Veracyte, Inc. (VCYT) Q1 2015 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the Veracyte’s First Quarter 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will 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'd now like to turn the conference over to your host, Ms. Shelly Guyer, Chief Financial Officer. Ma'am, please go ahead.

Good afternoon, everyone and thank you for joining us today for our First Quarter 2015 Financial Results Conference Call. Joining me today are Bonnie Anderson, President and Chief Executive Officer, and Chris Hall, Chief Operating 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 products pipeline; execution of our sales and marketing strategy; positive influence of professional guidelines on physician adoption of our tests; growth and 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 Annual report on Form 10-K for the year ended December 31, 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 first quarter 2015, crossed the wire earlier this afternoon 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 had another strong quarter in which we continued to drive Afirma growth further establishing it as the new standard of care in thyroid nodule diagnosis, as we increased the breadth and depth of Afirma adoption we also last month entered our second vertical market pulmonology. Turning to our first quarter results, I’ll focus on the three key areas that we use to define success in 2015, they are growth of Afirma, coverage and reimbursement progress and the advancement of our pulmonology program. Number one growth of Afirma, our Afrima business continued its positive momentum in the first three months of 2015 and this is reflected in our financial results. Our revenue for the quarter was $11.2 million an increase of 50% compared to $7.5 million for the first quarter of 2014. We grew the number of Afirma Gene Expression Classifier of GEC test to 4020, a 30% increase compared to the same quarter of 2014. We continue to drive adoption among institutions which feature a thought leader endocrinologist and represent a higher margin opportunity. As a reminder, we offer our Afirma enabled model to institutional accounts comprising hospitals, academic centers and health systems which handled cytopathology at their in-house lab and send us fine needle aspiration or FNA samples for GEC testing only, when their cytopathology are indeterminate. A couple of key points to note, the first the number of GEC only samples received increased by more than 100% in the first quarter of 2015 compared to the first quarter of 2014 and secondly the number of FNAs received for GEC only testing as a percent of all FNA samples received during the first quarter of 2015 increased to a 11% up from 6% in the first quarter of 2014. These numbers illustrate our ongoing success with institutional customers. At the same time, we continue to grow FNA volume in the community physician office market where we offer our full solution. We believe our strong growth in both market segments stems from the expansion of our sales team in 2014 which is working hand in hand with Genzyme’s fully engaged sales force. In April of this year, we entered our second international market for the Afirma GEC through an exclusive agreement with NewBridge Pharmaceuticals which commercialize our test in the Middle East and North Africa. As you know, our global strategy is to enter international markets where the adoption opportunity and reimbursement landscape are attractive and our partners have a strong local track record for commercializing novel molecular diagnostics. NewBridge is a perfect example of this, they will exclusively promote Afirma in their territory which is slightly different than our agreement in Brazil where we partner with Fleury, our local lab that drive adoption through Genzyme. Our second key area is coverage and reimbursement progress. In April, we received coverage for the Afirma GEC from CareFirst, a Blue Cross Blue Shield plan covering the Mid-Atlantic region. This follows the addition of another Blues plan during the first quarter Hawaii Medical Service Association, these underscore our focus on achieving additional positive coverage policies especially from the Blues network to expand reimbursement. We now have nearly 150 million covered lives for the Afirma GEC including over 15 million lives through Blues plans. We continue to make payer coverage in contracts a top priority with emphasis on the Blues plans where we have the greatest opportunity for positive impact. The results of the first quarter confirm we are on track to achieve the performance goals we established for 2015. We reiterate our 2015 guidance to achieve annual Afirma GEC volumes in the range of 19,000 to 21,000 reported tests and the annual revenue of $48 million to $53 million. At the mid-point, this represents a 32% increase in year-over-year revenue. So to summarize, we continue to strengthen our Afirma franchise, we have momentum through end network contracts with payers who have already issued positive medical coverage decisions for the GEC. We have additional positive medical coverage policies to further expand reimbursement particularly from the Blues plans, we expect continued up tick of our GEC test by institutions where we’ve proven our Afrima enabled model works and finally, we expect new professional guidelines to positively influence physician adoption of Afirma. Now before I discuss the advancement of our pulmonology program, I would turn the call over to Shelly to review our financial results for the first quarter of 2015 driven by our Afirma franchise.

Thanks Bonnie. As Bonnie indicated, we experienced consistent Afirma revenue growth for the first quarter of the year, our revenue for the first quarter 2015 was $11.2 million, up from $7.5 million for the same period in 2014, an increase of 50%. Of note in the first quarter, we accrued revenue of $5.4 million or 48% of our total revenue due to several new payers meeting our criteria of being able to make a reasonable estimate of reimbursement. This is up from 41% which we accrued in the fourth quarter of 2014. We’ve reported 4020 Afirma GEC tests during the first quarter 2015, a year-over-year increase of 30%. The number of GEC only samples increased to 11% of all FNAs received during the first quarter compared to 6% in the first quarter of the prior year. We caution that this percentage will continue to vary as the number of full solution FNAs versus GEC only FNAs fluctuate. Indeed, we did experience a seasonality that we expect to occur as the number of tests conducted in the first quarter was slightly suppressed compared to the fourth quarter due to weather, holidays, conferences and such which is a pattern we have seen in the past. Recall that we typically see growth in the second quarter on the seasonal basis. Our gross margin “for the first quarter of 2014 was 59%”, which was aided by the additional accrual of one payer which provided a bump of approximately $285,000 as well as come catch up cash payments in the quarter. As noted previously this percentage can change due to the lumpiness of payments and thus we do not expect the gross margin to stay at these levels through the remainder of the year. We anticipate that these margins will remain relatively flat in 2015 compared to 2014 absolute increase in the average reimbursements for the GEC which in this quarter is over $2,200. And as previously noted, we believe the GEC reimbursement rate will remain fairly static until we securing increased payments from major Blues plans that do not currently cover the test. Operating expenses for the first quarter of 2015 were $18.8 million compared to $14.1 million for the comparable period in 2014. Let’s break this down into its component parts, cost of revenue for the quarter ended March 31, 2015 was $4.6 million compared to $3.6 million for the same period in 2014. The increase was due primarily to higher variable cost that are directly related to the growth in the number of samples received offset in part by continuing refinement in our test process and economies of scale related to the increase in tests processed. Research and development expense for the first quarter of 2015 was $2.8 million compared to $2.1 million for the same quarter in 2014, the increase was primarily due to direct R&D expenses related to increases in personnel and stock based compensation expenses for new and existing employees and to Genome sequencing and other laboratory expenses. We expected our research and development expense will increase as we continue to invest in thyroid studies, clinical utility studies for Percepta and product development and clinical trials for IPF test. Selling and marketing expense for the first quarter $5.6 million, compared to $4.3 million in 2014. This increase was due to an increase in headcount of our sales force and the associated cost of the additional personnel including related stock-based compensation expenses as well as increases in marketing expenses. Notably, the selling and marketing expense decreased from $7 million in the fourth quarter of 2014 due to reduction in the co-promotion percentage rate payable to Genzyme on U.S. GEC sales from 32% to 15% on January 1. Looked at another way, the selling and marketing expense decreased from 57% of revenue in the fourth quarter of 2014 to 50% in the first quarter of 2015. General and administrative expense for the first quarter of 2015 was $5.8 million compared to $4 million in the same quarter of last year. The increase was due primarily to an increase in personnel related expense from increased headcount, higher professional fees including higher audit, legal and consulting and other corporate expenses including insurance. Net loss for the first quarter of 2015 was $7.6 million, a $0.34 per common share compared to a net loss of $6.7 million or $0.32 per common share for the same period in 2014. Cash and cash equivalents as of March 31, 2015 totaled $25.8 million compared to $35 million at the close of last year. As we guided during our 2014 year end investor conference call, we expected our cash burn to be higher in the first quarter as we incurred cost related to bonuses, payroll increases and annual audit and legal fees related to filings. After the quarter on April 28, we completed a pilot placement of common stock to new and existing investors with net proceeds of $37.3 million after placement agencies and expenses. We will be filing an S-3 registration statement to register key shares. A few important additional factors affecting our financials that should be noted as investors and analysts model our business. First when we acquired Allegro, the fair share of the IP R&D of $16 million was capitalized as of the closing date of the merger and was accounted for as an indefinite lived intangible asset. With the launch of Percepta in April, we deemed that we have completed R&D activities and under our accounting policy for intangible assets. We now began amortizing this amount recording it on a straight line basis over its estimated useful life of 15 years, this will be a non-cash item. Second in late April, we signed a lease for a new facility enabling us to expand and scale our business, we will have some added cost in 2015 as we build out the facility, incur moving expenses and as we pay for overlapping rents until our existing lease expires in March 2016. I will now turn the call back over to Bonnie to address our portfolio expansion strategy.

Thanks Shelly. As we continued to established our Afirma solution as the new standard of care in thyroid cancer diagnosis, we also made significant progress with Veracyte’s pulmonology franchise. Last month, I had a schedule, we launched our Percepta Bronchial Genomic Classifier designed to improve lung cancer diagnosis, we made the Percepta test available to a limited number of institutions around the country and I’m pleased to report we’ve already began testing patient samples in our clear certified laboratory. The Percepta test is designed to reduce the number of invasive biopsies and other procedures that can follow when potentially cancer lung nodules or regions are found on CT scans. The test is used when results from bronchoscopy are inconclusive which occurs about 40% of the time and when this happens, cancer cannot be ruled out. The Percepta test increases the sensitivity and utility of a bronchoscopy by evaluating a nodules likelihood of cancer without the need to sample it directly. The patient sample is collected when the b bronchoscopy is conducted and that helps to ensure that the test is smoothly into the physicians existing workflow. The Percepta classifier is designed to identify patients whose lung nodules are at a low risk of malignancy so that they can be monitored with CT scans in lieu of invasive diagnostic procedures. Our Percepta test has been validated in three large studies with more than a 1000 patients enrolled in over 30 U.S. and international sites. These studies include the AEGIS-1 and AEGIS-2 pivotal, prospective multi-center clinical validation studies. Data from AEGIS-2 study will be presented next week at the American Thoracic Society Conference. AEGIS-1 data were presented at the ATS Meeting last year and data from both studies have been submitted for publication in a top tier medical journal. Meanwhile this week we announced the publication of the duration of the Genomic Classifier coupled with the small independent test set in the journal BMC Genomic Medicine. We are thrilled with publication of key data and our substantial library of clinical evidence that will be used to secure coverage and reimbursement for Percepta. Our entrance into the lung cancer market is timely. Earlier, this year more than 8 million Americans at high risk for lung cancer have become eligible for annual CT screening through new private insurer and Medicare coverage requirements. While this increased screening will undoubtedly save lives, it could increase the risk of unnecessary invasive and costly procedures. This underscores the strong clinical and public health need for Percepta. Commercially we’re offering Percepta at select sites, while we build the clinical evidence needed to support reimbursement. This includes demonstrating clinical utility and how Percepta changes clinical practice. We’re aiming towards Medicare coverage in 2016 and reiterate our expectation that meaningful revenue from Percepta sales will ramp in 2017. We also remain on track to expand our pulmonology offering with the 2016 launch of a second product targeting idiopathic pulmonary fibrosis or IPF. Next week also at the ATS Conference we’ll present initial clinical data demonstrating the performance of our IPF test on bronchoscopy samples, the type of sample we will use in commercialization. We also have submitted earlier proof-of-concept data for publication in a top tier journal. As we did with Afirma we’re deploying rigorous science in clinical studies to develop and validate the performance of our lung disease test. This upfront work will be key to our test adoption and reimbursement and ultimately in changing the standard of care in disease diagnosis. On an additional corporate note, last month we announced a novel research collaboration with GE to explore the notion of deriving innovative diagnostic approaches from a combination of digital imaging and genomic technologies. Importantly, this research opportunity has enabled by our expensive database of clinical, imaging and genomic data that we have amassed from the multi-center clinical trials that have been conducted to develop and validate our genomic tests. We look forward to keeping you apprised of future product progress with this novel program. Thank you for your time and attention. I’d now like to ask the operator to please open the call up for questions.

Thank you. [Operator Instructions] Our first question comes from Doug Schenkel with Cowen & Company. Your line is open. Please go ahead.

Hi good afternoon this is actually Chris on for Doug today, thanks for taking my question. My first question would be can you talk about self conversion process for new Afirma accounts. I was just wondering if this is getting quicker given the amount of marketing and awareness for Afirma the additional data you guys have and improved sales force productivity?

Chris great to have you join us today on the call. Yes we always felt that the expansion of our sales team last year at the end of the year set us up very nicely to drive accelerated growth in Afirma and of course we still retain the entire field force of Genzyme engaged us well. So, I think both models are working we’re seeing more accelerated uptick as we maintain in the institutional accounts, but continue to see great growth in the community practices as well.

Okay and then maybe on Percepta are there milestones that you could reach that will cause you to accelerate the investment and I guess pulmonology sales force?

So our plan is to actually follow the same playbook that we use with Afirma and that is to manage on a more limited basis the adoption and volume drive of the test in order to get to reimbursement and get that in place before we accelerate uptake. So the plan will be to bring on enough sites to make sure we have the data that’s needed to support the evidence that we have utility and can show the change in patient care decisions. We’ll obviously be working with sites across the country to do that, but ultimately plan to keep that somewhat limited until we get the evidence package together and are able to get Medicare coverage, which we expect to happen in '16, which then will follow with revenue ramp for the product.

Yeah the only thing I would add is that we’re really -- since we’ve done the acquisition, really our excitement for this product has continued to grow. If you read a lot of the local, a lot of the press, it’s been occurring and a lot of the media attention around the lung screening problem is only accelerated since we’ve done the acquisition and we've only to continued to get even more positive feedback from the community about what we’re doing. So we continue to remain really upbeat about the product and its role will make difference in patient's lives.

So some of the key milestones will include the publication of data. As we mentioned, we announced just this week actually that first publication AEGIS-2 data will be presented next week at ATS. Both AEGIS-1 and AEGIS-2 data coming out in publication will be key and then there will be other publications analytical validity etcetera that we also expect to follow that and that will allow you to kind of monitor the progress of the program.

Okay maybe just one final question for Shelly, so G&A expense increased I think 10% q-over-q, we had sort of expected G&A to increase on this slightly from 14% to 15%. Can you just talk about the pacing for G&A for the rest of the year please?

Yeah I think we had a big impact in this quarter. This is the quarter that we spend a lot on audit fees and such. Remember we’re a young company that needs to comply with SOX and we spent money on consultants and such. And as a public company, we also this year versus last year have higher rates for insurance and then I would add consultants and such that fall under G&A on a more regular linear basis we do have our billing for instance within G&A and so that will continue to grow up over time as the volume increases. I don’t think you’ll have as much of a step wise function over the year and as much of an increase from that perspective, but I do expect that it will continue on an upward trend as we continue to grow the company. And as I noted in part of my discussion we will be moving this year and that is something new that we have not talked about yet. So I would add some cost in from that perspective and we’re not quite ready to talk details about that yet. But we since we’ve just signed that contract, but that is something that will be a higher spend for the coming six months and probably nine months than would have had before.

Great, thanks for taking my questions.

Thank you.

Thank you. And our next question comes from the line of Amanda Murphy with William Blair. Your line is open. Please go ahead.

Hi good afternoon. So I just had a follow-up to Chris’s question on Percepta, so you mentioned in the answer to sort of the initial clinical reaction and positive I was curious if you could maybe expand on that a bit just how our I know it’s early, but how are docs that are using it now incorporating it into practice and then I’m assuming you’re not recognizing any revenue at all from that at this point is that true?

Hi Amanda thanks for your question and joining us today. Yes that’s true. We’re not expecting to recognize revenue with Percepta this year. So as we bring the product to market, our expectation was that we would be able to position the test to inform on inclusive bronchoscopies. As you may recall bronchoscopies themselves have about a 40% rate of not being able to rollout malignancy and we always felt that was one of the most challenging point in the diagnostic workup from a physician standpoint. And I think our early feedback from the clinical sites that are now adopting the test are confirming that that really is a great place to position a test to inform on that inconclusive result, so that a physician has better information and can potentially use this test that can reduce the risk of malignancy on some of those patients. So that they can adopt CT surveillance in lieu of a diagnostic invasive biopsy or surgical procedure and we’re seeing that play out in the early pick up of the test.

And then I just kind of thinking about that given the commentary around revenue recognition expectations for Percepta, how do we -- I’m assuming that will then win on margin over time and gross margin. So I just wanted to kind of walk through that a bit over the next few quarters. How to think about margin in lieu of the ramp for Percepta?

Right so let me take the revenue and then Shelly can talk a little bit more about the margin. Our reason for being cautious around when revenue will ramp is our expectations that we want to get through that reimbursement hurdle first and at that point in time of course in '16, '17, our overall Afirma revenue will be quite significant. So when we say meaningful revenue attributed to the Percepta product it will be top line over and above where the GEC revenue will be at that point in time.

And from a quote unquote “gross margin” since we don’t really have a gross margin we would anticipate that these cost and obviously we haven’t had to deal with that in the first quarter, but from here on out, I would anticipate that those would go within the cost of revenue, sort of the COGS line you won’t have the countervailing revenue to take against it. So yes it will be a drag on the gross margin. We have indicated that we don’t expect the gross margin to go up substantially this year and that in fact this quarter was probably a little higher because of those onetime factors. But I think of the volume amounts that we’re talking about will be to de minimis for this year because we are just trying to get sites up and running and it's not going to be a huge push with a 30% sales force for instance. So it will be very measured from that perspective and I wouldn’t think there would be a large drag from that point of view.

Got it. That’s helpful. And then just last one on the Pharma side of the business, so obviously you continued to have great growth there and you talked the institutional tracks you’re getting. So I was just curious at this point, what is that, is it just a function of getting the word out in terms of continuing to drive adoption there or is there anything that you need to overcome in terms of physician uses of the test obviously, you have some payers that aren’t covering it so but, you have pretty board adoption. So just wondering, what if there is anything from a barrier perspective that you need to work out still in that side of the business?

Yeah, I think it’s always about getting the word out. It's always about going in and talking to physician. It's always about working in the lab of people within institution, within accounts. But I would say that, in all of our market research and all of our discussions with physicians the one thing that keeps coming back that does hold us back is the inability to be in all of these insurance company’s contracts and be covered. And because what happens, when that plays out is that a physician orders or tests it’s out of network and then automatically an insurance company begins harassing the doctor asking for why they went out of network for something. And that’s a hassle factor and its easier sometimes to either niche the product with the payer where its covered and ignore all the others or just wait until its further along in the adoption phase. And so, while we believe this product is the fastest adopted by insurance companies of any molecular diagnostic products are certainly one of the fastest of any of them. It’s a journey and we still are working through the process of getting covered and contracted and as that happens, the barriers to doing business with Veracyte goes down dramatically and it makes it really easy for a physician, a patient to a first samples to us.

Got it. Thanks very much.

Thank you.

Thank you. And our next question comes from the line of Kevin Chen with Leerink Partners. Your line is open. Please go ahead.

Good afternoon. I am filling in for Dan today and thank you for taking my questions. My first question is I believe the GC number came in bit lower than expected and were there drivers other than weather and seasonality?

No, in fact I think that you’ve mailed it. We have always said in the seasonality of the business at Q1 tends to be light, either flat of slightly down to Q4 and of course this year as you know the weather in January and February was quite severe in part of the countries. And so we expect the cadence of the business through the rest of the year to be what it has typically been in prior years and feel very positive that the guidance that we set for the year not giving annual quarterly guidance, but the guidance that we've set for the year is very achievable and we're right on track to do that.

Okay, great and just follow up, is there a widest version and do you see utilization rates in one of the community's doctors and if so what are the driving force is or is just pretty well balanced in general?

Well utilization is, there is a wide standard deviation around volume by account because there are large group practices with multiple doctors that drives fairly high volumes. There are many doctors that practice in single practices that may do as few as 2 to 5 FNAs a month. Chris anything you could add to that?

Yeah, the only thing I think this is, the one thing that, you do tend to see and we see it is that again it’s insurance, these insurance issues that drive so much on the ground and so in parts of the country where patients tend to have higher out of network benefits because there is a higher penetration of PPO plans, those tend to have higher adoption rates than places were HMOs tend to be much more of tend to be much more pervasive. I will say that one of our, our things within institutions, this last year was a year where we launched into a lot of institutions and as this year goes on we believe it's always an opportunity to go deeper, deeper, deeper, within institutions because in some of these chains, hospital chains for example there will be five chains, one role adopt to Pharma and then part of the message, part of the sales challenges to get the second, the third, the fourth, the fifth and begin to drive that through the entire system and that process is well where in swing out right now. Hopefully that helps and that's what you were asking.

Yeah, actually it kind of releases my next question, which you kind of answer already but maybe you guys have seen a lot of success in the institutional accounts, does that cross over and does have any impact on the sales process in the community setting?

No, we have a sales team along with Genzyme that covers the whole market because as you know some of these physician office practices are part of the institutional accounts. So there is some overlap in that regard but I think the reason, the rate of growth is faster, currently in institutions is because we had a lot of market shares there to begin with. So higher growth rate of smaller numbers, but we’re pleased to see the continued momentum in both segments of the market because that means both of the business models are working well.

Great, thanks so much.

Thank you.

Thank you. And our next question comes from the line of Steve Beuchaw with Morgan Stanley. Your line is open. Please go ahead.

Hi, good afternoon team. Thanks for taking the questions.

Hi, Steve.

Bonnie, I wonder if we could start on the blues. I wonder if you have any incremental thoughts color perspective on enter HCFC the reminder of that initiative there to get into the blues, are you feeling any differently now then you were, 90 days about how that process is evolving?

Well, I think as we’ve always said we feel like we are really making great progress with the blues. And I think if you go back to mid last year, every single quarter now we're taking more of those plans off the lift, including the two that just came on recently in the first quarter and second quarter of this year. So we now have over $15 million lives over the blues. Certainly that two big wins that are working toward have not yet made those decisions, but we are feeling very good about the progress that’s being made and the way the discussions are involving and I think we’re still very confident that we’re going to be able to get the rest of the key blues plans there.

Okay, I’ll take that as an incremental positive. And then Shelly on the seasonality in the model, the pacing of volume over the course of the year, if I look at the way that its evolved over the last two years, what we saw here in the first quarter is frankly right around what we would of expected, but if I just plug in seasonality from the last two years I get, something closer to the low end of the range. So I’m wondering what about the seasonality this year is different from the prior two years? Is it covers? Is it weather? Is it sales force? What I’m missing there and that will be it for me. Thanks so much.

So I’ll start and I'll let others jump in afterwards. We do always see seasonality between the fourth quarter and the first quarter. That is just a part of our business as well as many other businesses in the diagnostics area. I would also say we see seasonality and flatness between the second and third quarters. At certain periods of time those flat or down quarters in volume which are attributable to doctors taking vacations, patients taking vacations, conferences etcetera as well as winter in the season that we just went through, you will continue to see those. Sometimes those have been muted by various sales force factors in the summer of 2012. I think it was Genzyme had just come on and we had a lot more feet on the street that summer and so it went up a tad, but in general, we do see flat to down between the fourth quarter and first quarter and between the second and third quarters in terms of volume. So this is no different. I would say this was a particularly bad winter in certain parts of the country, where we do quite well and therefore we might have had greater impact this year than we did even last year, which was also a bad winter.

Is the step up relative to last year going to be bigger in 2Q versus 1Q or 4Q versus 3Q, where is the inflexion there?

Well I think so we were using a little bit different metrics last year in overall FNA number now we’re focused on GEC and the reason that’s important is obviously fewer samples may come in given the GEC only volume. So I think as we look at our own plan through the year, we’re actually right on track with where we expected the business to be and feel very confident that that will play out.

Okay. Got it.

So there is no thought of changing any of that guidance absolutely comfortable with where we’re in that volume.

Thanks so much.

Okay. Thank you.

Thank you. And our next question comes from the line of Bill Quirk with Piper Jaffray. Your line is open. Please go ahead.

Great, good afternoon everyone. This is actually Alex Nowak in for Bill.

Hi Alex.

Hi. So the guidance still assume GEC ASPs which mean 2100 and 2200 because I believe you said it was just above this range in this quarter?

Yes so the guidance, we didn’t give you exact numbers, we said we didn’t think that it would change dramatically from where it was last year, it has inched up, but I would say inched and I wouldn’t say huge leaps and bounce and as we’ve reiterated, as we’ve said in the past, the Blues are the thing that will really change that because they are the ones that are paying at the lower end of the scale at this point that 2100 now 2200 all end price that we get for the GEC actually includes those that pay zero, those that pay low amounts of Medicare and those that pay full amounts. So if we can bring up those that are paying at the lower end of the scale right now and those happen to be more of the Blues than others, we will get a tick up over time. What we said, when we gave the guidance is we did not want you guys to build that end because we don’t control or have predictability about when various Blues will switch over to coverage or to contracts. So we’re comfortable with where we have been and it’s a tad higher probably not that we had in our models but that we gave as guidance.

Okay, great, excellent. And then are you starting to see any increase in volumes or even payment in March due to the Category 1 CBT code?

Actually the CBT code went effective but it won’t actually go under implementation until the early part of 2016. So no we have not seen any direct effects of that yet. But expect to have some positive effects from that as it’s gets implemented.

Okay. Excellent and then final question, can you breakout where the FNA volume was in the quarter just to compare year-over-year?

I think that we gave, Shelly did we…

Yes I’ll look for that, I’ll come back to you, I thought we give that number.

Okay, great, thanks.

Thank you.

Thank you. And our next question comes from the line of Drew Jones with Stephens. Your line is open. Please go ahead.

Thanks, good afternoon.

Good afternoon, Drew.

Could you kind of give us an update on how the uptake on malignancy classifiers is going with Afirma?

Sure Chris.

Yes it continues to grow as a percentage of samples, we haven’t broken it out or disclosed it. We’ve used it primarily as a way to cement the relationship whether rollover Afirma physicians is a single one-stop shop for everything they can possibly need to know about thyroid FNAs before they make surgery decisions so that they don’t have to do repeat biopsies. We’ve been -- we’ve positioned over a quite some time we positioned Afirma and the best thing for the patient is to get all that you could possibly get on 1 FNA and so knowing that a patient is BRAF positive may mean dependent on how physician wants to look at it to do definitely do a full thyroidectomy because BRAF when it’s there, the patient is almost always malignant. And MTC would suggest it is something more aggressive and physicians can decide what to do with that and that’s how they often approach and so we continue to put it in there and physicians can order that or not order that depending on what they think is best for their patients and for their own treatment models and it has helped to cement that relationship has continued to gain traction as time has gone on.

Are you seeing more demand for those with institutional accounts or more in the community settings?

We see in both places honestly. We don’t see one more of community and one more of institutional, it’s neither.

It’s pretty consistent.

It’s pretty consistent. The one thing that's consistent is that the main role of Afirma and the main people the reason why people choose us and choose to do this approach is they’re trying to avoid surgery. They think that using Afirma in lieu of surgery and trying to resort patients to find some people to follow via ultrasound over time rather than just rush them to surgery and do a lot of benign surgeries. That’s what’s driving our business is that still that core value proposition and the BRAF and MTC fit in nicely with that, because if you are -- if you did a partial thyroidectomy, the patient with BRAF positive and you think you have to go back and then do it totally, you would rather have that information on the front end. And if you obviously if you just do a thyroidectomy and you don’t do a full taken out for lymph nodes and everything that you would do if the patient had MTC then you have to go back and do another surgery. So both of those product extensions fit nicely with the physician and the product but really just cement underlying Afirma’s positioning and that’s how it’s been seen.

Thanks.

Great, thank you.

Thank you. And our next question comes from the line of Zarak Khurshid with Wedbush Securities. Your line is open. Please go ahead.

Good afternoon everybody. Thanks for taking the questions. I realize it’s early for pulmonology, but based on your experience to date, do you think Percepta will be an easier or tougher sell compared to the Afirma experience?

Well that’s a very good question and thanks for joining us. It’s probably a little early to make any raw predictions on it, but I think the one thing that is really compelling is that at this point in time with programs for screening of high risk patients ramping there is a genuine concern that while those programs ramp in order to try to save lives through early detection, the back side of that has the potential to really create a lot more risk and in invasive procedures and cost associated with resolving the results that aren’t clearly malignant or benign. And I think that positioning of Percepta is ideal because it fits right into the pathway for the physician who is working that patient up and is collected at the same time the bronchoscopy is collected but is only performed when those results are inconclusive. And that’s really the perfect place to position a test where you can very clearly show the value that you can create through using the test, changing care decisions and in a similar way to Afirma being able to save procedures that actually are costly and risky and therefore take a lot of cost out of the healthcare system. So we are quite pleased with the continuity and the continued value of our molecular cytology approach and we think Percepta is going to be very well received and is hitting the market at probably particularly timely moment.

Yes I would just add Bonnie’s generalize way too early to tell. I would add that I suspected as we get in and have discussions with insurance companies which are also our customer that they will get their arms wrapped around their story really quickly because all the feedback is that insurance carriers are very worried about what they have to get in too here with all the screening given the Affordable Care Act mandates and I suspect as we have those discussions they will have their head wrapped around this story, the story pretty quickly.

Though we have some milestones to get through data publications and continuing to build that evidence and get coverage before we can start to see that unfold. So thank you for your questions.

Thanks for the color guys.

I would also like to note as a response to Alex question earlier it certainly is in the queue reported but the total number of FNAs for Q1 was 17,315 FNAs received, that of course would be FNAs for the full solution as well as well as those received for GEC only.

Thank you. [Operator Instructions] And I’m showing a question from [Sharon with BTTI] [ph]. Your line is open. Please go ahead.

Hi guys can you hear me.

Hi Sharon we can hear you.

Excellent so just a couple of questions, not to beat a dead horse here I know it’s really hard to quantify what GEC growth could have been if winter if the winter was more normal, but if you think about the accounts that you have in the parts of the country that were more impacted by the harsh winter and you kind of looked at same-store sales do you think it’s fair to think that GECs would have grown sequentially without the awful winter?

No I think that we -- when we kind of set the tone and direction even coming into the end of last year, we’ve always said that the seasonality really plays a factor and we had other years where it was flat to slightly down and others as surely weather maybe was a slight uptick. But as we modeled out the cadence through the year considering seasonality, we actually were very much in line with where we expected the business to be.

Okay and the weather was worst than you expected right?

Yes, the weather was definitely a bigger factor I think this year even in last year. So we were really quite pleased.

Okay. And then obviously the direct GEC samples are growing quite nicely and I know you mentioned before that this is a function of both going deeper and picking up new institutional accounts. But I’m wondering how much of the factor offering the Afirma enabled model has been and we think about your pipeline of institutional accounts or are there a lot of accounts that are now coming on board that maybe were a little bit hesitant before, because they were they wanted to the cytopathology in-house?

Well I think we to put it in perspective I think we mentioned that this quarter 11% of the F&A is coming through door for GEC only so that means 89% of the samples coming through the door or still for the full solution. So from that perspective still a very strong part of our business I think GEC only growth rate is significantly higher, because that obviously is still working up from a lower number to begin with. The key takeaway I think is that with both models working and strong growth coming from both segments of the market that’s really the that’s a key take home, because a year ago as we were sitting having this call. We had not yet demonstrated significant success in being able to convert into institutions with the operational model we call the Afirma enabled model. So with where we sit now we can continue to drive both of those models in the accounts in the way that it fits best into their practice. And yeah we do think having both of those offerings out there and available does give physicians and institutions just to comfort in knowing that they can come onboard in a model that’s going to work best in their environment.

Okay. Great and just my last question on Percepta, can you discuss any potential timelines around running a clinical utility and/or cost effective in the study?

Yeah so as we said taking kind of a controlled approach to the commercialization is to get site seeded so that we can indeed continue to enroll play patients and rollout clinical utility studies probably will not be just one, but we’ll have multiple ways of looking at clinical utility. And then doing that in a manner that allows us to collect data showing that since we’re commercial physicians are changing to patient care decisions based on the results of the test. That all sort of folds together that cost effectiveness sort of all goes hand in hand in having real commercial use of the test and that’s the stage we’re in we plan to continue to ramp that build the level of evidence get more of these studies published and have a package that we’re hoping can grow in a reimbursement we’re targeting in 2016 and then that’s the basis for sales ramp in 2016. So that sort of the way we see it unfolding and that’s how that timeline fits together.

And so you would think that we’d see a clinically utility study published kind of before that CMS reimbursement decision?

Yes we would expect that we would have potentially utility studies and other studies come out as we said both AEGIS studies still pending publication and we’ll have to have a good library of event in order to garner our coverage by Medicare.

Okay. Great. Thank for taking the questions.

Thank you.

Thank you. And we have a follow-up question from the line of Zarak Khurshid with Wedbush Securities. Your line is open. Please go ahead.

Thanks for letting me squeeze in a follow-up guys, just a question on guidance I was wondering what that assumes in the way of the network contracts outside of the blues this year I guess put it another ways let’s say into few in that were contracts with large payers this year what could that add on top of the guidance that you laid out. Thanks a lot.

Yes, so I would say that we would provide a little caution in too much uptake coming from the conversion of a covered payer to one that would be in network, because we work on pretty intently on once a coverage decision is made to extract the value by gaining those payments to appeals where we need to once a medical policy is drafted and we have a lot of success doing that. We manage our billing and manage care operations in-house and so we had a lot of success moving payers from no coverage to coverage and seeing that uptake in the value that we’re able to extract. But once the payer is under coverage and we’re seeing that success the incremental of them moving from a coverage decision to contracting is really minimal and possibly no incremental revenue, because we have such success under contract at getting our price that we bill for the test paid. That under contract you usually give up some sort of percent in order to get that contracted rate, but they would typically have less of it be it be patient responsibility, which is a little bit harder to collect so net-net it ends up that we actually extract pretty close to same revenue from a coverage decision and in network contract. What can happen as happened in last quarter and what happened to a smaller extent in this quarter is that if the contract then allows the revenue to meet criteria of being very predictable then in the quarter at which we begin accruing you get the benefit of the cash payments that came in prior to that accrue and whatever was accrued for that payer in that same quarter. And that was little more expensive in Q4 and to a less of a grace or little bit of up-tick in that in Q1 so those of the variables that you want to keep a close eye on.

Thanks Bonnie.

Thank you.

Thank you. And I’m showing no further questions at this time. And I’d like to turn the conference back to Ms Bonnie Anderson for any closing remarks.

Thank you all for joining us today. As we approach the mid-year mark our focus remains intently on further growing the Afirma business and as we said, we’re on track with our revenue and growth expectations for the year. At the same time we look forward to advancing our pulmonology program as we leverage the potential of our molecular cytology franchise. We appreciate your ongoing support of Veracyte and our mission and we look forward to updating you on our progress in the future. Thank you.

Well ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.