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Veracyte Q2 Revenues up 71 Percent; Agrees to Amend Genyzme Deal

NEW YORK (GenomeWeb) – Veracyte announced after the close of the market on Wednesday that its revenues for the second quarter increased 71 percent year over year, but still fell short of the consensus analysts' estimate.

It also said that it and Genzyme have agreed to amend their co-promotion agreement reached in early 2012.

The South San Francisco, Calif.-based firm said that for the three months ended June 30, revenues reached $8.7 million, compared to $5.1 million in the year-ago period. On average, Wall Street had expected revenues of $9.4 million.

Veracyte received 16,458 fine needle aspiration samples in the quarter, up 32 percent from 12,424 samples in Q2 2013. It added that the rate of Afirma Gene Expression Classifier tests for diagnosing thyroid cancer performed during the quarter remained slightly above 22 percent of FNA samples received, "reflecting the company's strong progress with large institutional accounts, which handle initial cytopathology on-site and only submit indeterminate samples for genomic testing."

"We continued to experience robust momentum with our business during the second quarter of 2014," Veracyte President and CEO Bonnie Anderson said in a statement, noting inclusion of Afirma GEC in "leading guidelines," positive payor coverage decisions, the launch of a second Afirma product in endocrinology, and further development of Veracyte's pulmonary pipeline.

During the company's conference call following the release of its financial results, Anderson said that in Q2, Afirma GEC had received its first positive coverage decision from a Medicaid managed care plan, AmeriHealth Caritas, which covers about 2 million lives. Additionally, Veracyte executed contracts in Q2 with smaller integrated healthcare delivery networks. As a result, the total number of covered lives is now 135 million, she said.

She also said that last week, New York State approved the company to offer its extended Afirma offerings, including the Afirma Malgnancy Classifier, which was launched in May, to residents in the state.

Commenting on the company's pulmonary pipeline, Anderson said that Veracyte is developing a molecular classifier to improve early, non-surgical diagnosis of interstitial lung diseases, particularly idiopathic pulmonary fibrosis. The test, she said, is expected to become commercially available in 2016.

Lastly, Veracyte had previously said that it planned to double its sales staff in 2014 compared to 2013, and so far, it has increased that number from eight at the end of 2013 to 14 as of the end of Q2 2014. By the end of the year, the company expects to hire an additional 10 sales people, Anderson added.

The company had a net loss of $6.7 million, or $.31 per share, in Q2 2014, compared to a net loss of $6.5 million, or $7.53 per share, a year ago. The average analyst estimate was a net loss of $.33 per share.

Veracyte, which went public in November 2013, used more than 21 million shares to calculate its loss on a per-share basis in the recently completed quarter, compared to 861,839 shares in Q2 2013.

Its R&D expenses increased 16 percent year over year to $2.2 million from $1.9 million, while its SG&A spending shot up 67 percent to $9 million from $5.4 million.

Veracyte ended the quarter with $58 million in cash and cash equivalents.

It reiterated its full-year 2014 revenue guidance of between $38 million and $43 million, but lowered the guidance on the number of FNAs to a new range of 66,000 to 73,000 samples. Veracyte previously guided to a range of between 76,000 and 83,000 samples. The GEC test range, it added, is anticipated to come in at the top end of the guided range of 20 percent to 22 percent with the number of GEC-only tests higher than expected as large institutional accounts continue to adopt the test.

Veracyte also announced it has agreed to amend a co-promotion deal with Genzyme in order to provide it greater financial flexibility. The agreement, which would take effect on Jan. 1, 2015, has not yet been signed, but under its terms Veracyte's co-promotion fees to Genzyme would decrease to 15 percent of Afirma revenue in the US from 32 percent under the previous agreement between the two firms.

Veracyte and Genzyme will continue to jointly market the test, though Veracyte will take on greater responsibility for new-account sales conversion while Genzyme's sales team will focus on ongoing support of new and existing accounts.

The companies also have agreed to amend the agreement "to optimize their joint presence internationally with a country-by-country decision to co-promote or to revert exclusivity back to Veracyte."

"At this point in the Afirma adoption curve, we believe the shift in sales responsibility is particularly critical to continued successful penetration into more complex institutional accounts and integrated health networks, where a dedicated team approach is required," Anderson said.