Q4 2023 Veracyte Inc Earnings Call
Participants
Shayla Gorman; IR; Veracyte, Inc.
Marc Stapley; CEO; Veracyte, Inc.
Rebecca Chambers; CFO; Veracyte, Inc.
Sung Ji Nam; Analyst; Scotiabank
Matt Sykes; Analyst; Goldman, Sachs & Co.
Puneet Souda; Analyst; SVB LEERINK
Presentation
Operator
Good day, and thank you for standing by, and welcome to Veracyte Fourth Quarter and Full Year 2023 financial results webcast. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session to ask a question. During the session, you will need to press star one one on your telephone You will then hear a message advising your hand. This raise to withdraw your question, please press star one one again, and please be advised that today's conference is being recorded. I would now like to pass the call over to the Senior Director of Investor Relations, Sarah Gorman.
Shayla Gorman
Good afternoon, everyone, and thanks for joining us today for a discussion of our fourth quarter and full year 2023 financial results. With me today are Marc Stapley, Veracyte's Chief Executive Officer, and Rebecca Chambers, our Chief Financial Officer. Veracyte issued a press release earlier this afternoon detailing our fourth quarter and full year 2023 financial results. This release, along with the business and financial presentation, is available on the Investor Relations section of our website at veracyte.com.
Before we begin, I'd like to remind you that various statements that we may make during this call will include forward looking statements as defined under applicable securities laws. Forward-looking statements are subject to risks and uncertainties, and the company can give no assurance they will prove to be correct. And further, we are not under any obligation to provide further updates on our business trends or our performance during the quarter. To better understand the risks and uncertainties that could cause actual results to differ. We refer you to the documents the Verisyse files with the Securities and Exchange Commission, including Veracyte's most recent Forms 10 Q and 10 K. In addition, this call will include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures are included in today's earnings release, accessible from the IR section of Verisyse website. I will now turn the call over to Marc Stapley, Veracyte's CEO.
Marc Stapley
Thanks, Sheila, and thanks, everyone, for joining us today. I'm pleased to share that 2023 was a record year for Veracyte. Our high value tests improved care for more than 125,000 patients and their physicians enabling better diagnosis, prognosis and treatment decisions. I'd like to thank the entire Veracyte team for their hard work and dedication to our mission of transforming cancer care.
Over the course of 2023, we grew revenue 22% and generated $44 million in cash from operations to deliver our second consecutive year of positive cash flow. This is a significant proof point that our philosophy to drive cash generation, while investing in our strategic growth drivers is paying off, and we expect to achieve positive cash flow going forward.
I am extremely proud of our strong financial profile, allowing us to further expand the impact we are having on patients' lives. Our successes attribute attributable not only to the dedication of our employees to our mission, but also to the Veracyte diagnostics platform, which refers to our unique approach to launching and driving adoption for our diagnostic tests. This is driven by broad sets of genomic and clinical data, deep bioinformatic and AI capabilities, a powerful evidence generation engine, which ultimately drives guideline inclusion and durable reimbursement for our tests as well as proven commercial excellence platform creates a flywheel for the generation of novel insights that in turn, drive innovation and pipeline development toward future test expansion in a way that is extensible and repeatable across multiple indications.
Decipher prostrate continues to be a clear example of this platform in action over the course of 2023, we added eight publications and 16 abstracts to the clinical evidence library for Decipher Prostate and an additional 12 abstracts and seven publications from our research use only or RUO Decipher grid offering.
During Q4, data from multiple studies were presented at the annual meeting of the Society of Urologic Oncology or SUO., highlighting the ability of Decipher Prostate to identify patients whose prostate cancer is likely to progress. This focus on evidence generation reinforces the test status as the only molecular test to receive Level one evidence designation in the National Comprehensive Cancer Network or NCCN prostate cancer guidelines.
Bakbone of clinical evidence supporting Decipher Prostate is clearly resonating with physicians as we delivered approximately 15,500 Decipher test results in the quarter. We now estimate that the market for molecular tests in prostate cancer is approximately 35% penetrated with plenty of headroom remaining for growth as we believe penetration could get to 80% over time.
Looking to 2024, we have focused on bringing Decipher Prostate to even more patients. We believe this will occur through indication expansion additional payer coverage and even more clinical studies, some of which will utilize Decipher grid to further accelerate the flywheel of data generation and claims expansion.
One example of this, we anticipate the current draft of Medicare's local coverage decision policy for patients with metastatic prostate cancer to become final later this year or early next year. As a reminder, we estimate there are an additional 30,000 patients annually who could benefit from the prognostic and predictive inflammation. Decipher delivers to clinicians a pivotal moment in their journey to treat cancer.
Moving to Afirma, this was another record quarter for tests delivered. We reported approximately 15,200 Afirma results with growth driven by new and existing accounts, including competitive wins over the course of the last two years, we have continued to enhance the Afirma offering, adding to promote a mutation testing, enhancing the online physician ordering portal and introducing the Afirma grid RUO. tool while grid for Afirma has only been available for a short period of time.
The promise of advancing science and developing prognostic signatures has been well received by customers focused on research many have proactively reached out and are interested in collaborating, publish and fully validate new signatures. These launches and enhancements led to increased popularity and adoption of Afirma over the course of 2023, which represented a record growth year for a product which launched more than a dozen years ago.
Looking to 2024, we expect Afirma to deliver solid growth through three key mechanisms. First, continued execution to further drive penetration into both existing and new physician accounts. Second, engaging with multi X on that draft LCD to cover the first five patients who could also benefit from insights provided biopharma and lastly, scientific engagement empowered by grid and an enhanced customer experience to ensure that we maintain and grow our community of dedicated physicians, Decipher and Afirma great illustrations of the Verisyse diagnostics platform in action.
This proven approach will enable our long-term growth across three vectors, global expansion, solving new cancer challenges and with the acquisition of C2i. genomics earlier this month, serving more of the patient care journey with our Percepta Nasal Swab test, we are focused on tackling new cancer challenges. We believe the test will benefit patients and physicians as a noninvasive option to help guide clinicians next steps for patients with potentially cancerous lung nodules.
During the quarter, we made significant progress publishing the clinical validation data for the test in the journal CHEST and bringing the number of sites enrolling for the NIGHTINGALE clinical study, close to 100 NIGHTINGALE is designed to demonstrate clinical utility and support reimbursement for the test and remains a key focus in 2024 as we expect to complete patient enrollment in the summer for a level of interest demonstrated by the large number of sites that have engaged in NIGHTINGALE. It gives us optimism in the value that Percepta Nasal Swab test could bring to physicians and their patients.
Shifting to our focus on global expansion. Our strategy to deliver IVD versions of our tests to physicians and their patients outside of the United States is another key long-term growth driver over the last quarter, we have largely completed the transfer of kit manufacturing for our Pro segment breast assay from NanoString to our Marseille France location. With this transition, while we maintain some near term dependency on NanoString for component supply and instrument service.
We have worked through mitigating most of the supplier issues we began experiencing in the second half of last year. As a result, Q4 pricing, the volumes were ahead of our prior expectations. Looking forward, we're monitoring the situation and doing our best to ensure continuity wherever we remain dependent on single source suppliers. As we shared previously, we are now executing on a multi-platform IVD approach where we leverage the quality of our Diagnostics and the level of evidence supporting them to differentiate us, we are focused on key product and market development activities that will help drive a steady cadence of IBD test kit launches over the coming years.
We will soon submit our existing processing test for approval under the IVDR. framework, which is a key step to catalyzing launches across our oncology IVD portfolio. From there, we expect Decipher Prostate to launch in mid to late 2025 on PCR and an updated NGS-based per second test around the same time to be launched on NextSeq Dx. And we continue to expect Percepta Nasal Swab to be commercially available in 2026 on NGS.
Turning to serving more of the patient care journey, we recently closed our acquisition of C2i genomics and I'm thrilled to welcome the C2i team to Veracyte. This acquisition enables us to enter the minimal residual disease or MRD market and expand our role across the cancer care continuum, building from our position in early diagnosis and risk assessment to treatment monitoring and disease recurrence testing.
C2i is novel whole-genome sequencing approach to MRD fits well into the Veracyte diagnostics platform, making it the Eidos ideal solution for us to address this portion of the patient journey. First, the assay requires less than four mil of blood, much lower than many competing tests. Second, the rapid generation of patient-specific signatures available almost immediately after the whole genome assays performed faster than bespoke panels that take weeks to develop.
Third, the approach takes the widest possible view of the tumor genetic landscape to deliver performance that we believe enables early detection versus imaging and other molecular tests by identifying the effectiveness of the treatment almost real-time. The physician can rapidly tailor the care plan for a patient which we believe will lead to better outcomes. And because C2i technology use whole genome sequencing, we get more data for evidence development, giving us a rich view of tumor biology that allows for more collaborations and will catalyze further discoveries.
As we mentioned when we announced the acquisition we will commercialize MRD first in muscle-invasive bladder cancer, where we expect to launch a test in the first half of 2026, leveraging the same strong urology channel that has delivered continued growth in decipher. I'm excited about our trajectory and even more by the impact we are having on physicians and their patients.
With that, I will now turn to Rebecca to review our financial results for the quarter and expectations for 2024.
Rebecca Chambers
Smart Q4 was another record quarter with $98.2 million in revenue, an increase of 22% over the prior year, higher than our pre-announcement due to the finalization of cash collections, which benefited ASP. We grew total volume to approximately 34,000 tests a 21% increase over the same period in 2022.
Testing revenue during the quarter was $90.4 million, an increase of 29% year over year, driven by higher than expected Afirma volume, Decipher growth, and strong prior period cash collections. Total testing volume was approximately 31,000 tests.
Testing ASP was approximately $2,900 as we've resolved and collected over $4 million of out-of-period payments. Adjusting for this impact, testing, ASP would have been approximately $2,750. Fourth quarter product volume was approximately 2,600 tests and product revenue was $3.7 million, up 13% year over year, as the team did a tremendous job eliminating the patient impact of the supplier issues Mark mentioned. Biopharmaceutical and other revenue was $4.1 million, in line with our expectations and down 39% year over year, given overall spending constraints across the industry.
Moving to gross margin and operating expenses, I will highlight non-GAAP results, which exclude the amortization of acquired intangible assets. Other acquisition related expenses and restructuring costs, but does include routine stock-based compensation. Non-GAAP gross margin was 70%, up approximately 340 basis points compared to the prior year. Testing gross margin was 73%, up 90 basis points compared to the prior year, benefiting from higher lead volume and over $4 million of out-of-period collections.
Product gross margin was 52%. Biopharmaceutical and other gross margin was 15% down year over year due to lower fixed cost absorption absorption. Non-GAAP operating expenses, excluding cost of revenue, were up 28% year over year at $65.6 million, including $3.5 million technology access fee to develop or IVD kitted tests on the next CPX NGS platform.
Research and development expenses increased by $7.6 million to $18.7 million due primarily to the tech access fee and increased costs related to our NIGHTINGALE and Decipher clinical studies. Sales and marketing expenses increased by $1.8 million to $25 million. G&A expenses were up $5.1 million to $21.9 million driven by higher personnel costs and infrastructure related investments.
We recorded a GAAP net loss of $28.3 million, which included $32 million associated with the impairment of Helio Dx biopharmaceutical intangible assets; $7.6 million of stock-based compensation; and $6.3 million of depreciation and amortization. We increased our cash position by $14 million from the prior quarter and ended 2023 with $216.5 million of cash and cash equivalents, 21% higher than the balance of $178.9 million at the end of 2022.
Turning now to our 2024 outlook. We are maintaining our total revenue guidance of $394 million to $402 million. This reflects year-over-year testing and product revenue growth of 13% to 15% and a decline of approximately 50% in biopharma and other revenue as we have not seen evidence yet of an improvement in the market.
We expect non-GAAP gross margin to be in line with 2023 as tailwinds from operational testing efficiency efforts and fixed cost leverage roughly offset the annual supplier list price increases, merit and the benefit of more than $10 million of out-of-period collections in 2023. We are also maintaining cash guidance and expect to end 2024 with between $230 million to $234 million in cash, cash equivalents and short term investments, including $8 million of one-time acquisition related items.
As always, our cash commentary is barring potential M&A. Moving to the first quarter, we are forecasting a sequential decline in total revenue given the impact of cash collections in the fourth quarter and typical seasonality. Additionally, we expect non-GAAP operating expenses to be higher sequentially given the impact of the C2i acquisition and the annual reset of taxes and merit for the quarter. Excluding the benefit of acquired cash and customary closing considerations from the C2i acquisition, we are forecasting a slight usage of cash due to the usual timing of compensation payments.
I am excited about the momentum we have heading into 2024 and our commitment to executing on our strategic priorities over the course of the year. We'll now go into the Q&A portion of the call.
Question and Answer Session
Operator
(Operator Instructions) Sung Ji Nam, Scotiabank.
Sung Ji Nam
Thanks for taking the questions and congratulations on the quarter and a great year. Maybe just kind of kick off with Dom, the Turk promoter mutation capability that's part of Afirma. Could you give us a sense of kind of what percentage of the volume, you know that would actually be useful for that particular arm testing of the pharma volume?
Marc Stapley
Yes, Sung, thanks. Thanks very much for your kind comments. And certainly a great year on turn itself. It's a very rare, relatively rare condition. And so the percentage of patients that actually show up with that mutation is quite small.
Having said that, it's very it's proving to be extremely useful to order that test on a certainly a larger number of the cases, um, I don't actually know we've got the percentage to that. We're currently seeing that. And if you have that.
Rebecca Chambers
Yes, I believe it's an ordered approximately 20% of the time where we have a positive result with Afirma on. But the actual percentage that has a mutation and my recollection is more in the single digit type range. But so that just gives you a sense of how frequently it is being ordered and how frequently it is being seen I think importantly also in alternative a competitive differentiator for us with regard, and we aren't necessarily seeing an ASP uplift from term and because it is not something we necessarily have coverage for, but it's more to Mark's point, it's more about the overall clinical contribution of having the assay than it is about a financial contribution to the Company. It's more about the patient benefit.
Marc Stapley
And one of the ways I really think about how having that capabilities has helped or for the CDMO business from clearly given our healthy. Another reason to go and engage with our customers. It's enhanced our test relative to both the competitive landscape and also where we think ultimately guidelines can go. And so we always felt compelled to include that as part of the iPhone.
Rebecca Chambers
And Sung Ji, I apologize. I said 20% and it was that it's actually more like a third.
Sung Ji Nam
Okay. Wow. Okay, fantastic. Super helpful. And then my follow-up is just on you mentioned the C2i. The first indication is going to be in the muscle-invasive bladder cancer. And could you just remind us about Decipher bladder at the genomic classifier and kind of how does that kind of go hand-in-hand with your MRD offering where the plans for the MRD offering is there? Do you think there could be synergies there? Or just kind of how should we think about the Decipher bladder platform?
Marc Stapley
Yes. I mean, there are always going to be synergies whenever we can continue to increase the menu of offerings and tests that we have in the urology space. The as you know, a few years ago, we launched the bladder test.
It's more of a subtyping test to help potentially determine a course of treatment. But what we read and it had relatively low penetration and we didn't particularly drive that commercially. One of the reasons being is what was the same call point, it is a completely new product, if you think about it like that.
And so yes, we do not want to distract never wanted to distract from the benefit of that we're seeing in Decipher Prostate, some, but the clinical utility is ultimately what matters. And we're continuing to develop that test further and think of ways of enhancing that utility. And but we've really refocused our energy now in bladder on the MRD test at this point on, we think that the market opportunity for our own muscle-invasive bladder cancer test in MRT, which has a clear path to reimbursement is greater.
And yes, we're going to launch a test in the first half of 2026. And so that's what you're going to see our investments in both R&D and development activities and ultimately in our commercial activities, as we put that, that test in the in the hands of the existing urology sales force on. But beyond that, one thing you'll continue to see us do is yes, and we talked about this quite a bit before. Is that work across the patient care continuum. And so as we can come up with other helpful diagnostic tests that have utility in either reducing unnecessary procedures or accelerating treatment, some are predicting the performance of surgery of therapeutic actions will continue to do that. Tom, continue to consider it an important part of the urology roadmap.
Sung Ji Nam
Got it. Great. Thank you so much. I'll get back into queue.
Operator
Tejas Savant, Morgan Stanley.
Yuko on the call for Tejas. I wanted to ask couple of questions on C2i MRD assay. What remains to be done prior to launch in first half '26. What are the gaiting factors there and is there any lever to pull forward the launch time line?
Marc Stapley
Yes, the young does have quite a few steps that we need to go through here. One, of course, is the integration of C2i, which is very much in progress at this point. And that team is now part of the Veracyte team and then the other systems and other integration activities will continue through the early part of this year. And then this the launch of the product program itself, the muscle-invasive bladder test, which is entering into our normal product development process and that's kicking off now that the team is part of Veracyte and then we're going to have to continue to run samples on that test to further validate the tests and then do the tech assessment that we need to go through in order to get reimbursement. And then there's a period of waiting for a response on that as well.
So quite a few different steps, steps that we have quite a lot of experience in following, and I've been through a number of times before to your question on is there a way to pull it forward if there was we will if there is we will we've provided a time line that we feel comfortable with given all those steps. But along the way, if there's any opportunity to go faster, I think you can rest assured that the team is looking for it and because that's a conversation we talk about a lot. So and that's what we are right now, but no change in the plan of record first half of 2026?
(inaudible) As you think about volumes ramping , you will be generating significant amount of data. How are you thinking about monetizing the data?
Marc Stapley
Yes. So good question. I don't actually have the number in front of me, but it's significant. C2i has been I've been doing this for a number of years, five years or so. And as you've seen from a lot of their publications. They looked at a number of different indications on bladder being one of them. And in each of those indications, they've got a significant amount of whole genome data on.
In terms of monetizing that data. I think of it very much in the same way as I think about the overall Veracyte diagnostics platform. And we've been we've been generating Whole Transcript turns in endocrinology in pulmonology and urology for a while.
And C2i has been generating whole genomes. And so we now have a incredibly rich dataset available to us. And we, of course, get interest from biopharma and expect to continue in the future. And I think particularly with MRD as an asset that continues to grow that's not our primary focus. Our primary focus is very much on our diagnostics pathway, but opportunistically as we have a contact with biopharma who are interested in any of that dataset I've described and we'll follow up on those opportunities. We clearly have some in the pipeline right now. We've had some in the past and we'll continue to explore that.
Rebecca Chambers
And you can then you can imagine a scenario where in the future the C2i IMRDSAR. Act, very similarly to decipher grid and a pharma grid where we are continuously generating clinical utility and other studies, which broaden our potential indication expansion and therefore also subsequently help our commercialization efforts and managed care efforts.
And so I absolutely agree with Mark on. But effectively, when it comes down to the diagnostic platform, we have described this kind of whole exome approach, whether it's whole transcriptome, whole-genome really does allow us to monetize on monetize these markets more quickly and get a stickier response given given the differentiated approach we've taken here.
So just add that to Mark's commentary, I think there's a couple of different ways we could see this play out, both of which are obviously quite positive.
Operator
Mason Coreco with Stephens.
Hi. Thanks for taking our questions. This is Jacob on for Mace. So maybe just starting with your guide, could you just help us think through what's embedded in your guidance for 2024? And maybe more specifically, what are those puts and takes that could play out in 2024 that gets you to the high end versus low end of your guide with respect to affirm and decipher growth. I know you said and you're expecting testing and product revenue go 13% to 15%, but maybe just breaking that out a little bit more and giving us more color would be helpful.
Rebecca Chambers
Yes, happy to. And so you're absolutely correct. We're expecting testing and product revenue growth to be 13% to 15%, thereby absorbing a good portion of the biopharma decline of approximately 50% on when you break down the firm and decipher where you know, I think the easiest way to think about it is they're at very different life stages of their life safe. They're they're very different stages of their lifecycle.
And as a result, as well as the comp on the pharma side. Obviously, when it comes down to it, the Decipher growth will be higher than the average of the two. And Afirma will be you will be bringing will be below the average of the two. We're not going to get into the expectation on to a point range at this point in time. But I think the most important thing to know is we are very confident in our ability to penetrate both of these markets up to the 80% level. And and while we are, while we are have significant out-of-period on headwind from prior periods -- significant. I can't give you that. We have significant prior period collections as a headwind. Third, time's a charm. We are you know, we are still very confident in the growth and overall trends of both of these products.
I think importantly, and I mentioned this in the prepared remarks for the first quarter, we do expect a slight differentiation difference between the two and seasonality. And that is worth noting on the pharma side, we have we have seen we saw obviously quite a strong fourth quarter. And so we are expecting it to be sequentially down quarter for Afirma, maybe even a little more than we had seen in prior years, given some of the weather impacts so far year to date and decipher we are expecting to grow. And so just a little bit more guide more color into the Q1 guide. I think perhaps that could also be helpful.
Got it. Thank you. That's that's helpful. And then on I guess just on Decipher Prostate and more specifically on what are you seeing in terms of competition in the prostate market? Have you started to see any shift in competitive dynamics? And do you still feel like you're taking share? And I guess you guys noted that 35% penetrated in the market right now with potential to reach up to 80%. How much of that is kind of dependent on that and more the XLCD. coming through at the end of this year and into next year?
Yes.
Marc Stapley
I mean, to cover the second part. Obviously not a not a great deal on that is, as I mentioned about 30,000 patients a year or so, certainly very important. It would be great to get that LCDB. both from the patient outcomes perspective to be able to benefit from the Decipher test in that way, but some boom really the oh, if I think about it, the most important thing we're focused on is how we continue to drive Decipher Prostate and gain that market share.
And more importantly as well are also to penetrate more of the market as we do that because honestly, at this point with so many patients who have prostate cancer is still not getting our test or any other tests. I think that that's definitely a concern from the patient perspective. So with the level of publications that we've seen for decipher that we've generated not to mention all of the clinical and research publications that I referenced today in the prepared remarks, plus the NCCN Level one guideline the vast array of experience that people have not just in the US but globally with decipher, we're doing everything that we can in order to drive further penetration and continue to be the market leader.
And so I we haven't seen -- I wouldn't say there's any change in competitive dynamics one way or the other. We're very focused on what we can do to have the most effective test and then beyond the U.S., and we know that those are all U.S. related comments and U.S. market shares. But beyond the U.S. There's so much KOL experience outside outside of the US.
In terms of experience with studies involving decipher, we feel there's a pent-up demand for that. So as soon as we can get our Decipher product launched on PCR, which we are planning to do in 20 end of 2025 on I think, are our expectations for the adoption now are a little bit more optimistic than they otherwise would be had. We don't have to go and create a market from now or level of interest from scratch. And so lots of excitement on our side for Deciphera going forward.
Operator
Dustin Grange with William Blair.
Hi, everyone. Good afternoon, and thanks for taking our questions on. First here on nasal swab, you guys published validation data in December. Just wondering if you could talk about the feedback you've received on that since publication? And then as a follow-up to that, how are you thinking about the TAM here? And given this was validated on individuals that had some sort of smoking history?
Marc Stapley
Yes. Great questions on. So the data that we ended up publishing or getting published in CHEST in December is data which had previously actually a couple of years ago. So getting into a final publication, I think is an outstanding outcome. And I congratulate our entire team and some others that we worked with on that publication. And it's great to finally see it out there.
In terms of level of interest, I think that publication really does a couple of things for us. One is it helps us to really commence those reimbursement conversations and start to get ahead of that. We now have a peer-review publication in hand to do that. It also helps us have conversations with potential partners and others who might want to do some some work with nasal swab in the future. So very excited about that.
But really where I had kind of hang my greatest arm, have you a sense of the level of interest in nasal swab so far is in I can go, you know, because as I mentioned on the call, with close to 100 sites enrolling the level of interest in those sites.
If you think about what it takes from a clinical operations standpoint, to identify gain interest from contracts, sign up, initiate and then commence enrolling a nearly 100 sites. It's significant. And it can only come from those investigators and those those institutions being excited about the prospect of the test itself and being a part of that clinical utility study. So that to me, I think, is so far of one of our greatest indicators of interest in nasal swab, and we're excited to see how that goes and certainly have a desire to see the clinical utility come out of that study.
Understood. That are staying on that topic.
Marc Stapley
So you and I were each and we did have some sorry, you asked about the market size, the TAM and smoking history. I, should cover that.
Yes, just to come to be very clear. I mean, nasal swab is based on smoking patients who have a smoking history and it really measures the damage to the epithelial airway. One of one cause of that damage is, of course, smoking ACE to expand the TAM beyond that would require a study that includes non-smokers, and that is not the biggest market we're looking at.
By far the largest market is those patients who are eligible for lung cancer screening and those who have lung nodules, incidentally found, which are 15 million and 1.6 million respectively. And that by far is the biggest market and a significant proportion of those are are current or former smokers and would fit the eligibility criteria for nasal swab. A next step in the future could very well be trying to expand that TAM by doing the necessary studies, you know, outside of non-smoking, we just don't know whether that figure until you've done the study. You don't know whether that strategy produces the same results or not. But by far, we focused the product initially on the largest proportion of the market.
And Understood. Thank you for that. And switching over to pharma, I'm just wondering if we should be thinking about and the reimbursement dynamics for that test in 24? And then any considerations longer-term about pricing for this product? Thank you.
Rebecca Chambers
Yes, I'm happy to take that. And so pharma, I mean, if you rewind the clock back to 2021, with the code change on, we did see the impact in 2022 of that. And then over the course of 2023, we did see, obviously, the benefit of resolution of many of those, the impact of 2021 and 2022 tied to the code change. And so the reason why I go back throughout all of that history is, you know, the ASP. for Afirma at this point in time based on those resolutions is quite elevated.
And so I think when it comes down to it today, we're in a great position and our goal is to maintain that position we see no reason why we can't continue to do so. We had some smaller managed care wins over the course of the back half of last year that really that really help us help us be confident that we'll be able to maintain ASP plus or minus a bit as we see any given quarter.
So I think on the pharma side, not any big on not any big dynamics to think through from a payment reset perspective that doesn't come to bear until 2028 as well. So we feel great about the work the team has done both on the managed care and the billing side and and collection side. And I think we're going to be obviously quite focused on about that going forward over the course of I think also it's worth highlighting on the Decipher side, obviously, less of a dynamic with a code change like we had on Afirma, but I think a different portion of the story, given it's more nascent in its coverage and contract contracted lives. And so we do have a very good story on the on the Decipher SP.
We've gotten a number of wins over the course of '23 and and we're hopeful we'll have some more over the course of '24 and '25 and so on, we're obviously, we're obviously hoping that we can continue to progress the the coverage for Decipher given effectively the level one status that it has in the publication and clinical support of ours.
Appreciate all the color there. Thank you.
Operator
Matt Sykes, Goldman Sachs.
Matt Sykes
Hey, guys, congrats on the quarter. Thanks for taking the question. Is there any way to quantify how much benefit you see from the average commercial infrastructure with Decipher prostrate and how much can be applied in test?
Marc Stapley
Yes, it's a great question. I mean, the urology, the leverage that we're getting out of our urology sales force in prostate alone has been very significant. And I think you see that in the numbers and we added less than a handful of net total reps in last year. And you can see the significant growth that we got out of decipher.
One of the reasons we think there's a lot of reasons why we actually think an MRD based on test in bladder is the right test for us, not to mention the cohort that we've got the work that's been done already, but really importantly, is leveraging that urology sales force again, and it goes back to the comments we made.
And I think it was in response to the first question that there is there the benefit of having more and more menu available for our reps as they go out and they got the fantastic relationships with the urologists from large group practices, all the way down to the community, being able to offer the patients who are dealing with bladder cancer, which is a terrible on prognosis in many cases and having something to offer and to enable to determine whether or not their treatment has been and has been or is being effective, it will be incredibly meaningful.
So we do think we'll be able to leverage the existing sales force that we have and will have at that time and without having to grow it substantially while it might be within a practice that might be though a dozen urologists and maybe one of them specializes in bladder cancer. And so you might you might find that it's a different sell. It's a different product sold to a specific speciality within their practice. The reality is we have incredible access to those practices in general. And so we don't anticipate a great deal of extra investment required in order to sell our test in China.
Rebecca Chambers
Agreed. And I would just add one more thing on obviously that the Decipher franchise extends into the revenue cycle management and client services piece and and all the infrastructure to order the test arm, which has been obviously now invested in, and we will sustain and also benefit from office staff using historically on that, but should also help the commercial efforts on the MRD. side, the knowledge and awareness of those types of interactions.
Matt Sykes
Thanks. That's really helpful color. I know. And then how durable do you see a firm as once that (inaudible) have a specific time line to that, Mark?
Marc Stapley
We don't have a time line, but if you think about it, the firm has been on the market for more than a dozen years at this point. And it's taken about for that long to get to the penetration that we've currently got with an 80% an estimate out there is multiple years of growth still left in pharma just to target the conditions that we currently cover and the indications that we currently have.
And so we as you know, we've been investing heavily in Afirma. We invested in tests. As we talked about during this call, we invested in the physician ordering of experience and portal. We just launched the Afirma grid. And so time after time, we're creating new opportunities to engage with physicians and convince even more of them to use a firm more often in more cases, and so we're gaining wins in terms of both existing accounts and new accounts. And so yes, it's hard to put a timeframe on when that plateaus as everything eventually always does but it's clear that we've got a lot of fairly decent amount of headroom still to go even in endocrinology.
Operator
Thank you. One moment for our next question and is from the line of Mike Matson with Needham. Please proceed.
Hey, everyone. This is Joseph on for Mike. And I guess just looking at other kit development, you obviously you guys have a lot of your hands, Envisia and decipher in on SC. two I., but just maybe wanted to ask question more broadly, if there's any other disease areas you guys are focusing on for future test development or I guess you know that it's more focusing on MRD. versus DI diagnostic in our assay. And just kind of wanted to get your thoughts on that?
Marc Stapley
Yes, it's a great question. As you think about it, the Verisyse really come from that single product, a pharma company to a broad cancer diagnostic company. And now with the addition of MRDM., we can go even further. If you think about the growth vectors that we've talked about.
I'll start with geographical on it. So the success that we've had in the US with our launch of our IVD products outside the US and a clear road map of what really amounts to three or four products that we're going to launch over the next few years there. You can see that we've got a real opportunity to grow outside the US and really demonstrate that the model that we've adopted works than there has been so successful for us with the genome. Extensive publications behind our tests can can benefit us outside the U.S. as well. So that's number one.
The second one is across the care continuum. And I wouldn't say we're going to focus on any area in particular rather than the entire care continuum for patients who have cancer or suspected of having cancer all the way from nasal swab, which is focused on those patients who don't have a cancer diagnosis but have a lung nodule and therefore, our risk and helping to classify those patients almost think of that as like a part of a high-risk screening program all the way through diagnosis, prognosis prediction, you're starting to see Decipher move into that prediction space in a very meaningful way as there are more and more publications the year talk about the virtues and the benefits of using Decipher in that way, all the way through to treatment from recurrence and monitoring. And And so yes, as you think about it that way, we are able to cover a very broad part of the care continuum everything, but screening for healthy people, if you think about it that way.
And then the third dimension is the indications. And yes, Veracyte has a virally prostate, breast, bladder, lung and now with MRD., you can think about how much more extensible that could also be across other indications.
So one of the great benefits of the platform that we've got the the large amounts of data that we generate on is that we can that is extensible across other indications as well. Of course, there always channel considerations.
You have to go through there and think about as well. And we do them well. But you can certainly see there's opportunities for us to expand beyond the current indications that we have no clarity yet on what those might be. But that's certainly something we're very focused on.
Okay. Yes, great. They obviously like the one-stop shop on gold, but maybe just one more looking at C2i and I guess their platform is CE marked in Europe. Just, you know, I guess a wondering what's the indication or use case to that? I imagine is mostly used in clinical trials right now. Maybe if there's any strategic partnerships that are that are ongoing or prospects in Europe that you guys are still pursuing after the acquisition?
Marc Stapley
Well, there are some existing. And of course, that's a pipeline as well. And we're very selective about what makes sense for us to continue to pursue. And as you can imagine, that's been a very key part of the acquisition and its integration conversations. Our approach with the test, especially with the bladder test, is going to be an LDT type of approach.
Yes. So you'll determine TBD. if we sell a kit as an IBD in the future. That's certainly not the plan right now as far as the initial focus is to launch it as a lab-developed test in the way that we've described and leverage the platform that we've built there. So more to come again, that is, again, another expansion opportunity.
And when I talk about geographic expansion and how MRD can play in that. There are there is a lot of optionality for us in terms of how we might use that in the future outside the US.
Okay, great. Thank you for taking our questions.
Operator
Thank you all moments for our last question, and it comes from the line of Puneet Souda with Leerink Partners.
Puneet Souda
Please proceed your hedges and thanks for the questions on your home. Just first one on on Unum Combino. C2i has been asked about, but this may be and what is the level of investment that you're expecting here this year? And wondering if you can provide anything for next year sort of before you launch this assay on and on, you know, how should we think about gross margin given that this assay when it starts does this start scaling up, but it does require multiple whole genomes initially and then whole-genome with repeat assays, if my understanding is correct.
And maybe just on that point, just help us also understand, you know, how do you want investors to appreciate Veracyte's position and MRD. market. This is a fairly competitive market and that's emerging and there's a leader in the market already. So maybe just conceptualize so that we understand what how I'm going to say it is going to be positioned in MRD again, pretty thanks for that.
Marc Stapley
If you don't mind, I'll answer the third question first, and I'll answer the first question and then I'll ask Rebekka to the second question on gross margin. But yes, and thanks for asking me. If I am glad we have an opportunity to go through this. I talked about this a month or so ago when we announced the acquisition of C. two I., what we really like about this, the solution and not not to mention the incredible team, but they have built a product that fits so well with the Veracyte diagnostics platform that we're referring to.
It as a whole genome based approach, which means we get that rich data for every single patient and not only that whole genome for that Landmark, both whole genome for every subsequent sequence that we do. And so incredibly rich data, the test performs extremely well. It requires a low input of blood for mill on. You don't have to create this this bespoke assay as well, which speeds up time to turnaround time time to answer on and then a great performance of results in the U.S., we believe better outcomes for patients.
So there's so much about the C. two IMID. product in particular that we like the fits into verified, not not to mention that it's going to play really well into the bladder market where we have a channel and a clear path to reimbursement. And so so that's that's how I see. Now it is a crowded space. But again, our approach to a specific indication that we have the other channel is really, I think a very significant differentiator in addition to all the other things that I just mentioned on in terms of the investment we've we've done, I think a really important thing here is we've acquired C2i and absorb, but we have refocused our investments and absorbed the project to develop the MRD test for bladder into our current portfolio.
And as you know, we've done a really focused approach to portfolio management over a number of years, and that's enabled us to do this. And that's why we gave the guidance that we gave when we announced the acquisition that this does not change in one way our philosophy around profitability and cash generation in particular. And so without giving an exact figure on what we're investing because not only have we acquired an MRDS. and we've also acquired a capabilities that we were going to invest in any way on you just yes, I think fair to say it's absorbed in everything that we're doing one-to-one correspondence, yes, happy to and just wanting to add.
Rebecca Chambers
And to date, we have also said in the future. And to answer your question for next year, in the future, we will continue to be in a positive generating positive cash flow. And so I think to the extent we'll be absolutely continuing to follow the financial philosophy. We've so we have shared with you all time and time again in the future as we go forward with MRD. and the other any other activities that we decide to to pursue.
And with regard to gross margin, you're absolutely correct. It is a multiple whole-genome assay are due over different periods of time. But we have we've looked at this very closely, as you would expect, ahead of the acquisition. And we believe on both between the ASP that we're expecting as well as the lab efficiencies that we think we can deliver our expecting to have a gross margin that's very reasonable, perhaps not all the way to our current corporate.
Our gross margin average but very reasonable and something that we think it more than is worth doing for the organization and can sustain a profitable business similar to how we have with Afirma and decipher over time with obviously volume going through both the lab and the channel. So it will take a little bit of time to ramp there. But, you know, I think over time we will get to exactly where we want to be from a gross margin perspective, and we're confident to that end.
Puneet Souda
Got it. Okay. That makes sense. And then just briefly on the FDA's expectations to regulate the cancer LDTs. Any latest thoughts from your end, anything changes spend wise or OpEx wise from your perspective, if that was to be implemented at this point?
Marc Stapley
No changes. One of the things I say about verified is we're very well prepared for that because you are testing our lab developed testing process and our quality systems are very, very robust well, proven the guidance, the on publications behind our tests, as we've talked about length of very extensive. And so as I think about it with the kind of from lab.
And we have to kind of test the, I think, fit well into any kind of model that they come out with some clearly or will need to invest in a multi-stage process, but ultimately gets launched, there will be some level of investment on, but not and I don't think as great as many others who have got to kind of create that term, that backdrop that we've got would have to incur. And so we're quite term, we're quite comfortable with where we are there. We've got we've got the optionality.
We've got the experience of EBIT development. And so I'm not overly concerned about the pathway, whereas involved as others, as you can imagine in trying to help us comment on that respond to that and shape the way that that that actually ultimately gets launched.
Puneet Souda
Got it. Okay. Thank you.
Operator
Thank you. And as I see no further questions, I will turn it to Marc Stapley for final comments.
Marc Stapley
Great. Thank you, and I appreciate it. So as you can see, we ended a very strong year in 2023, and we set ourselves up well for continued growth in 2024 and beyond. I believe our success will continue to hinge on three core pillars of execution, meaningfully expanding the markets we serve utilizing our established verified diagnostics platform across geographies, indications and the care continuum embracing the best technology, adding new capabilities such as MID. and AI. to our world-class platform and driving revenue growth with discipline and a focus on profitability and continued positive cash generation.
These tenants will allow Veracyte to continue to build a strong foundation for growth while achieving our vision of transforming cancer care for patients all over the world. I would like to thank our entire team for their commitment, hard work and passion. It is fueling our progress and driving our results. So thank you.
Operator
Ladies and gentlemen, this concludes our call today. Thank you for joining us. You may now disconnect.
