Veracyte Inc (VCYT) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. And welcome to the Veracyte's fourth-quarter and full-year 2013 financial results conference call.

(Operator Instructions)

As a reminder, today's conference call is being recorded.

I would now like to turn the conference over to your host for today, Ms. Shelly Guyer, Chief Financial Officer. Ma'am, you may begin when ready.

Good afternoon, and thank you for joining us today for our fourth-quarter and full-year 2013 financial results conference call. Joining me today are Bonnie Anderson, President and Chief Executive Officer; Julie Brooks, General Counsel; Chris Hall, Chief Commercial Officer; and Giulia Kennedy, Chief Scientific Officer.

Before we begin, I'd like to remind you that various remarks that we make on this call that are not historical, including those about our future financial and operating results; our plans and prospects; the success of our business strategy; attributes, benefits and value of our tests to patients, physicians and payers; growth opportunities and the size of potential markets; future products, product launches and our product pipeline; international expansion; demand for our tests and drivers of demand; payer coverage and progress in reimbursement and patient access; and clinical outcomes and timing of clinical studies, constitute forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act.

We refer you to our quarterly report on Form 10-Q for the quarter ended September 30, 2013, filed with the SEC, and in particular, to the section entitled risk factors, for additional information on factors that could cause actual results to differ materially from our current expectations. These forward-looking statements speak only as of the date of this call, and we disclaim any obligation to update these forward-looking statements.

Our earnings press release for the fourth quarter and full year ended December 31, 2013, financial results, and financial outlook crossed the wire a short while ago, and is available on the investor relations page of our website at www.veracyte.com.

I will now turn the call over to Bonnie.

Thank you, Shelly. Good afternoon, everyone, and thank you for joining us today. We are thrilled that we have had an opportunity to meet many of you in one-on-one discussions over the past several months, and we look forward to continuing to address your questions as we go forward.

We are pleased with the progress we have made in achieving the milestones needed to continue to grow the Business. With the updated guideline recommendation from the National Comprehensive Cancer Network, or NCCN, and over 120 million lives now under positive medical coverage policies, we are positioned to accelerate adoption and revenue growth for our Afirma solution in 2014.

In January of last year, we announced that the NCCN had updated their guidelines for managing patients with thyroid nodules, and included a recommendation that uniquely points to the use of the Affirma Gene Expression Classifier, or GEC, to help move patients from diagnostic thyroid surgery to watchful waiting. The NCCN is an alliance of 23 of the world's leading cancer centers.

The NCCN guidelines indicate that when a thyroid nodule fine needle aspiration, or FNA, biopsy result is indeterminate using traditional cytopathology, physicians should consider using molecular testing to identify patients that could be safely monitored in lieu of diagnostic surgery, provided the test performance is similar in accuracy to a benign diagnosis using cytopathology. This recommendation can enable tens of thousands of patients each year to avoid surgery that removes all or part of their thyroid, potentially also saving them from life-long thyroid hormone replacement therapy.

We believe Afirma is the only thyroid diagnostic test with proven clinical validity published in well-designed, prospective multi-center clinical studies to meet the criteria established by the NCCN guidelines. We also believe the authors' thoughtful recommendation provides an important thought-leader perspective for many payers evaluating Affirma's level of evidence, and provides further confirmation of the value Afirma delivers to improving patient outcomes while lowering healthcare costs.

With the NCCN guideline update, and Medicare coverage in hand, we announced a series of coverage decisions throughout 2013 including Aetna, Humana, Intermountain Health, United Healthcare, and in December, Cigna. These commercial payers all updated their medical policies to include Afirma as a medically necessary test available to the patients they cover. With the addition last month of EmblemHealth, a leading health plan in New York State, we now have over 120 million lives covered for the Afirma GEC.

Turning to our financials, we are pleased to report strong year-over-year revenue growth and FNA volume increases for both the fourth quarter and full year. Our fourth-quarter 2013 revenue was $6.8 million compared to $4.5 million for the fourth quarter of 2012, an increase of 53%. We received 14,059 thyroid FNAs during the fourth quarter of 2013 compared to 9,303 FNAs during the same period of 2012, an increase of 51%.

Our full-year 2013 revenue grew to $21.9 million compared to full-year 2012 revenue of $11.6 million, an increase of 88%. Total FNAs received in 2013 were 49,670 compared to 25,890 in 2012, a year-over-year increase of 92%. Lastly, in the fourth quarter, we raised $59.2 million in net proceeds in our initial public offering.

Turning to 2014, we continue to look forward to positive coverage decisions from other payers, and anticipate inclusion of the Afirma GEC in additional clinical practice guidelines based on the growing library of evidence supporting its clinical validity and clinical utility. Against this backdrop to accelerate growth of Afirma, we previously indicated that we plan to double our internal sales team by the end of 2014. I am pleased to report that as of March 1, we are already more than halfway toward that goal. We believe this increase will give us more granular market coverage, including added momentum in large, attractive markets like New York, for example. We are pleased with the strong reception we continue to receive for Afirma among physicians who recognize the value it brings to patient care.

We are currently on track to launch our new Afirma Malignancy classifiers in the second quarter of 2014. The Afirma Malignancy Classifiers will be our second product offering in endocrinology, and we believe will further establish our Afirma thyroid FNA analysis as the most comprehensive way to manage patients with thyroid nodules to help reduce unnecessary surgeries and lower healthcare costs.

Our Afirma Malignancy Classifiers are intended to further inform decisions pre-operatively on patients whose FNA cytopathology or Afirma GEC results are malignant or suspicious for malignancy, and who are thus likely headed to surgery. The Afirma Malignancy Classifiers will use the same FNA sample to pre-operatively provide physicians with important information to help guide surgical strategy. This can help ensure that the patient gets the right surgery the first time, and it can also help these patients avoid thyroidectomies when appropriate.

Currently, doctors often lack specific diagnostic information about thyroid nodules that appear likely malignant until after the patient undergoes surgery, which limits physicians' ability to plan appropriately. As a result, patients with aggressive forms of thyroid cancer who may need a more thorough surgery often require a follow-up completion surgery.

This is the case with medullary thyroid cancer, or MTC, where the literature suggests that today nearly half of MTC cases are not diagnosed until after the thyroidectomy is completed. This results in suboptimal care, increases risk of surgery complications, and adds to healthcare costs. Similarly, certain cases of malignancies may not be best treated with a thyroidectomy. An example is a metastatic lesion that presents in the thyroid nodule but is a primary cancer from another site.

The Afirma Malignancy Classifiers will include a specific test for MTC, a relatively rare but aggressive form of thyroid cancer. They will also offer physicians the ability to order a BRAF test to inform mutational status of the BRAF gene on the FNA. Knowledge of a BRAF mutation often prompts physicians to perform a complete versus partial thyroidectomy on patients with a positive result.

Lastly, as part of our overall Afirma GEC assessment, Veracyte will continue to alert physicians when a suspicious thyroid nodule may actually be caused by a different condition, such as parathyroid disease or a metastasized cancer from somewhere else in the body. The GEC contains a series of classifiers that flag results showing such rare conditions in an informational-use-only mode, which permits our medical director to alert the treating physicians by phone in advance of surgery. This information can potentially help physicians avoid performing an unnecessary thyroid surgery.

We believe that our ability to drive additional genomic information from a single FNA to help guide surgical decision making will provide further value to physicians, patients and payers, and will strengthen the position of our Afirma solution in the marketplace. We are piloting our Afirma Malignancy Classifiers at approximately 12 sites, and plan to fully launch the MTC and BRAF test as part of our enhanced overall Afirma solution at the American Association of Clinical Endocrinologists, or AACE, meeting in May. We anticipate that this launch will coincide with the presentation of new data in support of the Afirma Malignancy Classifiers.

In summary, two specific tests will be offered with the Malignancy Classifiers: MTC and BRAF. The MTC test result will be included as part of the patient report when a GEC is performed on any indeterminate by cytopathology FNA. However, it will also be available for physicians to order separately on a cytopathology malignant FNA. We will bill for tests performed on the cytopathology malignant cases.

The BRAF tests will only be performed when ordered specifically by the physician on either an indeterminate or malignant by cytopathology FNA. The BRAF test will be billed when it is performed. We have not finalized our specific pricing for these tests on an individual basis.

In line with these planned enhancements to Afirma, on January 1, 2014, we implemented a 14% price increase for the Afirma GEC, the first increase in two years, bringing the list price to $4,875. We believe this amount reflects the value that the Afirma GEC brings to patients, physicians and payers. I should note that, as is typical with diagnostic tests, payers generally reimburse at rates below the list price.

We are also on track for selective launches of our Afirma GEC in international markets during 2014. Specifically, we have obtained required registrations, and in Europe, a CE mark for the Afirma GEC collection kit to enable us to introduce the Afirma GEC in select countries once we have received positive reimbursement decisions. We believe our Genzyme partners will be especially helpful with international expansion, given their deep knowledge about the local customers and the reimbursement landscape, as they already market Thyrogen to endocrinologists in 42 countries.

Finally, for Afirma, we recently received our second patent, US Patent Number 8669057, which comprises 22 claims, and forms the core of our DNA intellectual property claims. As a reminder, our first patent was issued in September 2013, and includes over 60 claims that are fundamental to our work with RNA. These two issued patents provide significant progress in our efforts to build an IP fortress to protect the important and broad advancements we have made in using cytology samples to extract which genomic information that can inform early decisions, improving patient care. We also have seven pending US non-provisional patent applications related to thyroid.

We are pleased to report that we continue to make strong progress in our research and development efforts for our first product in our next vertical, pulmonology. As previously indicated, our first product in this area is in interstitial lung diseases, or ILDs, which comprise a number of disorders that affect the tissue and space around the microscopic air sacks of the lung, and cause progressive lung scarring. Since some of these difficult-to-diagnose conditions are benign, while others are potentially fatal, early differential diagnosis can lead to significant improvement in treatment decisions for virtually all of these clinical cases.

ILDs are often challenging to diagnose without an invasive and risky surgery, which many patients are not able to withstand. As a result, many patients are left with ambiguity in their diagnosis, resulting in suboptimal and often harmful treatment. We are developing a molecular classifier for use on bronchoscopy samples to tease apart these interstitial lung diseases to provide a more accurate diagnosis that today can only be obtained with surgery. We believe this can improve outcomes and lower the cost of care for a significant number of the estimated 200,000 patients suspected of having an ILD, including Idiopathic Pulmonary Fibrosis, or IPF.

We are in late-stage biomarker discovery for IPF, and are now working with more than 12 clinical sites, including 1 site in Europe. Based on promising early results and surgical tissue samples, we anticipate further site expansion through 2014. Samples are being accrued under IRB-approved prospective clinical protocols, and will fuel both our discovery and development activities for ILD classifier, with these sites also serving as the prospective validation study sites as well. This is similar to the approach that we used in thyroid.

In our work in ILD, we have learned that excellence in diagnosis can only happen when an expert, multi-disciplinary team including pulmonologists, radiologists and pathologists, is deployed, as is done in the major ILD centers. We believe these multi-disciplinary teams, or MDTs, are critical to the development of our tests, and we have thus built our own virtual MDT comprised of leading experts across these disciplines. We look forward to sharing preliminary data at a scientific meeting in the second quarter of 2014, and remain on track to launch our first pulmonology product in 2016.

Finally, I would like to take a moment to welcome two new members to our leadership team; Julie Brooks joins Veracyte as Executive Vice President, General Counsel and Secretary; and Andy Thorson joins as Executive Vice President, Corporate Strategy and Business Development. A press release about their appointments went out yesterday, and we are delighted to have such strong executives join our talented management team.

I will now turn the call back over to Shelly, who will review our financial results for the fourth quarter and the full year.

Thanks, Bonnie. As Bonnie indicated, we made significant progress in revenue growth and increases in FNA volumes for the fourth-quarter and full-year 2013. Revenue for the fourth quarter ended December 31, 2013, was $6.8 million, up from $4.5 million for the same period in 2012, an increase of 53%. Full-year 2013 revenue was $21.9 million compared to $11.6 million in 2012, an increase of 88%.

Quarter-over-quarter and year-over-year increases were due to increased clinician adoption of our Afirma solution, combined with increased coverage of, and reimbursements for, our Afirma GEC. Cash collections, particularly with commercial payers, were especially strong in the fourth quarter.

We received 14,059 FNA samples in the fourth quarter compared to 9,303 samples during the same period in 2012, an increase of 51%. Total FNAs received in 2013 were 49,670 compared with 25,890 total FNA samples received in 2012, a year-over-year increase of 92%. The percentage of GEC tests in the quarter was slightly above our guided range of 18% to 20% of FNAs received. This was due to a relative increase in the number of samples submitted directly for GEC testing, which predominantly came from our academic customers.

I'd like to take a moment to again address seasonal factors that affect our Business. Our Business is subject to fluctuations in FNA volume throughout the year as a result of physician practices being closed for holidays or medical meetings that are widely attended by our ordering physicians. Like other companies in our field, vacations by physicians and patients tend to negatively affect our volumes more during the Summer months and during the year-end holidays compared to other times of the year.

As we anticipated in our third-quarter call, December FNA volumes were light for the last two weeks of the year because Christmas and New Year's both fell in the middle of the week, with doctors' offices and patients extending their holidays for up to two weeks. Additionally, we have also seen some dampening due to severe weather this January and February on FNA volumes, with increased numbers of patients not able to get to the doctor's office.

Our reimbursement rates and cash collections are also subject to seasonality. The fourth quarter is historically our strongest quarter, as third-party payers tend to clear pending claims toward year end. At the beginning of each year, we tend to have lower collection rates from individuals, as patient deductibles are generally reset at this time, meaning that patients are responsible for a greater portion of the cost of our tests. While our first quarter is thus traditionally lower in revenues than the fourth quarter preceding it, we believe that, in light of the coverage decisions payers issued last year, we may not see the same dip that we've experienced in previous years.

Additionally, three small payers that were previously recognized on a cash basis have been moved to accrual, which we believe reflects growing awareness of, and confidence in, Afirma. Including Medicare, accrual accounts now represent approximately 30% of our revenues.

Research and development expenses for the year ended December 31, 2013, were $7.8 million compared to $6.6 million for 2012. The increase was primarily due to increases in personnel and licensing expenses to secure intellectual property to augment our existing thyroid patent portfolio.

Selling and marketing expenses for the full-year 2013 were $12.5 million compared to $8.4 million in 2012. This increase was primarily due to a $3-million increase in net expense recognized under our co-promotion agreement with Genzyme. The remainder is attributed mostly to increased headcount, and marketing and promotional activities and materials.

General and administrative expenses for the year ended December 31, 2013, were $12.1 million compared to $7.9 million for 2012. This increase was primarily due to expenses associated with a 63% increase in headcount, IPO-related expenses that were non-capitalized, an increase in stock-based compensation expense related to 2013 option grants, rent and other expenses due to the opening of our Austin, Texas, facility, and insurance expenses related to being a public company.

Net loss for the fourth quarter ended December 31, 2013, was $5.9 million, or $0.42 per common share, compared to a net loss of $4.8 million, or $7.27 per common share, for the same period in 2012. Net loss for full-year 2013 was $25.6 million, or $6.15 per common share, compared to a net loss of $18.6 million, or $28.68 per common share, for 2012.

As discussed in our third-quarter earnings call, I want to again note that the net loss for the full-year 2013 included net other expense of approximately $2.4 million, which was comprised of several components. First, we incurred $256,000 in interest expense and amortization of deferred financing costs related to our long-term debt obligation. These costs will continue in future years for the life of the debt obligation through mid-2017.

Second, we incurred an approximate $2.2-million loss related to the re-measurement of the fair value of our preferred stock liability connected with the second tranche of the Series C preferred stock that was extinguished in the quarter ending June 30, and the re-measurement of the fair value of our preferred stock warrant liability that was extinguished at the time of the IPO. Both of these were non-cash items, and neither will occur in the future. These amounts were offset by a small amount of interest income on cash invested in money market funds.

Cash and cash equivalents totaled $71.2 million at December 31, 2013, which includes total net proceeds of $59.2 million during the fourth quarter from our IPO. In the quarter ending December 31, 2013, we again began to pay Genzyme cash under our co-promote agreement. As we disclosed previously, an amendment to the Genzyme agreement signed in April 2013 allowed us to delay payments through much of 2013, which preserved cash.

Effective as of November 2013, we have begun paying Genzyme again, and thus, our cash burn rate increased during the quarter, and will continue to increase in the coming quarters. I would note that the rate at which we pay Genzyme is reduced from 40% of net revenues to 32% effective March 1, 2014.

In terms of guidance for 2014, we are only providing annual guidance. We currently expect to receive between 76,000 and 83,000 FNA samples during 2014. We anticipate that revenue for 2014 will be in the range of $38 million to $43 million, which, at the midpoint, would represent an 85% year-over-year revenue growth.

I will now turn the call back over to Bonnie for closing remarks.

Thanks, Shelly. We are pleased with our fourth-quarter and full-year 2013 results, and believe we are well positioned to accelerate growth of our Afirma solution in 2014, and to significantly advance the development efforts of our first product in pulmonology, our next clinical area. We are truly excited about pioneering this new field of molecular cytology, which we believe has the potential to transform diagnosis for a range of diseases to greatly improve patient care and reduce healthcare costs.

Would the operator please open up the call for questions?

(Operator Instructions)

Dan Leonard, Leerink Swann.

On reimbursement, congratulations on getting a few small payers under contract. What are your expectations for contracting in 2014 with additional payers, and what is baked in the guidance?

Hi, Dan, thanks for joining us, and thank you for the call.

So, just to clarify, the announcements that we made were for additional coverage decisions. So, as of right now, Medicare is still the only contracted payer that we have. As you know, because of those contracted rates, Medicare is the only revenue that we have accrued, in addition to a couple of the small payers that we wouldn't call out specifically that got added to that. I believe the accrued revenue rate was about 30%.

Timing of these contracts, as you know, is always challenging to predict. Our first coverage decision of the major commercial payers was announced last March, and that was United Healthcare. And then we had a few larger commercial payers about mid-Summer, and Cigna at the very end of the year.

We have certainly opened discussions with some of these payers as appropriate, but it is really just a process and a journey, and difficult to predict exactly when those will happen. We will certainly, as we did in this call, bring those to your attention.

Shelly, is there anything else you would like to add to that?

In terms of our guidance, so, forward-looking, we do not make assumptions within our model on when we believe various payers will flip over to accruals. We think it's very difficult to predict precisely when they will flip. In the quarter that we will begin to accrue, we will have an uptick in that -- in the bolus in that one particular quarter, and it will steal from the next quarter and the quarter after that, as you bring in those payments over time today, and in the future with accruals it would come in one quarter.

We thought it was unwise to predict that moving forward, and so, our models don't predict exactly when accruals will cause a bump. But we will, as Bonnie said, let you know that when we do begin accruing.

Got it, thank you.

And then, as we think about the volume -- the FNA volume cadence in 2014, given some of the seasonality you called out, and in particular with weather in the first quarter here, should we expect to see a wider gap between FNA volume in Q1 and Q4 than we've seen historically -- just a much wider range between those two?

Yes, so, historically, we have talked about seasonality in FNA volume coming more between the Q2/Q3 area when the Summer months hit us, and the vacations that impact that. Now, you might recall we mentioned on our Q3 call that we had anticipated that, given Christmas and New Year's both fell on Wednesdays last year, that we may see a little softening in December of FNA volumes. And I think the FNA volume, although quite exciting for us in Q4, we actually did see a softening in those last two weeks of December.

So, Q1 is typically a little flat -- a little up from Q4. We usually see better growth in Q2 with a bit of a flattening due to Summer vacations and seasonality going into Q3. And then, as we saw last year, Q4 tends to be our highest volume. So, that's how we would see the cadence through the year.

Does that help?

That's helpful.

And then my final question: Do you have any feedback you could offer from your Afirma Malignant pilot program, whether or not docs are acting on the info, or is it too soon to tell?

So, the purpose of the pilot program is two-fold. One is to certainly get physicians who are clients familiar with the product, and give them a chance to test case when they would order the MTC and BRAF, and how they would react to these results that are coming out, the MTC specifically as part of the GEC results. Keeping in mind that we actually have provided the MTC, as well as some of the other rare neoplasm results that we mentioned on the call earlier -- we have been providing all of that on an informational basis since we launched the GEC.

So, we have had a chance to see how doctors' reaction to getting these results has been by making phone calls and informing them when these triggers occurred. And there has been a lot of enthusiasm with the MTC results being able to be provided pre-operatively because today with cytopathology alone, over half of those cases are not fully diagnosed as the aggressive form of MTC till after the patient's gone to surgery. So, these tend to give the doctors the information to have the consults with the surgeons, and really plan even some work-up on those patients before taking them into surgery.

The second thing that we wanted to test during the pilot was just our own internal processes, the patient report, which has changed the ease of operating and understanding all of that information. And so far, we're getting very good feedback, although this pilot has only been under way for a few weeks. We're looking forward, though, in May at AACE in unveiling this in a larger scale, and certainly expect that some of the impressions from our clients, as well as more data, will be unveiled as part of that launch.

Okay, got it, thank you.

Amanda Murphy, William Blair.

A question on the accrual: So, the number last quarter was just Medicare, right, at the 22%? I'm just trying to recall the number.

Yes, and actually the Medicare amount is about 23% to 24% of the test volume. And then on the amount collected, it has been more like 33%, and it was the primary accrual that we did historically. This time, we added a couple of very small payers, and the amount was 30%.

It's lower because the other commercial payers that are paying on a cash basis were much higher in the quarter. So, that's why you see that trending down a little bit from an accrual perspective. We would expect over time, obviously, that that would increase as more come under contract, or we have predictability of their payments and we can begin to accrue them because of that predictability.

Got it.

And then, in terms of 2014, what are you seeing now around ASP, if you think about those -- what you're booking on an accrual basis and what you're getting on a cash basis for the GEC? And then, the FNA reimbursement I think was pretty decent for 2014. So, just curious how to think about that, 2014, and then obviously going forward into 2015?

So, I'll start, and then I'll hand it over to Shelly on the accrual question.

We were really pleased with the cash collections in Q4, of course, and we believe that that is the beginnings of what we will begin to see once these coverage decisions are made. We would expect, going forward in 2014, to see more of an impact given the number of other payers that came on board with coverage decisions mid-year last year, as well as Cigna as late as December.

Shelly, in terms of the accrual question?

So, I think one of the other questions that you had was basically the moving between the contracted payments amount and the general amount that we've been collecting. So, I'd remind you that Medicare is the only contracted amount, and that is between $3,000 and $3,500, and that's very predictable, and obviously then accrued.

With the other ones who are under coverage, and that would be the United's and the Aetna's and the Cigna's, our experience to date is that we've seen that we've been paid a lot more quickly than historically we would have been under -- before they had a coverage decision. So, on the order of six to eight months historically, and now we see it more like three to four months. So, we are seeing a very big change in how quickly they're paying.

From the perspective of how much they're paying, it's a little bit harder to tell since it's early in the year, and we're trying to encourage them to pay under the miscellaneous codes for 2013, which was different than the 2012 amounts. On a blended rate -- so, then you also have those that do not yet have any coverage, and those can pay across the board at all different levels. When we look at a blended GEC reimbursed amount, the average reimbursement amount has moved up to about $2,000 per GEC, and that's including everything from Medicare with the known amounts, to those that are paying zero on the test. So, that's the blended amount for the GEC.

We expect to get some more color on how the coverage changes this dynamic as we go through the year, and as we get more history beyond these payments.

How about the FNA side?

The FNA side has been quite stable, and as you know, it's an amount that we are reimbursed by Medicare at about $150 per the global fee. And then beyond that, the commercial payers can pay anywhere from, out of network and they don't cover it, up to $490, which is our list price, as you know. And so, on average, that has held up well for the commercial payers, more on the order of about $200.

Got it.

And then just last one on Genzyme: The color there was helpful in terms of the cash payments, but I'm curious how you're thinking about that relationship going forward, particularly as you continue to focus on international growth. I'm curious how your conversations with them are going around whatever payment structure you have in place.

So, I think, to date, 2014 -- there's such a focus on accelerating growth. And as we mentioned, we've already effectively more than halfway met our goal of doubling our own sales team. But that really just augments the Genzyme team, and gives us just much a deeper ability to serve the territories and a lot more granular coverage. So, we really don't see anything changing there this year.

We're excited about what Genzyme has brought to the table in terms of international expansion. We have made a lot of progress, as we noted, on product registrations and CE mark to cover Europe and some countries beyond that. And filings of dossiers around reimbursement, all which has really been enabled through the local Genzyme team that has point people that are representatives and part of the Thyrogen business that can handle all of this for us.

So, we see that their priorities in terms of Afirma are going to maybe shift with more emphasis on helping us achieve these international milestones, which are really important. But fully expect to continue to have a very fruitful and positive relationship, as we've had with them since we announced the deal back in 2012.

Okay, thanks very much.

(Operator Instructions)

Doug Schenkel, Cowen and Company.

A clarifying one: The three payers that you mentioned you're now accruing, are those not contracted? Did they just meet another threshold for you to now treat them from an accrual accounting standpoint?

Exactly, yes. So, there was predictability, and we looked at stability and predictability of the amount of the payment over time. And I would note that they were quite small payers, and that there was not a big bump in the quarter, as we talked about from accruals. So, that's why I specifically noted that in our script.

Okay. You did talk about the historical difference between moving from non-covered to covered to contracted, in terms of what we should anticipate in terms of pricing differences. Is it worth talking about what type of pricing you're getting from these three small payers relative to CMS, or would you view that as not really indicative of where you can head moving forward?

Yes, it's not really -- that's not what will determine. It's not the rate at which they pay, it's the consistency that they are paying at.

Okay. And then, from a disclosure standpoint, I guess I should say, I think the expectation of many of us on the line is that you move forward with contracted lives this year, I think including you guys. Will you make those announcements intra-quarter or should we expect those only on the quarterly calls?

It most likely will be on the quarterly calls, Doug, because it's -- this is kind of a confidential discussion that takes place many times in negotiating these contracts, and it's not something that we would put out in a public press release, but we will certainly note it on the calls.

Okay. And then one more on guidance. It looks like, as I'm playing with my model a little bit, that you guided FNA volumes a bit higher than we expected. Revenues also a little bit higher, but maybe not as high as I would have expected on the higher FNA volumes, and that's in spite of the addition of the Malignancy Classifier, progress you're making with covered lives, and an increase in list price.

In response to one of Dan's questions earlier, you said you're not factoring in additional accruals into guidance, but it doesn't seem like you're factoring in much when it comes to the impact from the increase in the list price, the progress I think you're making towards contracted lives, which, as we talked about earlier, would likely bump up ASPs, and also the upside potential associated with additional revenue from the Malignancy Classifier. So, I just want to make sure we're not missing anything here, because it looks pretty conservative.

So, we're pleased -- actually this is our first guidance since becoming a public company, and like many of the others in this space, we're providing guidance on revenue and FNA volumes, but on an annual basis. The revenue guidance is actually -- in being between $38 million and $43 million for 2014, represents at the midpoint about an 85% increase in revenue year over year, and we believe that's quite respectable. Our guidance on test volume being between 76,000 and 83,000 at that midpoint represents about a 60% growth rate, again, what we believe is pretty respectable given the run rates coming into the year and where you have to end the year on run rate exiting in order to achieve that overall annual growth.

The revenue is expected to increase greater than FNA volume, but that's -- much of that is due to the factors around reimbursement rates that we believe will improve based on all the coverage decisions we have in place.

No, that makes sense. That's helpful. Again, it's rare that I would ever say someone's guiding conservatively when they're guiding close to doubling revenues year over year, but --

Thank you.

It looks like there's some other things that could drive some upside, so, thank you.

Thank you, sir. And presenters, currently at this time, I'm currently showing no additional phone questioners in the queue. I'd like to turn the program back over to Bonnie Anderson, President and Chief Executive Officer, for any additional or closing remarks.

Thank you. In closing, we'd just like to thank all of you for joining us today. We also want to continue to thank our patients and physician clients, our employees and all of our shareholders whose strong support continues to help us achieve our goals of delivering the promise of molecular cytology. We really appreciate the confidence that you have in us and our Business, and we look forward to reporting our first-quarter 2014 results in the Spring. Thank you.

Thank you, presenters, and thank you, ladies and gentlemen. This does conclude today's call. Thank you for your participation, and have a wonderful day. Attendees, you may log off at this time.