration. Just thinking about -- historically you've had -- I guess more penetration with sort of institutional accounts than may be thought historically. So I guess taking a step back how do we think about that going forward so obviously you got the community side and the institutional side in terms of market opportunity and then you've had this great traction on the institutional side and that’s kind of impacted FNA volume. And I appreciate you are not giving guidance around that going forward, but just trying to think about longer term how to model this. Can you give any more context around I guess three years from now how this might look in terms of penetration rate and then just thinking about kind of FNA business is obviously it's still kind of there and we have to model something going forward and you have to pricing pressure you spoke to there. But anymore context you can give will be helpful. Thanks.

Well I’ll try starting and then hand it over here to my COO export on this as well. So one thing that we did provide some direction to that we would remain standing behind is that we would expect FNA coming from full solutions side of pathology plus the GEC when it's indicated to continue to grow at about the same overall FNAs received rate that we saw coming out of 2014. So that would be roughly around the 30% range plus or minus. So as that continues and then thinking back to kind of those split of the business between these two segments in the market. When we launched the product the sort of easiest market to tackle within the community ambulatory setting where physicians are in practice and can make the decision on their own what to use. We've been really effective at converting that business at a really pretty good pace of growth from 2011 when we launched the product, focused on that segment of the market and then following that with some acceleration in 2012 when we teamed up Genzyme and had their feet on the ground helping on through 2013 and 2014. Prior to 2014 we really had minimal traction in the institutional accounts. And that was predominantly because we needed to work out the type of model that would really work best to allow us to continue to offer the greatest patient benefit, what we really want to count to focus on is being able to have a pharma offered with the first FNA in a single patient visit. So the patients still have to come back within two weeks they physicians get a full set of results to make the [dot] next decision on what do with patient. In 2014 that model of offering the Afirma Enabled approach becomes perfected. That then was the launch of seeing some accelerated uptick that led us to the expansion of the institutional channel account managers where we are today and that will then feel greater penetration into that segment in the market where we estimate we really only have somewhere 9% to 10% market share as opposed to a little bit more than 20% in the community practices. So that’s sort of how we see the world in the continued up take in both.

I think the only thing Amanda, is sort of that how we see that progressing overtime and I think it's fair that we see the -- so remember that the institutional segment we think is about 40% of the market, so we have about [10%ish] and the community based is about 60% and we have a little bit around 20%. We see the community base segment growing at a really nice clip as Bonnie indicated, but we see the institutional segment growing over the next several years at a faster clip where at some point it will eventually catch up and the two will probably grow in a more consistent manner together and that’s how our view of the longer term trends.

So there is no reason to think you can’t be asked that 20% penetration in institutional over whatever time period?

We would estimate this time the guidance number that we gave you and what you would kind of project us the split between the two accounts using sort of an equivalent FNA calculations, that we would end 2015 somewhere between 25% and 30% share of the overall market.

Okay and last one the pricing on the GEC side. So I think that’s pretty consistent with what you said you’ve reaching out, as of late with regard just sort of not anticipating any incremental -- is it relative to now changes in contracting or cover decision, I just want to make sure that I was still right obviously you’ve made a kind of progress with the Blue, that there are a couple of big ones that is so out there. I just want to make sure that we’re still kind of in the same spot in terms of how you're thinking about pricing on the GEC side?

It's predominantly because right now we’re sitting on such success, we’re having so many coverage decisions and now contracts are about a 100 million covered lives that average price is pull down from the larger plans that haven’t yet covered. So keep in mind that on the portion of our revenue that still cash based will continue to see the lag in payment, just like we have historically. And that if we would be successful at getting a big contract or a big coverage decision from one of those plans. It really depends when that would take place in the year whether or not it would have an upside to the year. And so we do see that as a potential upside but have chosen to not build that in to the base model.

We’re driving for it.

The next question comes from Bill Quirk from Piper Jaffray. Your line is open. Please go ahead.

First question Bonnie, just I guess back to guidance, as we kind of confirms the puts and takes between lower average pricing for FNAs as you guys go into contract, take that with the -- volume comments you mentioned. What are you assuming for growth in terms of the FMA only revenue? Are you assuming that growth, are you assuming that kind of stay flat, I am just trying to just kind of get back to the GEC contribution versus the FNA contribution for ’15?

So, the GEC is going to continue to be the stronger portion of the growth and the biggest strength there both in revenue and ultimately down the road in margin as well, which is why we’re really focusing in on that. Now from a volume, we’re projecting FNAs to continue as we said it roughly 30% growth, I think on our Q3 call we gave some directional insight that with cytopathology becoming contracted and much more of a commodity price that’s where you -- we will see some suppression on the actual side of revenue. We don’t ever typically break those two revenue pieces out and so we’re not really prepared to do that. But those two things together kind of lead us to the $48 million to $53 million range.

And then just thinking about the transition with Genzyme, I’d love to hear to any comments about kind of how the V generation and how the transition is going here albeit two and a half months into it, but nevertheless love any commentary there? Thank you.

Honestly Bill we’re -- I mean we started this tight journey with them last summer, so actually five months into it and we just did another national sales meeting together where we kicked off the year because probably we agreed at the management it’s one of the best ones, probably the best ones we’ve ever had, the energy remains incredibly high, there is a huge amount of collaboration. They’ve gotten into a really great rhythm of working with us on lead generation and then account maintenance and the account maintenance worked so well because they have integrated it into their sales calls in Thyrogen. Probably quite honest, I actually think we’re in a better grove than we’ve ever been with them, because we’ve got enough resources now right in the middle of the sales process to do the transaction and so we’ve got a really clearly define process that we’ve laid out to all the reps about how to work together and how to make this -- make driving the business forward that’s coherent and we’re all staffed to do it and it's been in a really good grove.

Bill, I like to also just -- now bringing and we gave you a little bit of commentary on the call on the international side where we continue to make some progress, but I think that we are very focus on the opportunities in the U.S. especially with the introduction this year of Percepta into the U.S. market, we will continue to exploit selective opportunities as they make sense, such as our dealing in Brazil where we have both Fleury and Genzyme promoting as well as some of the other key target markets we pointed to. But we continue to model the international pretty modestly.

Understood that some great color on both domestic, as well as international. Thank you. And then I guess just last question for me Shelly, thanks a lot for all the operating expense commentary, was hoping you could maybe throw your two cents there into G&A as well and how should we expect that to trend in 2015, obviously it's been up fair amount here for last couple of quarters? Thank you.

Yes, should remember that for us to G&A includes not only what you traditionally might include in the G&A, but also includes our billing and things like that. So those will grow according to how the business grows. I think that you did see last year a big uptick from the perspective of filings as a public company and all those sorts of the things like insurance and everything else that goes up dramatically as a public company, we do not see those going down obviously. And I think we do need to continue to build out some of the functions in the G&A area not because of the Allegro transaction that'll be very little from that perspective, but you will have some patent filings and such but from a personnel perspective to be able to scale this company overtime as we now look forward to three new products and so I think that we can anticipate that the G&A side will be going up not just because of Allegro but because of other factors of growth.

[Operator Instructions] Our next question comes from Steve Beuchaw from Morgan Stanley. Your line is open, please go ahead.

First one for Shelly. Shelly sorry if I missed it did you give the cash burned in the quarter?

So the cash burn at the end of the third quarter was 44 million, at the end of this quarter 35 million. And I think as I indicated it was -- probably looks a little worse than the actual burn would have been, the Medicare cash payments were deferred until the beginning of January due to some changes in there so some and so that was the primary change there.

Right, Medicare and then the payment to Genzyme. And for --.

Yeah, the payment to Genzyme also.

For 2015, how would you expect the cash burn compared to 2014?

I think in the first quarter we do expect that it will be heightened in the first quarter. We will have some additional one-time annual type things like audit fees and things like that which can be high in the beginning of the year. I would anticipate overtime as the revenue side grows that we will be able to have that moderate the burn and also Genzyme, we did renegotiate that from 32% to 15% recall that last year we front ended a lot of our investment into our sales and marketing force and so in the third quarter and fourth quarters before we had that down tick from 32% to 15% we were paying for that upfront. So I think you'll see moderation from that perspective. So I would think overtime that we'll be spending a bit more but also our revenue obviously will go up.

Moderation relative to that first quarter run-rate?

Correct.

And then for Bonnie and maybe Chris as well. Now that we have wins under our belt and where the 145 million lives at the end of 2014. How are you framing the outlook, let's maybe think of it over a two year horizon for incremental wins? I don’t want to put you on a specific timeline because I know these Blues are somewhat hard to predict, but can you help us think about the runway with a longer-term perspective? Thanks.

Yes I mean I think that we continue to believe that the evidence behind the product is what is really ultimately going to allow us to continue to capture more of the coverage decisions and it's not that we have not been meeting with and having discussions with the payers -- all of them we have, so we're pretty confident that we will have some success in that area this year. And then, we would look for more payers moving to contracts after we earn the coverage with them for a while.

I would just add Steve, to that, I've always believed that the Blue cost with shell plans are where the challenge has been because there are so many of them in the country and moving that needle dramatically is what ultimately moves our ASP. And I always believe and I still believe that getting a few of them to start to fall is the beginning of seeing changing them starting to fall and the progress that we've made this year has been tremendous. And while there's only been a few larger ones like Horizon and High Mark that have flipped; the fact that they're starting to fall and we're at the number we are including our home plan we believe is a really good indication of where this ultimately will end up because they tend to want to move together because that's one of the benefits of being a part of the Blue cost -- Blue shell system is that they tend to have relatively consistent medical policies. And then I would note secondarily that a lot of this is also putting the ground work in place for rapid expansion into new verticals and we believe that getting contracts done really sets us up nicely to be able to have discussions with payers that are much more rational than standing outside the healthcare tent and flinging new products at them hoping they'll notice. So being a part of the network and being part of the family allows you to sit down and have those dialogues which we believe will help us drive Percepta and then ultimately the IPF product on a faster timeline. That's the strategy over the next few years.

Clearly our number one managed care priority in 2015 is the Blue’s coverage and also you may have noted we did flip in one new coverage decision that just happened with Independence that just announced on the call, so as Chris said we're in a good mode of momentum with them and we expect that to continue.

Thank you. Our next question comes from Doug Schenkel from Cowen & Company. Your line is open, please go ahead.

I just wanted to try to clarify a few of your revenue guidance assumptions some of this has been touched upon earlier but I think there's just a few things that just may still need to be addressed. So just to clarify on GEC ASPs it sounds like you said you expect stable pricing but then you noted that adding contracted lives as a percentage of mix does typically depress price a little bit, so is the right way to think about this that your guidance assumes no incremental pricing pressure relative to Q4 levels given you’re not factoring in any assumption for additional contract of lives, but that given the timing of the contract you’ve entered into over the last several year quarters that overall GEC ASP would be a bit lower in 2015 on average than they were in 2014, is that the right way to think about it?

No, actually we -- the suppression is going to come just on the cytopathology side.

So it’s so cytopath, okay.

Yes, that’s all cyto, on the GEC, I think as Shelly said between say, 2,100 to 2,200 that average that includes everything from full pay and no pay.

Okay.

That is right now that average is really pulled down by the large plans that have not yet made a coverage decision, so what we just wanted to be transparent about is until we’re able to capture one of those, it will be difficult to see that pushed up. And again when that happens obviously we will be revealing that and depending on that when it happens in the year, there could be some upside. But it’s kind of out of our control and if they came close to the end of the year it likely would set us great for 2016, but maybe what have them much expansion room to ‘15.

Okay.

Shelly, do you have anything add to that?

No, I think that’s exactly right. When we enter into these contracts the novel technology that we bring is the GEC and that’s very valuable given the savings to the system, et cetera. What we do find that was mentioned in prior calls is that the cytopathology really is routine and is done by many different parties and so that is where we have the pressure because they may have other contracts with other providers that are at much slower volume discounts.

Keep in mind also Doug that we are really incented to not enter into contracts with commercial payers that could ultimately have an impact on our Medicare pricing, so we sort of view the coverage decision as the one that allows to us maintain really attractive reimbursement because we accrual those to less price, but once we make a decision to contract we really have no incentive to enter a contract that would be at an unacceptable value to the test which we believe is at Medicare rate or higher.

Okay that’s really helpful so just a couple of follow-ups, what is the percentage decline that’s factored in guidance for FNA ASPs for the reasons that you just described?

I think one of the sort of things that we look at is that, if traditionally commercial payers did pay quite bit over what Medicare paid and Medicare does pay $150 for those. You’re going to see probably pricing that will land you quite off of where that Medicare rate is today. And that will for some that of various payers in different regions, but I would below what the Medicare rate is today.

And how much capture of previously non-accrued revenue is factored and I guess really what’s the mix of non-accrued versus accrued revenue, which is built into your guidance range?

And I don’t think that we’re disclosing that, what we have agreed that we will disclose what the percentages are in this last fourth quarter it was 41%. We do have in our models when we anticipate the various payers will go into an accrual status but I think it’s very hard for us to give any forward predictions to any of you to build into your model. And we will tell you when there is a larger spike of something coming into a quarter because as you understand it pulls from later quarters because the cash is coming in usually over the lag period of time. So we don’t give -- when we’re giving guidance on what I think that percentage rate will be next year and it’s also pretty hard if all of sudden got a number of big Blue’s plans and they all start to paying a lot of more as we did last year. We went from the accrued rates of 35% to 38% and then down to 30% and 25%. So moved all over depending on various payers and this fourth quarter was 41%.

And the United -- on that topic with United and Cigna contracts going into play at the end of 2014 or certainly over the last couple of months is it possible those turned into accruing revenue to this year or is that something that’s more likely 2016?

We won’t disclose the exact names of which payers when they move accrual, we’ll obviously tell you when various payers move to contracts and it’s just the question when we can have some pretty small estimates of those reimbursements based on payment history and such.

Okay, two more quick ones, no assumptions for Percepta in guidance in terms of revenue with contribution, is that correct?

Yes, minimal because what we anticipate is that this year we will make that available commercially and yet we will be conducting those clinical utilities studies and getting the dossier ready to submit for Medicare. Medicare is over 50% of the population in this segment and therefore it’s important for us to be able to make the strongest case possible to them. Just as we did with thyroid, we don’t want to being to ramp huge amounts of volume and sales where there is no reimbursement available for it. So we traditionally said in the past that we don’t anticipate significant revenue for the Percepta product until 2017.

And that’s based on assuming Medicare coverage would come in '16.

Got it. Okay, very last one it's really late in quarter only about a week or so left. Seems like you would have pretty good visibility at this point on any surprises that popped up, positive or negative. Is there anything that you'd want to call out in terms of whether impact or any other dynamics that may have come into play that cut you by surprise? You did talk about seasonality before, that’s typical, but anything abnormal that’s worth us contemplating as we build out our model given your visibility at this point in the quarter?

Certainly our guidance for '15 does reflect what we anticipate the Q -- first quarter performance to be. But just to reiterate the seasonality that we have seen historically does have impact in Q1 when there is severe weather, we had some of that last year. We certainly have had a tough January-February especially in the Northeast. So we would expect that seasonality and impact of weather to be there and then also just as a reminder, we also have historically seen seasonality between Q2-Q3 because so much of our business is doctors' office related and when they take vacations and attend conferences, et cetera we have that impact as well. And then as we saw this year and have seen in prior years usually Q4 is our larger cash collections month. And then of course depending on how accruals versus cash payers revenue flows through the year, that can have a more significant or less significant impact. But we expect the cadence to the business to be very similar to the cadence that we've seen where Q1 is usually at or slightly below where we've come in for Q4.

Thank you. We're showing no further questions at this time. I'd like to hand the conference over to Ms. Bonnie Anderson, President and Chief Executive Officer.

Thank you all for joining us today. We really appreciate the ongoing support of Veracyte in our mission and we look forward to updating you on our progress in the near future on our Q1 call. Thank you for joining us.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect and have a wonderful day.