Good afternoon, ladies and gentlemen, and welcome to Veracyte’s Second Quarter 2015 Financial Results Conference Call. At this time, all participants will be in a listen-only mode. Later, there will be a chance to ask question, which instructions will be given at that time. And 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. Please go ahead.

Good afternoon, everyone and thanks for joining us today for our second quarter 2015 financial results conference call. Joining me today are Bonnie Anderson, President and Chief Executive Officer, and Chris Hall, Chief Operating Officer. During the course of this call, we may make forward-looking statements that are not purely historical regarding Veracyte's Management intention, beliefs, expectations and strategies for the future, including those relating to scale and sustainability, future growth, future revenues, strategic investments, product expansion, geographic expansion and market growth. Because such statements deal with future events, they're subject to various risks and uncertainties and actual results may differ materially from the company's current expectations described in this call. Additional information concerning factors that could cause actual results to differ materially and those in the forward-looking statements can be found in Veracyte's annual report on Form 10-K, quarterly reports on Form 10-Q and other filigns with the U.S. Securities and Exchange Commission in additional to today's press release. The forward-looking statements in the call are valid as of August 13, 2015 and Veracyte assumes no obligation to publicly update these forward-looking statements. Our financial results press release for the second quarter of 2015 crossed the wire short while ago and is available on the Investor Relations page of our website at veracyte.com. I will now turn the call over to Bonnie.

Thank you, Shelly. Good afternoon, everyone, and thanks for joining us today. We executed very well in the second quarter driving growth for our Afirma Gene Expression Classifier, which we believe has created a new standard of care in thyroid nodule diagnosis. Thousands of physicians are ordering Afirma and approximately 150 million patients nationwide are now covered for the test through their insurers. In the first half of 2015, our revenue was $23.1 million a 43% increase in revenue compared to the first half of 2014. As the midpoint of the year, we're pleased with the progress we're seeing as we launch our Percepta Bronchial Genomic Classifier into our next clinical area pulmonology. Turning to our second quarter results, I will focus on the three key areas that we use to define our success in 2015. They are the growth of Afirma, coverage and reimbursement progress and the advancement of our pulmonology program. Number one, growth of Afirma; an increasing number of community endocrinologists and institutions are using the Afirma GEC given its demonstrated value in helping patients with fibromyalgia that are suspicious for cancer avoid unnecessary surgery. We are on track to achieve our 2015 goals for Afirma. Our revenue for the second quarter was $11.9 million compared to $8.7 million for the second quarter and 2014, a 37% increase. We reported 4,758 Afirma GEC test in the quarter a 38% increase compared to the same quarter of 2014 and an 18% increase over the first quarter of 2015. Combined with the first quarter we reported 8,778 Afirma GECs year-to-date. We continue to leverage our flexible business model to meet the diverse needs of our customers. Specifically it is common for community physicians to utilize our full solution. They send their Fine Needle Aspiration or FNA samples to Veracyte…

Thanks Bonnie. As Bonnie indicated, we have had a great quarter including completing some significant accomplishments on the financial side. In April, we executed a $40 million private placement of common stock to new and existing investors with net proceeds of approximately $37.3 million. Additionally in June as a good housekeeping measure, we filed an S-3 universal shelf registration statement, which provides us the ability to offer for sale up to $125 million of securities in the primary offering including the flexibility to opportunistically offer for sale up to $25 million of our common stock in aftermarket transactions. Additionally, we have registered up to five million secondary shares. The shelf which is now effective is good for three years. Now let me go through our financial details for the quarter. Our revenue growth was driven by additional traction in our Afirma business. Revenue for the second quarter of 2015 was $11.9 million, up from $8.7 million for the same period in 2014, an increase of 37%. Revenue for the six months ended to 30, 2015 was $23.1 million, compared to $16.2 million for the same period in 2014, an increase of 43%. Our revenue recorded for the second quarter was aided in part by the onetime pick up of approximately $240,000 as we begin to accrue several new payers. Recall at the pickup in, the first quarter was a approximately $285,000 and the fourth quarter of 2014 was approximately $800,000. Note that in the second quarter we accrued revenues of $6.6 million or 55% of our total revenue due to several new payers meeting our criteria to make a reasonable estimate of reimbursement. This is up from 30% accrual rate in a second quarter of 2014. We reported 4,758 Afirma GEC test during the second quarter of 2015, a year-over-year…

Thanks, Shelly. Let's now move to the certain key areas that defines our success, the advancement of our terminology program. The expansion of our product portfolio is underway as we engage with early adopters of our Percepta Bronchial Genomic Classifier designed to help patients avoid unnecessary invasive procedures as part of lung cancer diagnosis. We are focused on building the clinical evidence needed to secure coverage for the test. Three months ago ahead of schedule we launched Percepta and began testing patient samples in our CLIA certified laboratory. As we did with Afirma, our goal is to work with a limited number of sites approximately 50 to 75, as we fine-tune our service delivery and composite clinical data needed to approach Medicare for reimbursement. This includes studies to demonstrate how Percepta changes clinical practice. We are well on our way with nearly 25 sites signed on or in the process of signing on to get their patients access to the Percepta test. Our initial efforts have been listed by the publication of our AEGIS-1 and 2 clinical validation studies in the New England Journal of Medicine in conjunction with our presentation at the American Thoracic Society international conference. Many of you joined us for our conference call from ATS in which Dr. Avi Spira, professor of medicine at Boston University School of Medicine, provided insight into habit test [ph] and health pulmonologist identify patients with lung nodules are at low risk for malignancy following an inclusive bronchoscopy. This enables these patients to be monitored with CT scans in lieu of an invasive diagnostic procedure. Our Percepta related milestones include both completing and publishing our clinical utility and analytical that led these studies so that we can approach Medicare for coverage. We reiterate our expectations at meaningful revenue from Percepta sales will not occur until 2017. We also remain on track to expand our pulmonology offering with the 2016 launch of a second product, this one targeting idiopathic pulmonary fibrosis or IPS. Our IPS product generated significant excitement at the ATS conference where Veracyte Chief Scientific Officer, Giulia Kennedy, presented initial clinical data demonstrating the ability of the molecular classifier the molecular classifier to help distinguish IPS from other interstitial lung diseases using samples of change for bronchoscopy, the same type of sample we will use in commercialization. The ATS presentation was amplified by the publication of a paper outlining the classifiers development which appeared in the Journal The Lancet Respiratory Medicine. Similar to Afirma, we are deploying rigorous science and clinical studies to develop and validate the performance of our pulmonology offering. This upfront work will be key to adoption and reimbursement, and ultimately in changing the Standard care and lung disease diagnosis. Thank you for your time and attention, I'd now like to ask the operator to open up the call for questions.

Okay. [Operator Instructions] Your first question comes from Dan Leonard from Leerink. Dan, your line is open.

Thank you. To start off can you comment at all about the pacing of your thyroid volume expectations through the balance of year? Are you still expecting seasonality in Q3 and a big top in Q4?

Yes. So we would expect the cadence for the year to be very similar to the way it has sort of map through the quarters in prior year. The difference is I think with our end Pharma [ph] enabled model showing such momentum and driving a significant part of the GEC growth, we haven't institution portion of that business that hasn’t been as significant in prior years. But the expanded sales team coupled with Genzyme team is up to speed. The covered lives now with that being over 150 million and the in-network contracts that we have obtained we believe we're in excellent position to continue to drive the growth to achieve those goals.

Got it. And then my follow up question, Bonnie or Chris, can you comment on the impact of the new sales reps and maybe how the productivity is comparing versus expectations?

Yes, this is Chris. We are right on plan with what I expected typically it takes folks and time to get up to speed and get nimble and being able to talk about the product and navigate through it and you can see that in the results this quarter. We expected people to be hitting full productivity around now and we are starting -- and we are seeing that happen. So we feel like they are right on track and tracking really well. I would add that the relationship with Genzyme continues to go well and continue to work really in synergistic ways and the new reps that we've had in the field is really gotten into a nice rhythm working with them. Because if you remember the relationship and responsibilities changed a bit where they would help us focus on identifying leads and maintaining accounts and then our folks would focus on the transaction in between those two things. And so that rhythm has really gotten into nice cadence and you see that with the tremendous quarter-over-quarter growth and then obviously annual growth.

Okay. Thank you.

Thank you, Dan.

Thank you. So we'll take our next question from Amanda Murphy from William Blair. Amanda, your line is open.

Hi, good afternoon. Just a question on the impact of in-network contracts. Can you remind us again I know obviously there's presumably of volume benefit from the contracted and not United, etcetera. But can you just remind us how that works in terms of ASP and just from a P&L impact, so we have that all said?

Yes, it is Chris. There is -- first of all, the most significant impact from in-network from contract status with these insurance players or insurance plans is that it gives the physicians the confidence to be able to order the test and order the services that we provide without fear of the insurance company harassing them for having use and out-of-network vendor. As that pressure is significant that the insurance companies put on community physicians. actually any physician quite frankly, cannot use non-contracted players. So we're moving that barrier we think helps and is really key ultimately to unlocking growth and when you talk to people about this single biggest thing that holds them back in the market surveys et cetera, some of which have been published, the payer issues. And its s not just coverage but it is primarily contracting. The way it works with price is that, we typically, our strategy has been to focus on getting the product covered and then appealing the claims close to the contract - the build price and the reason that we do that is we want to establish as much leverage as we can in the negotiating discussion. When you contract the payer expects - the payer typically expects to get a discount off of what they've been paying because they are letting you into their network, so you end up getting less on an allowable basis. That's why the number that appears on an EOB that says this is how much is allowed, that's typically less when you are contractor then when you are non-contracted. The patient ends up paying less because contracted patients that are being adjudicated in-network typically can end up paying a much smaller piece than out-of-network patient, while we try to collect that, it’s always tougher to collect those amounts from patients then it is so you end up - we always think we end up at roughly the same spot across the board, but there is some shifting. Does that make sense, Amanda?

Yes. So I mean, I think one of things you had talked about initially was as you shipped accrual accounting that would sort of drive this inflation of realized ASP over time, over the course of many years. Is that still the way to think about it were - as you bring these contracted prepares online, is it going to be more, I realize when you gave guidance to this year, but thinking long-term is there going to be more of a slag dynamic, as you have the puts and takes of the contract to payers coming online?

So, it’s Shelly. A couple of answers to that. So first on contracts, we are obviously probably going to have an easier time getting a reasonable estimate of what we expect to collect quicker than we would for those who are not under contract. So that’s the criteria for being able to accrue, that’s one. Two, you will then get a bump in the first quarter when you are able to accrue new contracted payers or other payers. So we do try to point that out to you. I think over a period of time as you get more and more under contract and you have less patient pays and as such, we should be able to see that rate of collections go up. But I would say that for this year we have indicated it would be fairly flat and just over $2200 now. We don't expect that to move a lot until some of the Blues, more of a Blues begin to switch over into either coverage or contracts. So as you are asking out several years, yes, of course, we would expect that the average collection rates would go up over time as more come into contract and into coverage.

Got it. And then just last one switching gears to Percepta. I know its early, but now that you have that launched and commercial, what's kind of the initial feedback in terms of how physicians are using it relative to our expectations recognizing its early, but are people kind of using it in line with how you thought in terms of dictating central treatment options and whatnot?

Yes. I mean, we're actually pretty enthused to have 25 sites in play. We have a number of sites that have already sent repeat samples from their institutions for testing which is good. And they are using a product right in line with the way that we planned on positioning a product which is to touch patient close bronchoscopy to be able to re-stratify their patients and then follow them as opposed to taking them in for a invasive procedure when the results are reduced to low risk. So we are very pleased, I think a lot of confidence was built when the validation studies came out in the New England Journal of Medicine. It was a huge win and a very timely for us and I think that's driven a lot of the confidence and the enthusiasm to make the test available to patients.

Got it. Thanks very much.

Thank you.

Thank you. And our next question comes from Bill Quirk from Piper Jaffray. Bill, your line is open.

Great. Thanks. Good afternoon, everybody.

Good afternoon.

First question is I guess just thinking and again going back to the GEC guidance, Bonnie, can you help us think a little bit about, I guess what the biggest swing factors would be between the low end of that and high-end of that?

Yes, I mean, I think that the factor that's having more of an impact this year on driving the growth rate quarter-over-quarter is the enabled model. Where we are now exceeding that in institution which is driving nice growth, but also beginning to tap some of the physician offices that may have been blocked because of the [indiscernible] GP being able to now enable some of these regional laboratories to pull through the physician office, business as GEC only. So as we see the new accounts that are being set up and brought on Board, the opportunity to go deeper in these larger institutional accounts which is a little bit different dynamic and driving the growth there than in the physician office where you don't have as much opportunity to drive deeper growth. All of those metrics are lining up quite nicely with the way that we expect the volume to grow from this point through the end of the-year.

Okay, got it. Then one for Shelly, regarding the big increase here in the sales and marketing expenses, were there any one time or extraordinary spending at all that happened in the quarter? Obviously we heard your comment that we should expect this to continue to rise to support several different programs. But just curious if there's anything, I guess, that extraordinary in this quarter's print?

So I'll start and then I'll turn it over to Chris if he has anything to add. So first off, we do have some variations and things like bonus payments, one quarter versus another quarter. We do have the full complement heads that we hired last year. Who are now on track to have a full-year and we still that whole group now for the full quarter. Obviously that has increased. We have the reduction of course of the Genzyme payments which is why we hired a lot of those folks earlier last year. In preparation for that, so that went from 32 to 50 and that's an offsetting factor. We have begun to do some marketing, specifically for Percepta and we always indicated that we would have some pulmonology marketing spend this year. So that has also appeared in this quarter. So those are some of the biggest variables that impacted this quarter.

Those big arrivals. The only thing I would add is that we did do some step ups and marketing spend that are one time to invest more in some segmentation work around the community or not the community, the institutional market because we are getting traction there, wanted to make sure that we really understood what was going on in that segment. So there is some one time stuff there around market - market intelligence that we spent.

Okay. Very good. Thank you…

Market intelligence segmentation, I should say for Afirma.

Got it, okay. Very clear, thank you.

Thanks, Bill.

Okay, thank you. And our next question is from Steve Beuchaw from Morgan Stanley. Steve, your line is open.

Hi. Good afternoon, everyone. I have one for Chris and then one for maybe Shelly and Bonnie. Chris, nice to see the progress continue with some of the Blues plans. There are of course still a couple of big fish out there, just curious if you had any new thoughts around how progress is going? If there's been any incremental progress with the Blues more broadly? And then again for Shelly or maybe Bonnie, I actually would build on Bills question regarding the spend in the quarter, when I look the spend in the quarter the capital raise and shelf registration, it makes me wonder about the ambitions of the company in a bigger way and maybe even a longer term way. I look at this and I think why these guys want to invest more aggressively to build and perhaps even to think about acquiring additional or new technologies. Am I on the right track here and can you give us any perspective on how you are thinking about the business with that much access to capital? Thanks so much.

Yes, it sounds good. Steve, I'll start with the Blues covered lives. Like we said, we're at around 20 million and the two big ones that we still need to get under our belts are Afirma [ph] which has about 37 million and HCSC which is the Blue Cross Holding company if you will, for Illinois and Texas, while I think another one. And there at about 16 and it there's a bunch of other Blues plans that at 24 that tend to be smaller. And so we just keep adding. This is getting contracting is a commercial discussion, but getting covered is not, getting covered is their medical policy folks working to understand the evidence, et cetera. And I would say that there continues to be evident that is published showing that physicians are following GEC benign patients and indeed those results are durable and those studies have been published over the - throughout time where centers are publishing their perspectives and that's all been consistently positive. So we feel good that as time goes on those -- the test will be covered and I've always believed and said that if these test don't get stuck here its only a matter of time before they fall, but I cannot predict when that happens because it’s not really a sales cycle where we are engaged in discussions on ongoing basis with them, we tend to send them evidence and they move it at the rate they move, and that's just the way the medical policy works. But we're really gratified that we are where we are. And that we made as much progress as we made with the Blues because it’s the toughest nut to crack and we feel like we're making significant headway with that.

Chris, you have been doing this for a while, have you found when Blues plan tends to have influence on another - just as by virtue of business part of that Blues…

Yes, absolutely. I mean, I believe that, I - it is always been my belief that the most influential Blues plans to get is your home state, that getting because the old way that’s a Blue card program used to work which is no longer in existence was you would send all your claims to your home state and then the claims would be adjudicated according to the policy of your home state. And so the historical legacy of the entire Blues system was your home state was kind of key, that's not really the case anymore, but if you can’t get your home state, you are not going to be able to get some of the other Blue Cross plans to jump on board and cover you. So Blue Shield of California covered us at the end of last year and we always thought that was a really big deal and showing that indeed in our own backyard we were -- where Afirma was the covered product. So I've always believed that was the most important to signaling to the rest of the Blues that this is something that's valuable and its worth covering. And we've seen them, as that’s happened; we've seen them continue to fall. But this is a journey we've always said that.

Okay. So with regard to the [indiscernible] in the shelf and some of the financing aspects, clearly we are in a position to continue to invest and make sure that the accelerated growth of Afirma and the GEC continue and that's our number one priority and we intend to do that. With the introduction of Percepta this year, while the spend is not significant we do want to be very prepared in advance of being able to ramp very quickly once we do achieve success in getting a Medicare coverage decision. We think having the New England Journal of Medicine Article under our belt was a great step forward and building the type and level of evidence that they are going to want to see in making that decision. So a little bit of the timing of the shelf is more of a good housekeeping of just getting things in place, so that we are prepared if we need to pull any of those levers at the time when it makes sense to do so. Keeping in mind we have the ILB product for IPF coming to market next year. It won't get huge significant investment until we get it to the point of being able to gain coverage. But we built quite an amazing type line. We believe the timing of each of these products and the 1.5 to 2 year span between them sets up really nicely to continue to grow the top line for a period of time and we want to make sure we're prepared and ready to make those investments at the right time. And we certainly have been transparent that we would not be start -- be opposed to finding other Alegre like assets being able to acquire a product and bring it to market within six months with a $70 million investment and begin building the growth that will give us a great ROI on that is probably more cost effective in some ways, quicker returns and then you get on your internal programs because of their length of time it takes to get these products from concept to launch. So we feel like we're in really good shape with $51 million in the bank now and the moderation of spending going through the back half of year that Shelly mentioned. We do think that cash last us for a good amount of time and no need to worry about doing anything immediately. But when the need comes up we now have all the tools in place that we think we'll need.

The only other thing I would add is, as we think about scaling the organization we will have some of this upcoming cost for moving facilities and that should enable us. That lease is a very long time, so that should enable us to grow as quickly as we would like to growth. So those will be new costs coming up and we just started, experiencing seeing some of those cost in a second quarter. So that is all related to growth. And then also the IPR&D amortization which started in this period which will aggregate over just over $1 million out over the straight line 15 year period. And so those are additional cost when you sort of look at what the spend was in this quarter. And we do expect that those will go down in the next two quarters.

Very helpful. Thanks, everyone.

Okay, thank you.

Thank you. So we'll take our next question from Doug Schenkel from Cowen and Company. Doug, your line is open.

Hi, this Chris on for Doug today. Thanks for taking my question. Can you just help us think how the retail merger activity in the healthcare insurance growth and actual reimbursement for Veracyte Aetna are important payors for you, so and insight as to what may happen over the next few quarters would be appreciated?

Well, we think that I think it will be interesting to see how it all evolves and how it unfolds in front of us. We think that in general that keeping the network integrity together is important to them and we then led to believe that any changes they make will made over time. So there is some risk in this happening, but there is some upside in this happening quite frankly as they try to harmonize things. So I think it works both ways for us, but overall we think that they are more likely to continue to cover and provide Afrima to their members and enlarge that with anything else because taking away services is typically now what they're going to do as a result of this because they're not going to try to make their service offering less compiling by taking things away. That’s how we view it, but it’s going to take time for these mergers to come together and work through regulatory pieces and is a harmonize and put things together we don’t expect the medical policy stuff to come together and in rapid rate, but I think there is upsides to this as much as there is downside and that’s how we're viewing it.

And then I guess not related, but I want to get some more detail on a sequential Afirma volume growth. So last year Q1 to Q2 volumes increased about 600 sequentially. This year increased about 700 sequentially. Now you have a larger sales force and there have been other marketing efforts undertaken. So I guess the question is, is the sequential pick up in volumes this year where you would have expected?

Last year our Q2 growth over Q1 was about 11% in GEC as reported. That grew to 18% quarter-over-quarter of this year. So we're really pleased with that greater acceleration moving into Q2, but last year we saw seasonality as we have in prior years in terms of Q2 to Q3. As I said we have predicted that in our own model, but may see some offsetting of that given that the institution part of our business is coming on stronger this year than what we had last year. And then you know the end of the year is always our biggest growth quarter of the year. People's deductibles are used up and a lot of people try to get elective testing and things like this done before the end of the year and so with that we would expect being at just almost 9,000 samples midyear with the type of growth we would expect going through the next two quarters, we think we're very nicely set up to achieve the goal.

Okay. Great. Thanks for taking my questions.

You're welcome. Thank you for the call

Thank you and our next question comes from the Karen Koski from BTIG. Karen, your line is open.

Thanks, can you hear me.

Yes, we can. Thank you for calling in Karen.

Excellent, just my first question there is definitely been a tad more noise out there about potential Afirma competition as of late. Obviously you've a nice head start in the market. You have excellent data. The progress of insurers etcetera. Are you seeing competitive reps in your field at all and giving the penetration remains quit low in this market, is it fair to say with these additional players might actually help this market growth?

Yes, so there has been noise -- actually some of the competitive noise started several years ago with -- when a surgeon was trying to bring their products to market and while usually the noises, posters and new data and things that show, we actually have not had tremendous impact to at the commercial level with any of the competition. I'll Chris kind of speak to that more carefully, but the surveys that we do continue to support that Afirma is the by far most well recognized brand that customers and even non-customers have a very, very strong opinion of the quality of the brand that it is recognized as the test that is validated and that has gained their confidence in being able to keep patients out of surgery and so all the stars kind of align with continuing to support the robust growth we've seen. And I think the broader competitive landscape is still pretty much the status quo. Patients being taken to surgery because that's what physicians have been comfortable doing for years and that doesn’t come up as competition, but clearly that is the number one competitor to the use of Afirma. And as Chris mentioned earlier, not having all insurance carriers having us under in network status that too is one of the barriers in continuing to drive and accelerate the growth. Chris, any other color…

Yes, I think your point Karen is debt on. We're making a market here and as you make a market, the more noise that's created by other people out there actually helps you make a market and so I think on balance this is all positive to have all these folks out talking about different approaches and products and Afirma just shines in that environment.

Great. That's very helpful. And then I guess just thinking about for a second, different tests in Afirma, this is different market, different doctors, you're at a different place as far as reimbursement, but can you kind of compare and contrast to what's been similar so far, maybe what's gone better than you expected and what instead be taking a little bit longer?

Yes, so it very early, but we're repeating the same playbook we use with Afirma. Probably the one key difference is the fact that most of the Percepta samples will be collected in the institutional setting as opposed to doctors offices because that's where pulmonologists practice. So the amount of knowledge that we've gained over the course of the last 12 months with our entry and acceleration in this institution side of the business is actually is quite useful and helpful in leveraging that to now having navigate some of these institutions. We have some sight that -- Afirma sight that came on as early adopter for Percepta and I think that if some of that comes from the reputation that we've built with Afirma and GEC as well as the study, the validation studies getting published in a top tier journal. So we expect that the playbook will be getting the published evidence out there, which is what we are very focused on. We protest the published evidence on those guidelines and that guidelines will drive reimbursement. We will be in a situation where we will be already considered an in-network service provider to many of the payors by the time we start having those conversations. Now Medicare covers over half the patients for Percepta where they only cover about 20% for Afirma. So there are differences, but we think where we have the ability to leverage what we've already done, follow that same playbook, learn from the institutional model from Afirma to drive acceleration into these institutions. And lastly we're going to be in a very different place on the payer contract and reimbursement side with Afirma because of all the relationships we already have in network since providers. Chris anything again?

No, I think that covers it all.

That's great color. Thanks so much for taking the questions.

Thank you.

[Operator Instructions] Okay. So I am showing no final questions. I would now like to turn the call back to Bonnie Anderson, President and Chief Executive Officer for closing remarks.

Thank you, operator. At the media mark, our focus remains intently on further growing our Afirma business and we are on track with our revenue and volume growth expectation 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 for Veracyte and our mission and we look forward to updating you on our progress in the future. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.