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Following Disappointing Quarter, Veracyte Notes Progress on Test Development, Reimbursement

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SAN FRANCISCO (GenomeWeb) – Despite missing its revenue guidance in the third quarter and lowering its full-year 2017 target, Veracyte CEO Bonnie Anderson said this week that the company is on the right track.

During a conference call discussing the firm's third quarter earnings, Anderson anticipated that by the end of 2018 Veracyte would grow sales and have insurance coverage policies in place for all three of its genomic classifier tests.

Anderson said that the growth for Veracyte's Afirma Gene Expression Classifier (GEC) test was slower than expected, but noted several steps the company plans to take to boost sales, and highlighted data presented at recent conferences on an updated version of Afirma as well as its other tests, Percepta and Envisia. She said the company just started booking revenue from Percepta in the third quarter and expects to begin seeing revenue from Envisia next year.

Veracyte launched an updated version of Afirma GEC earlier this year, but Anderson said that the company decided to take a more "measured approach to transitioning customers" than originally anticipated. Afirma GEC uses microarray technology to analyze gene expression to help resolve indeterminate results from fine-needle-aspiration biopsies for potential thyroid cancer. The new version of the test, the Afirma Genomic Sequence Classifier (GSC), is based on RNA sequencing.

Anderson said the company decided to slow down the transition process to "optimize workflow complexity in our CLIA lab" so that it would be able to run both the microarray and next-generation sequencing workflows without sacrificing quality.

Nonetheless, she said, the new test has been well received and the company secured 100 new accounts for the GSC version and is on track to fully convert to the new test by early next year.

In addition, she noted that clinical validation data presented at the World Congress on Thyroid Cancer this summer demonstrated that the GSC enabled 30 percent more patients to be classified as benign compared to the original version without increasing the false-negative rate. In addition, at the American Thyroid Association's annual meeting last month, researchers presented data that showed the GSC could distinguish "challenging-to-interpret thyroid cancer subtypes," including "differentiating benign from cancerous Hürthle cells." Researchers also presented data demonstrating that the test could accurately detect BRAF variants in medullary thyroid cancer, "providing physicians with important treatment information when surgery is needed," she said.

Aside from growing sales of its Afirma GSC, Veracyte also plans to boost the number of sales representatives to 85 from 61 by the third quarter next year, adding pulmonary specialists, as it begins to ramp up its two other genomic classifier tests, Percepta, which helps determine whether lung nodules should be surgically removed, and Envisia, which helps diagnose idiopathic pulmonary fibrosis.

Anderson said that the firm recognized its first revenue from Percepta sales this quarter and expects to begin generating revenue and to have a Medicare coverage policy in place for Envisia next year.

Regarding reimbursement, she said that Veracyte will be one of the companies that ends up benefiting from test prices set in the Centers for Medicare & Medicaid Services' Protecting Access to Medicare Act, which increased the price of Afirma from $3,222 to $3,600.

She added that the company will also benefit from a change in CMS' 14-day rule, or the Date of Service Regulation, that allows molecular diagnostics labs to bill CMS directly only for tests that are ordered at least 14 days after a patient has been discharged from the hospital. If it's ordered earlier, the hospital must bill CMS and the lab would bill the hospital.

Under the new rule, CMS agreed to exempt certain advanced laboratory diagnostic tests and molecular pathology tests, which Anderson said would apply to Veracyte. She noted that Percepta in particular would benefit from the change, which would enable the company to bill CMS directly for all Percepta claims. That "gives us confidence we will be successful in driving adoption of Percepta and creating significant value in the lung cancer space," she said.

The new rule is scheduled to take effect in 2018 and Anderson said that the company would now focus on obtaining private payor coverage for Percepta. One step to that end is presenting clinical utility data. She noted that a Johns Hopkins University researcher recently presented data that showed that when Percepta classified patients previously thought to be at an intermediate risk as low risk for lung cancer, there was a more than 50 percent reduction in recommendations for diagnostic procedures compared to decisions made without the Percepta result. In addition, she said, the data showed that physicians are using the test as intended.

Finally, Anderson noted that clinical validation data for Envisia that was published in June in the Annals of the American Thoracic Society had laid the groundwork for making the case for reimbursement for that test. Later this week, she said that Neil Barth, the company's chief medical officer, will present interim clinical utility data for the test at the Pulmonary Fibrosis Foundation meeting. She said that the company is on its way toward building evidence to meet the requirements for a Medicare coverage policy, and that she realistically anticipates securing a coverage policy by the middle of next year.

Analysts had mixed feelings on Veracyte's performance and their outlook going forward. PiperJaffray downgraded the firm's shares to Neutral from Overweight with Senior Research Analyst William Quirk writing that the firm performed a "hat trick" by delivering disappointing results in Q3 and reducing guidance for Q4 and 2018. He added that the 2018 guidance in particular suggested a "slower Percepta ramp and slowing Afirma growth."

Meantime, Leerink's Puneet Souda wrote in a note to investors that he thinks the "company offers differentiated negative classifier tests" that "serve an estimated $2 billion market." Souda added that Afirma alone represents a $500 million market in the US and "is on the path to become standard of care."