NEW YORK – Veracyte said on Tuesday that it has entered a partnership with Illumina under which it will develop and sell in vitro diagnostic kit versions of some of its molecular cancer tests for use on the NextSeq 550Dx sequencer.
Meanwhile, the company reported a 19 percent year-over-year increase in third quarter revenues, driven by strong demand for its Decipher Prostate and Afirma lab-developed tests.
Veracyte had already planned to develop new IVD kits for the European and other markets but had previously been limited to adapting assays for the nCounter instrument that it licensed from NanoString for clinical testing in 2019. By shifting to sequencing, the company is poised to appeal to a much larger installed base and thus a larger pool of customers, Veracyte CEO Marc Stapley said during a call to discuss the firm's third quarter financial results.
With the Illumina deal, Veracyte is embracing a larger multi-platform strategy that also includes the use of quantitative PCR for an IVD version of its Decipher Prostate cancer test. The first targets for NGS kits will be its Prosigna Breast Cancer Assay and its Percepta Nasal Swab test, which is designed to assess cancer risk in patients who have suspicious lung nodules.
"We've always been focused on a decentralized model and trying to reach patients everywhere, not just in the US," Stapley said in an interview. "Given that strategy, we constantly ask ourselves, 'Are we approaching that in the best way possible?' And we determined that we could go even further and faster by embracing other technologies and other platforms in addition to [nCounter]."
Veracyte already has an IVD version of the Prosigna assay on the market that runs on the nCounter. Stapley said the company intends to continue to support Prosigna customers running that assay, despite moving to additional platforms with other tests.
"We will launch Decipher Prostate on qPCR. We will launch [Percepta] on NGS, and for every other future test, we'll consider the platform or platforms on which we'll launch those tests," Stapley said.
The firm has said previously that it doesn't expect to launch new IVDs until at least 2025. In the meantime, Veracyte's US-based laboratory-developed test volume and revenues are continuing to grow, prompting the firm to raise its full-year 2023 revenue guidance to between $352 million and $354 million. It had previously projected full-year revenues of $342 million to $350 million.
Veracyte reported total revenue for the third quarter of $90.1 million, up 19 percent from $75.6 million in the same period of 2022 and beating Wall Street analysts' average estimate of $84.4 million.
The company's testing revenue rose 27 percent to $82.0 million from $64.6 million in Q3 2022, driven again by the strong performance of its Decipher Prostate and Afirma tests. Overall, the company delivered 32,544 tests during the quarter, a year-over-year increase of 23 percent.
Veracyte's biopharmaceutical and other revenue shrank 47 percent to $4.1 million from $7.7 million a year ago. Stapley attributed the reduction to ongoing challenges that he said many diagnostics firms have been experiencing in this market.
Product revenue rose 21 percent to $4.0 million from $3.3 million in the same quarter last year.
As a result of its move to a multi-platform strategy for IVD tests, Veracyte incurred an impairment charge of $34.9 million associated with its nCounter license. Reflecting this, the firm's Q3 net loss was $29.6 million, or $.41 per share, compared to a net loss of $8.7 million, or $.12 per share, in the year-ago quarter. Analysts, on average, had predicted a loss per share of $.15.
The firm ended the quarter with $202.5 million in cash and cash equivalents and $870,000 in restricted cash.
Stapley declined to say when Veracyte expects to have a Prosigna NGS kit available but said that the company's previously disclosed timeline for the Percepta Nasal Swab IVD remains the same — a 2026 launch — despite a shift from nCounter to the NextSeq 550Dx.
Veracyte didn't share financial details of the agreement with Illumina, but Stapley said that the arrangement isn't far off from Illumina's standard open offer, which involves agreements around technology access, milestone payments associated with an IVD launch, and ongoing royalty payments.
"Part of this analysis that we did in making this move was the benefit for patients of being able to launch our tests more quickly on these existing platforms. But there was a financial component to it, as there always is, and clearly, we feel comfortable that we can do so in a cost structure that makes sense for us relative to all of our other options," he added.
According to Stapley, translating Veracyte's lab tests into IVDs requires technology bridging, validation, and documentation. The company believes its strategy of starting with US-based lab tests and building utility data from there can help it establish evidence for the global IVD market.
"Take Decipher Prostate for example," Stapley said. "There are hundreds of publications to support that test, so in the process of porting that over to qPCR, a lot of that legwork had already been done. All we've had to do [then] was to realign our team very quickly to leverage the work already done on the nCounter to develop these tests for these other platforms."
Regarding the choice to advance Decipher Prostate on a qPCR platform, despite embracing NGS for future Prosigna assays and for the Percepta test, Stapley said that Veracyte plans to keep itself open to expansion.
Currently, the firm's lab-based Decipher test involves broad sequencing, which the company then incorporates into a research-use database called Decipher GRID. Its planned PCR-based IVD would preclude the expansion of that dataset by kit customers but still allows them to include the clinically reportable portion of the assay, Stapley said on the conference call.
That said, the option to expand the Decipher Prostate test to a sequencing-based kit is also in consideration, supported by the new partnership with Illumina, he added during the company's conference call.