Veracyte Inc (VCYT) 2016 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Veracyte's fourth-quarter and full-year 2016 financial results conference call. (Operator Instructions). As a reminder, today's conference call is being recorded.

I'd now like to turn the call over to Ms. Bonnie Anderson, Chief Executive Officer and Chairman of the Board. You may begin.

Good afternoon, everyone, and thanks for joining us today for our fourth-quarter and full-year 2016 financial results conference call. Joining me today are Keith Kennedy, Chief Financial Officer; and Chris Hall, President and Chief Operating Officer. This is Keith's first earning call with us, and we are delighted to have him on board.

Before we begin, Keith will take us through the Safe Harbor statement.

Good afternoon, everyone. We'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 include statements regarding our future plans, prospects, and strategy; financial goals and guidance; product pipeline; and other statements that are not historical fact.

Management's assumptions, expectations, and opinions reflected in those statements are subject to risk and uncertainties that may cause actual results and/or performance to differ materially from any future results, performance, or achievements discussed in, or implied by such forward-looking statements. And the Company can give no assurance they will prove to be correct.

Those risks and uncertainties are described in the Company's filings with the Securities and Exchange Commission in addition to today's press release.

Prior to this call, we announced our fourth-quarter and full-year 2016 results which are available on our website, Veracyte.com, by clicking menus on the top right corner of our website and clicking through to our investors landing page, and then press releases. We also released a financial presentation which I will reference later in the call when I cover our financial results. You may find the financial presentation in the same investors section under events and presentations.

I will now turn the call over to Bonnie.

Thanks, Keith. Good afternoon, everyone, and thanks for joining us today. We are excited to recap a year of exceptional execution in 2016 and highlight the momentum, plans, and expectations for our business in 2017. We have just completed our fourth consecutive year of at least 30% annual revenue growth since becoming a public company. And as you've seen from our recent press releases, we've made significant progress in advancing our thyroid and pulmonology franchises, which we will expand upon today.

At the beginning of 2016, we committed to our investors that we would measure our success for the year using three key metrics: Afirma growth and reimbursement expansion; Percepta coverage decision by Medicare; and the launch of our third commercial test for idiopathic pulmonary fibrosis, or IPF.

Here is our scorecard. First, Afirma growth and reimbursement expansion. Our original 2016 annual revenue goal was $59 million to $63 million. We exceeded our expectations, closing the year at $65 million in revenue, a 31% year-over-year increase.

We set out to achieve 2016 Afirma gene expression classifier, or GEC, volume in the range of 24,000 to 25,500. We reported 23,237 Afirma GEC tests for the year, 3% below our range, but resulting in solid volume growth of 20% year over prior year.

In terms of reimbursement expansion for the Afirma GEC, we believe our execution and progress were exceptional. We expanded the total number of covered lives by 50 million to nearly 225 million as of March 1, 2017; and the total number of people covered through in-network contracts by 25 million to over 155 million today.

In April 2016, we secured an agreement with Blue Cross and Blue Shield Association's internal group purchasing organization, CareSource, to accelerate in-network contracts and overall reimbursement for the Afirma GEC among Blues plans across the country. Our strategy worked. We now have more than 70 million Blues covered lives for the Afirma GEC, including over 20 million gained in the first two months of 2017 as well as 20 million Blues lives now under contract.

Lastly, in September 2016, our scientists presented data at the American Thyroid Association Meeting showing the potential for our next generation Afirma GEC, which combines RNA sequencing and machine learning to significantly increase the number of patients with benign thyroid nodules who could avoid unnecessary diagnostic surgery. Data revealed at the meeting showed our ability to maintain the Afirma GEC's high sensitivity and negative predictive value while increasing the test's specificity above the 50% mark today. We are excited to transition this enhanced Afirma GEC in 2017.

Second, Percepta coverage. We aimed to achieve a Medicare coverage decision for Percepta by the end of 2016, and we exceeded our goal. In September and October of 2016, Veracyte received three draft Medicare coverage decisions through the MolDX programs for Percepta's use in lung cancer screening and diagnosis. Two of these policies are now final and scheduled to go into effect this month. Upon finalization of the third draft policy, Percepta will be covered for over 35 million or nearly two-thirds of the 57 million Medicare beneficiaries in the United States.

We also made significant progress in building our library of clinical evidence for Percepta classifier, with data demonstrating that our test, in fact, helps change clinical decision-making and reduce healthcare costs.

Data presented at key medical conferences in 2016 included two clinical utility studies at the CHEST Annual Meeting in 2016 showing that use of the Percepta classifier led to a significant decrease in physicians' decisions to perform diagnostic surgery or other invasive procedures in patients being evaluated for potential lung cancer. And data presented at the American Thoracic Society, our ATS, Meeting which suggested the Percepta classifier's ability to both be cost savings and cost effective to the healthcare system at a reimbursed rate estimated at $3,200.

Third, the launch of the Envisia bronchial genomic classifier, our test for IPF. In October 2016, we launched the Envisia classifier at the CHEST Annual Meeting. The Envisia classifier helps improve the diagnosis of IPF among the 200,000 patients who present each year in the United States and Europe with a potential interstitial lung disease, or ILD. We believe the Envisia test is the first commercially available test to help patients with suspected IPF secure an accurate diagnosis more quickly and through currently available processes and without the need for invasive surgery.

We also made significant progress in building the clinical evidence for Envisia. At the International Colloquium for Lung Airway Fibrosis and at a private event at the CHEST Annual Meeting in October, we unveiled clinical validation data from our prospective, 30-site, double-blinded BRAVE study, which demonstrated the ability of the Envisia classifier to accurately identify, with an 88% specificity, usual interstitial pneumonia, a classic diagnostic pattern whose presence is essential to IPF diagnosis.

We closed out 2016 with great momentum. We've got three commercial genomic tests now that target a $2 billion market and an expanding pipeline for sustained growth. We exited our co-promotion agreement with Genzyme in 2016 and expanded and began integrating our sales team to sell across our Afirma and Percepta product lines in 2017.

At this time, I'd like to address two important executive leadership promotions which we announced yesterday, and which we believe will best align our business to meet the growth objectives; transition our business to profitability; and, importantly, allow me more time to work with the leadership team in pursuit of the continued evolution and growth of our Company.

First, we have appointed Chris Hall as President and Chief Operating Officer, with expanded responsibility for Veracyte's day-to-day business and operations. Most of you know Chris and are familiar with the critical leadership role he has played in developing and guiding our commercial enterprise and operations since joining the Company into 2010 as Chief Commercial Officer, and being promoted in 2014 to Chief Operating Officer. As we enter our next phase and focus on sustained, profitable growth, I can imagine no better person to lead the execution of that corporate strategy.

Additionally, we've promoted John Hanna to Chief Commercial Officer. He will oversee sales, marketing, and managed care for Veracyte, reporting to Chris. John joined Veracyte in 2011, leading a very successful managed care strategy, and has served most recently as Vice President of Marketing. He's been the key driver of our efforts to build clear value proposition for our genomic tests, which is leading to broad physician adoption and health plan reimbursement. I'm thrilled to have John leading our commercial efforts, and look forward to introducing him to many of you.

Finally, at the corporate level, we recruited Kevin Gordon, the former Chief Operating Officer of Quintiles Transnational Holdings, to our Board of Directors. I'd like to thank Brian Atwood for his incredible service to the Company as Director and Chairman of the Board since Veracyte's founding. Though Brian stepped down in December of 2016, his significant positive impact on the Company will continue for years to come.

I would now like to turn the call over to Keith to review our financial results for the fourth quarter and for the full year 2016.

Thank you, Bonnie. Good afternoon, everyone. I plan to speak about our fourth-quarter 2016 results, our fiscal year 2016 results, the strength of our balance sheet and liquidity, and will conclude with a few observations. As I mentioned earlier, in addition to our earnings release, you may find our financial presentation on our website at Veracyte.com under investors, and then events and presentations.

First, highlights for the fourth quarter are as follows. Revenue of $18.3 million increased 30% over prior-year quarter. Afirma GEC reported volume of 6,313 tests, increased 13% over prior-year quarter. Our revenue, less cost of revenue as a percentage of revenue, or gross margin, was 64%, increasing 800 basis points over prior-year quarter. Total operating expenses of $21.9 million were flat to prior-year quarter.

Net loss of $4.4 million increased 45% over prior-year quarter. Net loss per share of $0.14 improved 52% over prior-year quarter, and cash burn -- which is defined as net cash used in operating activities and purchases of property and equipment -- was $4.7 million, a 33% improvement over prior-year quarter.

Moving on to our full-year results, highlights for the fiscal year 2016 are as follows. Revenue of $65.1 million increased 31% over prior year. Afirma GEC reported volume of 23,237 tests increased 20% over prior year. Our revenue, less cost of revenue as a percentage of revenue, or gross margin, was 61%, increasing 400 basis points over prior year.

Total operating expenses of $93.9 million increased 13% over prior year. Net loss of $31.4 million improved 7% over prior year. Net loss per share of $1.09 improved 16% over prior year. And cash burn was $32.2 million, a 3% improvement over prior year.

Next, our balance sheet and liquidity remains strong. At December 31, we had $59 million in cash. Our ending accounts receivable of $9 million had no age receivable older than July 1, 2016. In addition to our $25 million in interest-bearing debt at year-end under our credit agreement, we may draw an additional $15 million through June 30, 2017. And in November 2016, we raised $32 million in equity, which contributed $0.78 to our net book value per share.

I would like to make a few additional observations.

Based on past collection history and a growing number of contracted lives, 86% of our fourth-quarter revenue was accrued compared to 58% in prior-year quarter. In 2017, we expect that over 90% of our revenue will be recognized in the quarter tests are performed and results reported. The majority of cash-based revenue that we recognize is from tests performed prior to the third quarter of 2016, which we expect to be substantially collected by the third quarter of 2017, effectively completing our transition to full accrual accounting for our thyroid test.

And though we expect the transition away from cash-based revenue to accrued-base revenue to cause a short-term drag on sequential revenue, we believe the comparative year-over-year growth rates will remain strong.

I will now turn the call back over to Bonnie to discuss guidance and corporate milestones for 2017.

Thank you, Keith. 2016 proved to be a pivotal year, in which we now have three commercial products within a span of six years. We remain on track to generate revenue from all three of those products, and to generate positive operating income by the end of 2018.

We would now like to set the stage for how we will measure our success in 2017 with the momentum we have coming into the quarter, and end with a very brief statement on guidance.

In 2017, we will define our Company's success using these four metrics. Number one is revenue growth. Revenue growth will be how we measure the effectiveness of our new integrated sales and marketing structure to drive adoption of both Afirma and Percepta tests. Number two is reimbursement expansion. Number three is evidence development. The continued development of scientific and clinical evidence for our genomic tests serves as a foundation for guideline inclusion, payer coverage policies, and test adoption. And number four is financial discipline, as we proceed on our pathway to profitability.

For guidance, we expect to achieve the following results in 2017: Annual revenue in the range of $76 million to $84 million; and annual cash burn of $25 million to $27 million, an improvement of 16% to 22% over prior year.

We have strong momentum toward our goals early in the year. In addition to the tremendous progress with Blues plan coverage for the Afirma GEC and Medicare coverage for the Percepta classifier, we signed an agreement last month with Quest Diagnostics, which we believe will help us to further accelerate Afirma growth.

Through this partnership, Quest will offer the Afirma GEC to its physician customers across the country who can refer patient samples to Veracyte for genomic testing when initial cytopathology results are inconclusive. We believe this partnership will complement our expanded and integrated sales team.

We also had some exciting news early this week with the publication in the Journal of the National Cancer Institute of new data suggesting the potential for the field of injury technology behind our Percepta classifier to enable lung cancer detection using a simple, noninvasive nasal swab test. We look forward to advancing this research through product development and validation toward becoming a commercially available test that expands upon the important benefits of Percepta and further improves lung cancer screening and diagnosis.

Further, we look forward to sharing new clinical evidence backing the use of all three of our genomic tests at upcoming medical conferences in the second quarter.

To wrap up, we are delighted with the accomplishments and results that we have delivered to date, and extremely excited about our future. We started nine years ago with a rather simple idea: if we could advance the use of genomic technology to resolve the critical problem of diagnostic uncertainty, and position our tests at the right point in the clinical pathway, then we could help patients avoid unnecessary surgeries, enable doctors to make more informed patient care decisions earlier, and take cost out of the healthcare system.

We have proven with Afirma that our approach works, and are executing our playbook in the field of pulmonology. We believe we have a winning strategy and a significant growth trajectory as we begin to set our sights on profitability.

We have another big year ahead of us. And we believe we have the right team in place, first-mover advantage, and a large addressable market in which to execute.

Thank you for your time and attention today. I'd now like to ask the operator to open the call up for questions.

(Operator Instructions). Puneet Souda, Leerink Partners.

Bonnie, again, a good, solid quarter. Chris, congrats on the position and glad to have you on board. Keith -- or with the team now. Congrats to John Hanna as well.

But overall, let me ask this starting around the -- a bit around the Quest agreement. Could you describe the mechanics of that agreement? And more importantly, how do you think this will add to the penetration, going forward? And especially into the second half and then beyond, how should we think about that? And the overall potential adoption of the test, it seems like it should accelerate from this point onwards. Help us calibrate that there a little bit.

Yes, thanks. It's Chris. Yes, so we're really excited about the Quest relationship for several different reasons. First of all, Quest, through their Ameripath subsidiary, has always been a major player in this space. And it's a great validation of what we're doing to have, quite frankly, the largest lab company in the country partner with us and work with us on that. So that was excellent.

Secondarily, one of the things that we've learned in this commercial journey is that the single biggest reason that physicians like to use their cytopathologist is the trusted relationship that they form. And you know, when we evolved our model in 2014 to really focus on the direct business, we saw tremendous growth there because local physicians were using their local pathologist and having a great relationship, and they could integrate the GEC into that.

And so come and our relationship with Quest is the ability to offer their clients the GEC connected with their cytopathology services. And they are a major player through their AmeriPath subsidiary and we think that's excellent.

Mechanically, their reps will be focused on promoting that to their customer base and servicing and selling those customers. And we'll be involved in knowing who those people are. But from our standpoint, it's really an amplification of our efforts. Because their field force will be out talking, selling, et cetera, which just continues to have more feet on the streets talking about the product, et cetera.

And we expect that the product will be implemented as we come through the end of the second half -- or the second quarter of the year. So we expect to see increasing acceleration of the GEC as it goes into the Quest system. It always takes a little bit of time to get it integrated into their kits and their labs, et cetera. And we're starting that implementation journey now. And we'll continue that through the spring, and then we expect to see some really nice traction from it this summer. So we're really excited about it.

Okay, got it. And then quick question, Bonnie, on Percepta [oral]. Just wanted to know, with the final LCD in place, and already you have significant experience here with Afirma, how are the conversations proceeding in terms of the pricing with payers in oral? How is your sense of penetration in Percepta, now with not only having Afirma experience on board, but overall now having a lot more coverage and confidence behind it?

Well, I think we're entering the year at a great place. As you remember, we did get to about 43 sites under our pilot commercialization, waiting to get that Medicare coverage decision. And with two of those MolDX policies now final, we're sort of off and running. We are still negotiating on the price, and expect to have that done by the end of Q1 with the policy going into effect this month as well, last March -- last month of the quarter.

So, the teams are cross-trained. We have a group of Veracyte specialists that are teed up to carry both products. We're well positioned in all the regions where coverage has been attained. That's where we'll be starting the journey. And we're pretty excited about it. I think there's a lot of enthusiasm.

But as all products in their first year of adoption, it will take some time to get all the kinks worked out of that process, and get this into the pulmonology suites and start to get samples coming in the door. But it's a really great place to be, and I think the early enthusiasm is quite positive.

And then just quickly on those early sites, what's been the feedback so far from those sites? And could you give some color on that?

The feedback has been very positive, as I mentioned. The data that are emerging around how physicians are using the test and the validation that we, indeed, are positioned at the right point in the clinical pathway to be able to keep low- and very-low-risk patients for lung cancer out of the process of additional invasive procedures, including surgery, is definitely unfolding. And the recent data that that's been spoken to shows that can be upwards of 40%, 50% of those patients that come through the workup funnel.

So I think we're very pleased that the product is positioned very well, following the inconclusive bronchoscopy. And that, because of the data that's been -- the evidence that's been built and published behind it, physicians show a lot of confidence in using the test and the test results to make that clinical care decision.

And, of course, that's the validation that we need to be confident that we'll be able to drive success. Because if we can avoid those surgeries, and patient care is improved and physicians feel they're able to make a better decision, and payers win in the back end, that's the recipe for success. That's Veracyte's strategy.

Got it. Thanks, guys. Thanks for taking the questions.

Bill Quirk, Piper Jaffray.

Congratulations on the new titles for Chris and John. First question is just trying to get an idea about the relative contribution from Percepta in 2017.

We actually made the decision, this was a point in time to pivot to giving an overall revenue number for guidance. And that's really what we're going to focus on. As I said, and as Chris mentioned, we've got a number of things, including Percepta, teed up to accelerate in the back half of the year. And those opportunities are sometimes hard to predict exactly where they'll land. But we're focused on driving continued revenue growth with a portfolio of products. And as that unfolds, you'll see the historical data and be able to track to that for future.

Okay, okay. And then on the LCD that is still in draft form, Bonnie, maybe you can just elaborate on that. And obviously, given some of the moves by CMS, is that going to cause any challenges for you guys? Or maybe you could even speak to the extent you're hearing about any timing around a resolution. It seems like a bit of a silly process in terms of what CMS is doing, but just wanted to hear your thoughts (multiple speakers)

Actually, yes, it's a really good question. I think we're pretty confident, actually, this is going to get done.

Chris?

Yes. We've been monitoring it. The CGS and Palmetto are the two that have finalized the policy, and we're waiting for Noridian. We expected Noridian to lag because Palmetto takes the lead in doing these; and then Noridian put them -- goes along, typically with the Palmetto final policy. And so we expected it to lag and haven't been surprised at all, and we continue to watch it; and optimistic that the final will be posted soon.

That said, I think we're cautiously optimistic about how the process at CMS will unfold, and continue to watch it. And I think having the new CMS administrator soon to be confirmed, it looks like, that's probably a good thing to clarify any of the policy issues there. And we're optimistic that this will move forward pretty quickly.

Okay, got it. Thanks a lot.

Bryan Brokmeier, Cantor Fitzgerald.

So, revenue was solid in the quarter, but volumes were a little bit lighter than expected. Was there a one-time impact from accrued revenue that was recognized in the quarter that was previously cash revenue, like the $3.5 million in the third quarter?

No, our -- if you look into the investor deck, specifically on the income statement, we broke out -- and it's also in our SEC statement -- the accrued revenue and cash revenue. So once we report out a GEC, it either is in the accrued revenue -- it's an accrued revenue GEC or it's a cash-based revenue. So we don't move money from one GEC into a different bucket.

It's just a matter of the cash coming in -- a majority of our GECs reported, starting in Q3, were in the accrued bucket. And so the cash collected from the first half of 2016 and prior, that is being collected. Because we collect essentially over four quarters. So the amount of cash that you see is declining as there are no -- those GECs are no longer being reported as cash-based revenue. They are not creating that drag.

Okay. And so the volumes themselves, it was light in the third quarter, as well, which you've attributed to the seasonality; and anticipated that there would be a bit of a pickup in the fourth quarter, which we didn't quite see.

Could you provide a little more color around what that impact was, and if it had anything to do with the FNA volumes? And what percent of GEC only -- of the FNA volumes were GEC only? (multiple speakers)

So we did have actually about a 10% pickup in the quarter, which was about the Q4 pickup year-over-year from last year. And the GEC-only reported volume was about 27% of the total. So you'll be able to triangulate the numbers when you go into the filing and see how we get to those. And year-over-year, GEC-only grew 33%. So still very, very strong growth on the GECs. I think December had a little bit of a lull, mostly coming actually from the cytopathology side of the business. That is typical when we get to holidays and vacations. And that was what it was.

The GEC-only, which is still the primary driver of growth, was very strong. And the quarter was still the highest quarter volume we've ever done in GEC business. So we're pretty excited with the results for the year and look forward to continuing that growth. And with the V2 product coming along and our deal with Quest, we have a lot of confidence. That on the back of the payer contracts and everything we're doing with the Blues, that we are positioned really well to continue to accelerate that in 2017.

Okay. And the agreement with Quest, do you expect that to -- besides impacting your reimbursement coverage, it also should be more focused on the ambulatory market where you are a little bit less penetrated and where there isn't as much GEC-only, correct?

That's right. This was really intended to give them the market-leading product to take to their cytopathologists that are pulling in the cytopathology samples to do cyto today. So, it's very complementary with what we're doing with our expanded sales team. And I think kind of was the -- a really good timing to enter this kind of deal, because it's very complementary with the rest of our sales models.

And just lastly, I've been told that docs often don't adopt a new diagnostic test if -- I suppose Afirma is not really new -- but a new test for them to use if it isn't widely covered, because they don't want to offer the test to some patients and not to others.

Of the 10 new Blue Cross/Blue Shield companies that recently added Afirma to their coverage policies, how many of those are the largest or maybe the second-largest plans in their regions? And then given that, would it be safe to assume that you could see a good acceleration in the market adoption because of the increase in coverage?

Yes. It's Chris. Absolutely. And some of those plans actually dominate their states. Like Alabama is -- I mean, I think the combination in Alabama of Blue Cross, Blue Shield, and Medicare together account for almost 90% of the market share in that particular state. So a lot of the states have very high Blue Cross/Blue Shield penetration.

But I would note that, for us, this is kind of -- we think about this as a sales funnel, if you will. Coverage is the first step, and it's the entree to get the contract done.

And the dynamic you're referring to is getting the covered -- the product in network. Because that's really the pressure that physicians feel. There's certainly some coverage issues. But they feel a lot of pressure from insurance companies not to use non-out-of-network -- or out-of-network plans. And so getting the product covered and then getting it into network is our formula. And then we believe we see the pickup when we get it in the network.

So that's the journey we're on. And those 10 plans set us up nicely to execute now the coverage -- or excuse me, execute the in-network agreements. And then push down on the physicians to make sure that they know they can order it without having to worry about being out of network in their regions.

Okay, thanks a lot.

Amanda Murphy, William Blair.

Congratulations on a good quarter. This is Aurko in for Amanda. A couple of questions. The first one was in -- was around the expanding salesforce and how you expect that to -- have your plans changed following the agreement with Quest? And how do you expect cash burn to look, over the coming quarters, in terms of trajectory?

Yes, I'll let Keith comment on any cash burn commentary he wants to give. But I'll say that we have definitely made significant progress since the beginning of the fourth quarter and layering in more sales reps. We probably increased the number of folks in the field by 30%, 35%. We expect to be at the end of Q1 calling on, talking to the physicians in all the different roles we've had. And we're really determined to make sure that we have enough capacity in the field this year to be able to drive the business that we need to push the business to the next level.

And then Quest, we think, is additive to that. And our reps will inevitably get involved in some of the details and logistics, et cetera, in helping the Quest reps, because that's -- will help us as much is it helps them. But certainly we continue to grow our group out and continue to push forward, and we've made tremendous progress doing that so far.

On the cash burn question, we tend to have our best quarter in the fourth quarter and our lowest burn. And then we pay bonuses in the first quarter and tend to have our highest burn. And then we've guided to the year of $25 million to $27 million in a 16% to 22% improvement.

Got it. And then a separate question altogether, and I -- this hasn't been brought up yet. But the Anthem potential contract, I would like to -- I was just wondering if this new, souped-up version of the Afirma GEC could influence that conversation, or how you're thinking about that?

No. We actually believe that will be somewhat of a transparent transition because the products are going to show a lot of commonality on the key data, which is the negative predictive value in identifying benign patients. We continue to be confident that we're going to move Anthem over the finish line here. I think our confidence has even increased since these 10 plans flipped, just a couple weeks ago, to coverage. So, we're on it. And the day that we can announce that, we'll be happy. That will close out the list on coverage.

We've said that as they fall, we get ever more confident. In general, Blue Cross/Blue Shield plans want to operate in a manner that's not that dissimilar from each other. And having this many plans fall towards the end of the year, I think gives you an indication that the organization as a whole is covering the product. And the only remaining large plan that's not is now Anthem. So we feel like we're really well-positioned this year to get that in the rearview mirror.

Okay, thank you.

Paul Knight, Janney Montgomery.

This is actually Carolina on for Paul Knight. On the introduction of the next-generation Afirma GEC test this year, do you -- could you share more details on how you are going to introduce the test? If you are going to offer it first through a select group of institutions, or is it going to be a complete replacement of the first-generation test? And also if you can comment on any tentative date that you have in mind, or at least like the period -- will it happen in the first half of the year or second half?

Yes, we've not given any specific timing. We had said we expect to begin transitioning our clients to the new version of the test this year. And I think any more detail than that would probably be providing more competitive information than we really want to provide at this time.

Okay, thank you. And just a quick second question is regarding the submission of the private payment rates for Afirma has -- have you completed the process? On the submission of the payment rates for Afirma for CMS, I mean.

So our CMS rates for Afirma will remain at $3,200 for 2017. We will be submitting data this year to tee up for the PAMA rates, which we expect to be published by the end of the year and go into effect for 2018. And we've seen no real hiccup in that process moving forward, so we're pretty excited to have that stability ahead of us as well.

Okay, thank you.

(Operator Instructions). At this time, I'm showing no further questions.

I would now like to turn the call back over to Bonnie Anderson, Chairman and Chief Executive Officer, for closing remarks.

Thank you all for joining us today. We appreciate your ongoing support, and look forward to updating you on our progress in the future. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a great day.