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Veracyte (NASDAQ:VCYT)
Q4 2019 Earnings Call
Feb 25, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good afternoon, ladies and gentlemen, and welcome to the Veracyte fourth quarter and full-year 2019 financial results conference call. As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to Keith Kennedy, Veracyte's chief operating officer and chief financial officer. You may begin.

Keith Kennedy -- Chief Operating Officer and Chief Financial Officer

Good afternoon, everyone, and thanks for joining us today for a discussion of our fourth quarter and full-year 2019 financial results. With me today are Bonnie Anderson, Veracyte's chairman and chief executive officer; Dr. Giulia Kennedy, our chief scientific and medical officer; and John Hanna, our chief commercial officer. Before we begin, I'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 those regarding our future plans, prospects and strategy, financial goals and guidance, product attributes and pipeline, drivers of growth, expectations regarding reimbursement and other statements that are not historical fact. Management's assumptions, expectations and opinions reflected in these forward-looking 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 that they will prove to be correct and will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. Please refer to the company's February 25, 2020, press release and the risk factors included in the company's filings with the Securities and Exchange Commission for a discussion of important factors that may cause actual events or results to differ materially from those contained in our forward-looking statements.

Prior to this call, we announced our fourth quarter and full-year 2019 results, which are available on our website at veracyte.com under Press Releases in the Investor Relations section. We also published a financial presentation, which I will reference during my remarks. This presentation is also available on our website under Events and Presentation in the Investor Relations section. Before turning the call over to Bonnie, I would like to explain some changes in our new GAAP reporting structure.

With the expansion of our strategic partnerships and the acquisition of the encounter diagnostic platform rights and products from NanoString, we expanded our revenue reporting to distinguish between testing, product, biopharma and collaboration revenue. Testing revenue includes our centralized CLIA testing services which currently includes Afirma, Percepta, Envisia and cytopathology. Product revenue includes the sale of kits and instruments, which currently includes Prosigna and nCounter FLEX System sales. Together, testing and product represents our global diagnostics business.

Revenue resulting from our strategic agreements for research and development and/or commercialization services is comprised of either biopharmaceutical revenue, including the sale of services or data and other services for fixed consideration, or collaboration revenue, including revenue recognized for the achievement of milestones and contingent or variable consideration earned during a period. Together, biopharma and collaborations represents our biopharma strategic agreements. I will now turn the call over to Bonnie Anderson, Veracyte's Chairman and CEO.

Bonnie Anderson -- Chairman and Chief Executive Officer

Thanks, Keith, and thanks, everyone, for joining us today as we discuss our 2019 fourth quarter and full-year results and provide you with our outlook for 2020. Veracyte had an exceptional and transformational year in 2019. We drove impressive revenue and genomic test volume growth; advanced our first-of-its-kind, noninvasive nasal swab test for early lung cancer detection; and made a strategic acquisition that positions us for global expansion on our own world-class distributed platform; and has added two new oncology indications to our portfolio. We have tremendous momentum entering 2020.

This afternoon, we reported total revenue in 2019 of $120.4 million, a 31% increase over 2018, and genomic test volume growth that grew to nearly 40,000, an increase of 25% over the prior year. Our net cash used in operations was $3.2 million for 2019, and I am delighted to report that in the fourth quarter, as predicted, we achieved positive cash flow from operations of $1.8 million, a milestone achieved by few companies in our space. We are guiding 2020 total revenue in the range of $138 million to $142 million for the full year. Excluding biopharma and collaboration revenue, which we estimated approximately $4 million, plus or minus $1 million, this represents approximately 25% growth in our testing and product revenue at the midpoint of the range.

We believe this revenue growth will be fueled by the increased adoption of our four revenue generating products. We are also guiding full-year 2020 net cash used in operating activities of $8 million to $12 million. This reflects our intention to invest strategically as we position ourselves to offer multiple and mixed genomic tests to physicians and their patients internationally on our distributed platform starting in 2021. Now to our 2019 highlights.

Our first metric for 2019 was revenue growth. We delivered strong growth across our testing portfolio and biopharmaceutical collaborations in 2019, and are benefiting from the layering effect of our multiple tests and sources of revenue. We continue to be pleased with the success of our multiproduct sales strategy. By the end of the fourth quarter, more than 280 institutions were utilizing more than one of our genomic tests, nearly tripled the number from the fourth quarter of 2018.

We now have nearly 50 sites, utilizing all three of our Afirma, Percepta and Envisia classifiers, and we expect that number to grow as we expand Envisia classifier promotion to all of our sales professionals in the second half — second quarter of 2020. Including the build-out of our international sales team, we expect to increase our field sales force by about 40 people in 2020. We are thrilled by the momentum of our pulmonology testing business, where we recognized over $2 million in revenue for the fourth quarter and over $5 million for the full year of 2019, more than double the full-year 2018 results. We also doubled our reported lung test volume from 2018 to 2019, reporting over 3,000 Percepta and 750 Envisia test results for the year.

We believe this success was driven in part by the introduction in June of our second-generation Percepta genomic sequencing classifier and by final Medicare coverage for our Envisia classifier for use in IPF diagnosis, which we announced in March of 2019. We grew Afirma test volume by over 5,500 tests for the full-year 2019 and and generated approximately $94 million in testing revenue for the product, exceeding the mid-teens growth targets for both metrics. Physician adoption continues to grow for our Afirma GSC and Xpression Atlas, and we expect to continue to drive further penetration into the market. We booked approximately $900,000 of product revenue in the fourth quarter of 2019 for the Prosigna breast cancer prognostic assay, the newest addition to our genomic portfolio, which we obtained through our transaction with NanoString in December of 2019.

We expect to deliver about $7 million to $8 million of product revenue in 2020. And finally, we generated significant revenue in 2019 from our biopharmaceutical collaborations with Eli Lilly Loxo Oncology in cancer and with Johnson & Johnson in lung cancer. These collaborations produced over $12 million in biopharma in collaboration revenue in 2019, with $11 million of that received from Johnson & Johnson for achieving specific milestones in advancing our lung cancer pipeline. Our second measure of success was evidence development.

Here, too, we delivered excellent results in 2019. In April, we published strong data in the Lancet Respiratory Medicine, demonstrating both the clinical validation and clinical utility of the Envisia classifier in helping patients with suspected idiopathic pulmonary fibrosis, get a clear diagnosis sooner. Since this publication, the number of institutions utilizing Envisia has increased more than five-fold from approximately 35 to over 190 by the end of 2019. This published evidence is key to driving guideline inclusion and commercial payer reimbursement.

The body of clinical evidence supporting Afirma testing continued to grow as well, with eight studies published in peer-reviewed journals. These included five publications demonstrating the clinical utility and analytical validity of the Afirma genomic sequencing classifier and three studies supporting the Afirma Xpression Atlas. Afirma and our pulmonary products were also in 11 coaster and other presentations at leading medical conferences. In addition, 11 abstracts were presented at the San Antonio Breast Cancer Symposium in December 2019, including data showing a benefit of Prosigna over other genomic tests in identifying patients long-term risk of developing distant metastases.

Data were also presented showing the test's ability to identify patients with intrinsic breast cancer subtypes that may potentially benefit from CDK4/6 inhibitors in place of standard chemotherapy. These data offer exciting future expansion opportunities for the test positioning in global markets where these subtypes are reported in the test results. We also made terrific progress in our third success metric pipeline advancement, which we believe will drive test menu expansion on the nCounter platform, a key to our international success. In December 2019, we announced our acquisition of the exclusive global diagnostic rights to the NanoString nCounter FLEX Analysis System, along with the commercially available Prosigna breast cancer prognostic test, in the in-development LymphMark lymphoma subtyping test, which are intended for use on the nCounter system.

We are already making great progress in transitioning the business. Our RNA whole-transcriptome sequencing platform and machine learning capabilities continue to fuel our product discovery and development efforts using our comprehensive biorepository of patient consented clinical samples from across our indications. At the Chest Annual meeting in October, we unveiled preliminary data for our first ever noninvasive nasal swab classifier for early ligature detection and diagnosis. Our findings showed that our novel dynamic test can accurately classify lung cancer risk in patients with lung nodules found on CT scans, with 95% sensitivity when it identifies a patient as low-risk and with over 94% specificity when it deems a patient as high risk, so that these patients can be monitored noninvasively or can obtain the prompt diagnosis and potential treatment they need.

We estimate the remaining group of intermediate risk patients not classified to low or high risk, can be reduced by 50% and that a bronchoscopy workup could be the appropriate next step toward diagnosis for these patients. We believe the use of our nasal swab classifier following the detection of a nodule by imaging has the potential to become a new standard of for what today is a very ad hoc approach. Our nasal classifier is based on the same novel field of injury technology as our Percepta test, and we believe will complement Percepta through its placement earlier in the diagnostic pathway. We look forward to advancing our machine learning algorithm and assay development of the test in 2020 and introducing the test commercially in the U.S.

in early 2021 following the unveiling of clinical and analytical validation studies, demonstrating its performance. We also announced a strategic collaboration with Acerta Pharma, the the hematology research and development arm of AstraZeneca, that will support the company's development of oncology therapeutics in lymphoma, this collaboration leverages our recent expansion through our NanoString transaction into additional oncology indications, including lymphoma, where we are developing novel genomic tests that leverage the genomic underpinnings of disease with the long-term potential of further expanding our menu of diagnostic tests on the nCounter platform globally. And our final metric is financial discipline. We excelled here too, reaching positive cash flow from operations in the fourth quarter of 2019, as we said we would do, even with the cost of executing the acquisition.

This reflects our continued bottom line discipline as we invest for long-term top line growth. I will now turn the call over to Keith for a more detailed review of the financials and our guidance for 2020.

Keith Kennedy -- Chief Operating Officer and Chief Financial Officer

Thank you, Bonnie. As I mentioned earlier, our fourth quarter and full-year 2019 financial presentation is available under Events and Presentations in the Investor Relations section of our website. This afternoon, I plan to introduce our expanded revenue disclosures, speak to our fourth quarter and full-year 2019 results and conclude with remarks regarding our 2020 guidance. As I mentioned at the outset of these prepared remarks, the table and footnotes on Slide 3, along with the details in our SEC filings, further explains how we recognize and report revenue under U.S.

GAAP. For discussion purposes, we may combine testing and product revenue to describe our diagnostic testing business, and biopharma and collaboration revenue to describe our strategic arrangements. Turning to Page 4 of the presentation. Our performance against six key performance indicators or KPIs for each quarter and the full-year 2019, and compared to the prior year quarter and full-year results are as follows: for the fourth-quarter 2019, total revenue of $29.7 million increased $4 million or 15%.

Gross margin remained flat at 66%. Operating expenses, excluding cost of revenue, increased $7.7 million. Net loss of $7.5 million increased $4.4 million, and cash flow from operations of $1.8 million improved $3 million, and genomic volume increased 18%. Cash at December 31, 2019, was $159 million.

For the full-year 2019, total revenue of $120.4 million increased $28.4 million or 31%. Gross margin increased to 70% from 64%. Operating expenses, excluding cost of revenue, increased $17.8 million. Net loss of $12.6 million declined $10.4 million.

Cash used in operations of $3.2 million improved $10.3 million, and genomic volume increased 25%. The next page, Page 5, shows the revenue breakdown by quarter and for the full-year 2019 against a respective prior year period. We recognized $108 million in testing and product revenue, which includes approximately $8 million in cytopathology services and $0.9 million in product revenue. We also recognized $12 million in biopharma and collaboration revenue.

We had another year of key events that positively impacted our quarterly results. In Q1 2019, we announced that Afirma GSC became a covered service for nearly 9.4 million TRICARE members. We also recognized $4.1 million in biopharma and collaboration revenue. In Q2 2019, we launched the second-generation Percepta classifier and our final Medicare coverage policy for Envisia became effective, accelerating loan volume for the remainder of the year.

We also recognized $3.5 million in biopharma and collaboration revenue. In Q3 2019, we announced new data for our nasal swab classifier for early lung cancer detection, which we believe will be pivotal to scaling our business and expanding to global markets. We also recognized $4.3 million in biopharma and collaboration revenue. In Q4 2019, we announced that we acquired the exclusive global diagnostic license to the nCounter FLEX System, which we believe enables global market access with our distributed platform, which we believe is a key to global success.

We recognized $0.9 million in product revenue, principally for tests, ship post-closing and prior to year-end. We did not recognize a material amount of biopharma and collaboration revenue in this quarter. And all four quarters in 2019, we accrued, on average, between $2,800 and $2,900 for the Afirma genomic classifier tests, including expression analysts, that met our revenue recognition standard, which was between 90% and 95% of the reported Afirma classifier test volume. The next six pages outline the sequential and year-over-year results underlying each of our KPIs.

A few observations. First, turning to Page 6. New product launches and strategic partnerships resulted in acceleration in revenue. Our full-year 2019 revenue of $120 million grew by $28 million or 31% over the prior year.

As shown in the bottom right of Slide 6, genomic volume for our testing business accelerated from 12% growth in 2017 to 22% in 2018 and 25% in 2019. Page 7 highlights the year-over-year and sequential growth trends of our testing business. Page 8 highlights our improvement in gross margins with and without biopharma and collaboration revenue. We continue to benefit from scaling our operations offset by loan volume, not at full-scale reimbursement, which is a strategic focus of ours over the next 24 months.

Turning to Page 9. During the first three quarters of 2019, we invested principally in revenue-generating activities. In the fourth quarter, we closed NanoString acquisition and incurred approximately $1.6 million in transaction expenses, $0.4 million in Prosigna operating expenses and $0.3 million in incremental intangible asset amortization, resulting in $2.3 million increase to our operating expenses in the quarter, of which we paid $1.9 million in cash, which lowered our cash flow from operations from $3.7 million to $1.8 million for the quarter. We made approximately 40 sales hires in the fourth quarter, including product sales hires made as part of the acquisition.

Turning to Page 12 and our 2020 guidance. As Bonnie stated earlier in her remarks, we are guiding to total revenue of $138 million to $142 million, and net cash used in operating activities of $8 million to $12 million. This reflects our plan to make modest strategic investments over the next couple of years to support the global launch of our lung products. Some additional color on 2020.

We expect the following: testing revenue, excluding cytopathology, to grow from approximately $100 million to $120 million; cytopathology revenue of approximately $8 million, plus or minus $0.5 million; product revenue of approximately $7 million to $9 million; biopharma and collaboration revenue of $4 million plus or minus $1 million. The quarterly pacing of biopharma and collaboration revenue is not certain at this time, nor is the accounting classification for such revenue as either biopharma or collaboration revenue. Consistent with the historical experience in genomic volume for our testing business, shown on Slide 7, we expect to continue to see seasonal trends across the business with a slower first quarter, an increase in the second quarter, relatively flat volumes from Q2 to Q3 and a step-up in Q4. We expect margins to be stable within the 64% to 66% range excluding the impact of biopharma and collaboration revenue.

We expect to increase our investment in sales and marketing to $17 million to $19 million per quarter, and our combined R&D and G&A spend to stay within $1 million spend around the quarterly average spend of approximately $13 million. I will now turn the call back over to Bonnie to discuss our strategic and milestones for 2020.

Bonnie Anderson -- Chairman and Chief Executive Officer

Thanks, Keith. Looking ahead, we believe we are forging an exciting pathway that will help redefine the genomic diagnostic industry, one in which using our own distributed platform, we can deliver an expansive menu of advanced genomic test to physicians and their patients worldwide via local hospitals and laboratories. Until now, this capability has largely been the purview of specialty labs, putting novel genomic test like ours out of the reach of many patients in international markets. Our strategic acquisition of the nCounter global diagnostic business has positioned us to achieve this vision.

Now we must invest wisely to turn our vision into reality. First, we plan to launch our Envisia classifier on the nCounter platform in international markets in 2021, marking the beginning of our menu expansion strategy. Following this, in 2022 will be the international launch of our noninvasive nasal swab test for early lung cancer detection, which will help us further access the $40 billion global market opportunity for our tests. These initiatives will be key to us delivering shareholder value from our desired 25% compound annual growth rate over the next decade.

Against this backdrop and with our strong momentum as we move into 2020, I want to highlight the key catalysts that we believe will drive our momentum through 2021. Turning to Page 13 of Keith's presentation, these catalysts fall into four key areas of focus: product and testing revenue growth, collaboration revenue evidence development and pipeline advancement and menu expansions. First is product and testing revenue, which is reflected in our full-year 2020 total revenue guidance of $138 million to $142 million. We aim to continue our steady volume growth for the Afirma GSC and Xpression Atlas and to double our pulmonology genomic test volume in 2020.

And looking ahead to 2021, we will focus on guideline inclusion and commercial coverage decisions for our pulmonology products. Second is collaboration revenue. As Keith mentioned, we expect to generate about $4 million in 2020 from biopharma and collaborations. This revenue will come primarily from our strategic agreement with Loxo, Lilly and cancer and Afirma, AstraZeneca in lymphoma.

We expect to achieve milestone related revenue from Johnson & Johnson in 2021, tied to commercialization milestones for our nasal swab classifier. Third is evidence development. We plan to continue to adding to our extensive library of clinical evidence in 2020 with the presentation and publication of new data further demonstrating the performance in utility or Envisia, Percepta and Prosigna test. In 2021, we expect to unveil pivotal clinical validation data for our noninvasive nasal swab classifier in lung cancer prior to launching the product in the U.S.

In the shared data, for Envisia classifier on the nCounter platform prior to its commercial introduction internationally. And our fourth area of focus is pipeline advancement and test menu expansion. In 2020, we expect to add enhancements to our pharma XA based on new genomic variance of importance in Fibrin cancer we plan to reveal data from the progress of our nasal swab test in lung cancer and to initiate our noble clinical trial, through which we plan to build a comprehensive lung cancer biorepository that will help us use nasal blood and imaging data to potentially answer a range of clinical questions in lung cancer over time. We also look forward to advancing our lense mark lymphoma subtyping test.

These activities will all crescendo in 2021 with three product launches: Our nasal swab test in the U.S., Envisia and Canada International launch and the introduction of Percepta Atlas to inform treatment decisions in lung cancer at the time of diagnosis, a strategic move to streamline getting patients on treatments quicker to save lives. We are certainly excited about 2020 and beyond. Wrapping up, I'd like to give a big shout out to all of our site's employees, including our new very high-caliber global team members. Our team's industry leading expertise, passion and focus on execution are the keys to our continued success, and personally, a source of inspiration for me every day.

And finally, I'd like to thank you, our investors, for your continued support of their site and our mission. And now I'd like to ask Jeff to open the call up for questions.

Questions & Answers:


Operator

Thank you. [Operator instructions] We have one question from the line of Thomas Flaten. Sir, your line is now open.

Thomas Flaten -- Analyst

Thanks. Thanks for taking my question. Congrats on the quarter, guys. A couple of questions.

Let me start at the back of the presentation. So for the nasal swab test, are you going to be able to provide us with maybe some more granular guidance on timing? Is it earlier in the year, second half of the year?

Keith Kennedy -- Chief Operating Officer and Chief Financial Officer

Yes. I think as the year goes on, we'll probably tighten that down. But we've been targeting to hit a launch of the first nasal swab test in the U.S. market and what we've said early 2021.

So maybe you can plan on that in the first half of the year.

Thomas Flaten -- Analyst

Great. And then there was a mention of the 40 hires on the commercial side. How many of those came from the NanoString acquisition? And could you comment on their distribution in U.S. versus global?

Keith Kennedy -- Chief Operating Officer and Chief Financial Officer

We hired under 20 people in the NanoString acquisition, and do you want to use ahead, I'd say there's 12, 13 of those people are international. And there's three or four of those in non-sales roles of the 20. The rest of them were our revenue-producing.

Bonnie Anderson -- Chairman and Chief Executive Officer

Yes, Tom. Part of the enthusiasm we have for readiness to launch new products into the European market as the strong team that came on board. It's a mix of five country manager level people who sort of manage the overall business in the territory sales, medical affairs and marketing. And so there's a great base and a foundation there as we think about moving Envisia over to the encounter and doing the market development work we want to do in 2020 and into '21 to prepare for that launch of that product that year.

And we're really pleased that they all were able to join us in the acquisition.

Thomas Flaten -- Analyst

Great. And then just one quick question, if I might. On the Prosigna, the $900,000 that you booked in the fourth quarter, I think you mentioned that was all Prosigna test related. And then if that's the case, that annualizes a number substantially higher than $7 million to $8 million you guided to.

Could you provide some thoughts on that?

Bonnie Anderson -- Chairman and Chief Executive Officer

Yes. I think so it will take some time, but the cadence of the business will certainly be a little bit different than what the cadence of our current business is where we basically have samples that are collected on the basis of patients being seen in doctors' offices and the ability of knowing the volume by account and basically having hundreds and hundreds of doctors sending us samples every day. This business is more geared toward shipments that go into laboratories that might buy a month, two months even for six months' worth of inventory until they place their next order. So I think as we were coming into December, there were probably some prior to the end of the year shipment stockings that did take place.

And we were happy to take that $900,000 of revenue. But we don't think that, that means that, that revenue is going to be consistent on a monthly basis going forward. And I think for us, we've reduced the size of the team. We've made some decisions on distribution channels that were changing, more obviously new owners of the business, and we want to be prudent and conservative on what we believe is realistic as we carry that business forward.

And we'll learn more and be able to update as the year goes on.

Thomas Flaten -- Analyst

That's great. Thanks, guys. Appreciate it.

Operator

Next question from the line of Sung Ji Nam of BTIG. Your line is now open.

Sung Ji Nam -- BTIG -- Analyst

Hi. Thanks for taking the questions. I apologize for the background noise here. Congratulations, first of all, on the fantastic year.

My first question actually on behalf of an investor who is wondering when will you be in a position to submit for the nasal swab test? When will you be in a position to submit to the Medicare for reimbursement? And when do you expect to generate revenue from the test, given that the data will be coming out. It would be pivotal data is expected in 2021, if you could talk about that?

Bonnie Anderson -- Chairman and Chief Executive Officer

I think the best way to guide people's thinking around is to look at the timing that has taken us on our historical products. We'd love to say that you can be lined up to do the pivotal validation. Launched the test in the back of that, but we all know that to get Medicare coverage, you've got to have some basis of clinical utility that's proven once the test is available to patients. So what we'll be focused on is managing a very strategic launch of the product into the right accounts with good experienced users, perhaps those that have already been working with us with Percepta, where we can continue to collect that utility data and package up all of the clinical validation, analytical validation and utility data that will need to be packaged, submitted accepted for publication to get that Medicare coverage decision.

I think we've got a team that's pretty darn good at executing on that. They've done that fairly flat several times now. But it's going to take 18 months to 24 months potentially to get to that point. And it will need to line up the timing of the year around the Medicare process as well.

But it will be a great starting point to do a launch and get into pilot sites where we can start to see the reality of how this test might be able to be used to guide better care around treatment, patient diagnosis and treatment decisions.

Sung Ji Nam -- BTIG -- Analyst

Great. Thank you for that. Bonnie, could I ask your question about coronavirus. Obviously, might not be addressed.

But could you maybe talk about your thoughts around that, given just a lot of that seems to be, obviously, on everyone's mind right now, maybe going back to when you had a very severe flu season. And as you think about expanding internationally as well, do you know anything like what, how are you kind, I know it's early. I know there are a lot of uncertainties, but could you talk about kind of what you're thinking, so we have some thoughts from you.

Bonnie Anderson -- Chairman and Chief Executive Officer

Well, I think one really kind of focusing in on what are the steps and timing around making the strategic acquisition become the basis of a global growth story. And we're going to take the careful steps one at a time to make sure we focus first on broad menu expansion. We think that the platform because of it's incredibly sophisticated and simplistic design where you can run these tests from a cartridge with about an hour of hands on time, two-day turnaround time, yet have a platform that has over 800 features that you can fill with genomic content. This platform is I believe, and I think we all believe, a world-class design product to do what we're trying to do.

So we're going to take the existing tests, Prosigna, LymphMark going to move ours over one at a time, very strategically. Envisia is chosen as the first step on purpose. We have experience with thought leaders that Julian, our R&D team have interacted with over the years that want to see Envisia made available in Europe. And that made sense to start with that.

And then it's always nice to take a test that's already been developed and proof of development on our sequencing platform and then move that to the nCounter platform. So coronavirus will probably run its course, like many of these other things we've seen over the years. It will hit a point and probably not become the major threat it is today. I think that our planning is going to spread over the next two, three years to really execute well in this menu expansion.

And I don't expect that the issues of today in the coronavirus and travel is really going to have a major impact on what we're trying to do. We're not planning to be in China anytime. We don't currently have distribution there. And while, certainly, there are threats in other parts of the world.

We have one to two people in each of these markets, looking after the maintenance and growth of Prosigna, while we focus on investments in building out this menu. So I think we have a very targeted plan. And it won't happen overnight, but it's a pretty exciting pathway forward to see where we're going to be in two, three years.

Keith Kennedy -- Chief Operating Officer and Chief Financial Officer

I'd say for our testing, our existing testing business, we don't have as much visibility into what's happening in terms of patients visiting facilities, whether or not the fear is distributed among the population and people going to the doctor less. We generally see a slower first quarter in our U.S. genomic testing business. So that can be down 300 to 400 samples sequentially over the fourth quarter, for example, but it's not as we don't see a major impact from that currently.

But it is obviously possible that this thing were to continue with the coronavirus in the United States that people would react and not go see their doctors. We have not forecasted that in our numbers at this point.

Sung Ji Nam -- BTIG -- Analyst

OK. Great. And then if I could squeeze one more question for Keith. Would you be able to break out for your biopharma collaboration revenue? Obviously, it's too early to talk about pacing, but will there be a step-up with the Loxo Lilly collaboration this year? Or is the majority of that coming from the AstraZeneca collaboration? Thank you so much.

Keith Kennedy -- Chief Operating Officer and Chief Financial Officer

Yes. So Bonnie, you can probably talk about.

Bonnie Anderson -- Chairman and Chief Executive Officer

More testing continuation and stability right now in OXO and the remainder of that is anticipated from our new collaboration.

Sung Ji Nam -- BTIG -- Analyst

Thank you so much.

Keith Kennedy -- Chief Operating Officer and Chief Financial Officer

And I'll just reiterate what Bonnie said in her prepared remarks, the J&J, the $9 million in remaining milestones that we have under our agreement, we do not have any of that in our forecast for 2020. We had outlined up with the achievement of milestones that Bonnie laid out for 2021.

Operator

Next question from the line of Brian Weinstein from William Blair. Sir, your line is now open.

Brian Weinstein -- William Blair and Company -- Analyst

Hey, guys. Thanks for taking the questions. As it relates to 2020, can you help us out with a little bit of detail on your expectations on the molecular testing side, just more specifically, on price versus volume that you expect there? And as a corollary to that, you're adding over it sounds like it just 20 reps to the field on this side of the business. So why couldn't be higher than what we've seen in the past.

I know 20% is certainly very, very solid, but with the added reps there, is it possible that, that number could be a little bit better.

Keith Kennedy -- Chief Operating Officer and Chief Financial Officer

Sure. Yes, it is obviously possible. And we don't guide to the street exactly what we're going to pays on for. But we're definitely compressing our commercial organization and we hope to deliver on what we say we're going to do.

In terms of genomic volume, we'd expect to do implied in our revenue guidance here of $120 million. For testing, excluding cytopathology, about 48,000 tests, and that would be around 2,500 hours for that 48,000 tests, and that gets you to $120 million, probably due to an incremental 5,000 in Prosigna. Again, I'm not giving guidance, I'm just trying to help you sort of think through the math of how you build your models. So there's about 41,000 tests in Afirma, our long products will do probably a combined 7,000.

On Afirma, the 41,000 genomic volume, it's probably about 2 50, net of how much we accrue. So we occurred between 2,800, 2,900, and we accrue about 90% to 95% of those. So the math of that is around $26.5, and that rate has been consistent throughout the whole year. So I'd say it's 41,000 tons, 26-50 gets you to about $800 million, $900 million dollars for Afirma, long, be about 7,000 tests at about 1,600 and that's up a couple of hundred dollars versus prior year, and that gets you about $11 million in revenue, over $5 million.

So you take on, call it, $109 million plus a lot, and you get to $120 million in revenue for the molecular side. And in terms of the pacing, I would expect that we do somewhere in the sort of 10,300 tests in the first quarter, somewhere in that area. And then we'd step up as we do in the second quarter and then a small step up maybe 500 tests from Q2 to Q3 over the Q2 number. And then we have a step-up in Q4 to get to the 41,000 tests.

Brian Weinstein -- William Blair and Company -- Analyst

All right. Thank you for all that. OK. And Bonnie, one for you.

Just talking about like the strategic value of the partnerships here, can you just refresh us on that strategic value, what they're really adding for you today and in the future? And then what's the likelihood of you guys doing signing additional strategic partnerships in 2020? Do you have a pretty full pipeline of things that are relatively cost? Obviously, you wouldn't put them in guidance because they're not signed. But is that something that we should be expecting to hear more about from you in 2020?

Bonnie Anderson -- Chairman and Chief Executive Officer

So there are a couple of things. I think, first, we never wanted to build the nucleus of our growth story in the foundational core of the business around pharmaceutical collaborations because they can come and go, right? So what we focused on was really building out our engines, especially our R&D engines with our clinical biorepositories are very deep and broad genomic content and our capabilities in machine learning. And what we've learned over the course of the last couple of years is that when we have a leading position commercially in an indication, and we have the foundational biorepositories, the richest data you can collect. And all of that data generated from thousands of patient samples that we're testing in our lab.

There are opportunities to leverage that position and create more value for Veracyte out of what we're already doing or what we've already done. So I think what is really cool about our collaborations to date is that we are getting paid for value that we have either already generated or that we would have been generating anyway. And we're just getting paid and building more value in Veracyte because that data and information is valuable to someone else. I think with the move to take this encounter platform and think about globalizing the local distribution of testing, what happens is we open up a new avenue collaborations with companies that want to be able to pick partners.

We're testing for either clinical trial enrollment or for other purposes can be done in local markets around the world. And I do think that we are set up quite nicely to be able to continue to expand these collaborations and our first focus will be on indications that we're already in as a business. So we've done that with cancer. We've now done that in the area of lymphoma.

We've done it in lung cancer in a big way with JNJ. I think we have the potential to expand those collaborations, but certainly has the potential to bring on more as well.

Keith Kennedy -- Chief Operating Officer and Chief Financial Officer

And I just want to go back and Brian, one of the things we've talked about in the past is our intangible. We did the Allegro deal. We had about $14 million of intangible. And when we did the deal now, the nanostring, we had about $65 million.

I think as everybody is thinking about our amortization going forward, that number is going to be about $5 million a year. So we're going to have an incremental $4 million of noncash charges associated with that. So again, it's going from $1 million to $5 million per year around the intangibles.

Operator

Next question from the line of Paul Knight of Janney. Sir, your line is now open.

Paul Knight -- Janney Montgomery Scott LLC -- Analyst

Hi, Bonnie. On the 7,000 tests you're guiding to on the loan, can you give us any color on if versus Percepta on which kind of getting into the strength behind each?

Bonnie Anderson -- Chairman and Chief Executive Officer

Yes. We think both are both doing really well. John, maybe you want to talk a little bit about how those two are working together commercially.

John Hanna -- Chief Commercial Officer

Yes. Thanks, Bonnie. I think we've really unlocked the synergy here between two pulmonary products, where we have really a common call point within the institution. And between our territory specialists or pulmonary specialists, we're able to drive a significant amount of adoption among those products within a single institution that are treating both patients with pulmonary knowledgeables and interstitial lung disease.

And as we talked about earlier, we've really ramped up here over the course of 2019, the number of sites submitting Envisia samples to be five-fold what it was at the beginning of the year. Due to that synergy where we already had the installed base of the Percepta product being utilized in those institutions. We had approval through the value analysis committee to be offering our testing services. And so we're able to bring NVIDIA straight in and provide immediate value in terms of the management of patients in those practices.

So we see both of the products growing really nicely throughout 2020 and a doubling of the overall pulmonary volume.

Paul Knight -- Janney Montgomery Scott LLC -- Analyst

Yes. What's it just seemed like there is less embedded doctor practice? Are you finding that market more expecting of the test than perhaps lung cancer.

Bonnie Anderson -- Chairman and Chief Executive Officer

Go ahead.

Keith Kennedy -- Chief Operating Officer and Chief Financial Officer

Yes. No. We think the interest and adoption of the product is consistent across both. And I think what you see in lung cancer is the diagnosis of the disease is relatively concentrated in few pulmonologists that do bronchoscopy procedure, whereas with interstitial lung disease, general pulmonologists, pulmonologists that don't do advanced bronchoscopy procedures still treat and manage interstitial lung disease.

So it's a broader number of clinicians within that practice that are treating the disease, but still the commonality within a pulmonary practice of doing both lung cancer and ILD is pretty common everywhere we go.

Paul Knight -- Janney Montgomery Scott LLC -- Analyst

OK. Thank you.

Operator

Thank you. Next question from the line of Puneet Souda of SVB Leerink. Sir, your line is now open.

Unknown speaker

This is actually Wesley on for Puneet. Most of what I had has been asked, but I wanted to follow back up on the genomic volume growth cadence throughout the year. I know 2019 was still posted a solid, very good 25% growth for the year, but saw some sequential step down in growth throughout the year. Just wondering the kind of the puts and takes between — or that you experienced out the year and how we can expect this to play out heading into 2020?

Keith Kennedy -- Chief Operating Officer and Chief Financial Officer

Great question. 2018, almost have to go back and you look at '19 and look at what happened in '18 because you're comparing you guys were ramping these kind of things. You recall, we only had essentially one test in the first quarter of '18. And so by the time we get to sort of the second, third quarter of '19, it became significant comparative quarters because we had a lot of ramp in the second half of '18.

And so even though it appears to be, looks like it's coming down in terms of the percentage, the numbers are going up dramatically. And so what we've seen is just around 5,000 incremental test in Afirma. So what I was trying to build to you for you earlier, we'll probably go about 5,200 test up to about 41,000 this year, and probably started around 10, by 9,000 in the first quarter, got 10.5% to 11.5% kind of thing for Afirma. Throughout the year to get you to $41,000, and our long haul sort of start out at 1,300, go to 1,600, 1,900, 2,200 kind of thing throughout the year, sort of pace up.

And so just those percentages just work out how they fall out. But what we're really trying to figure out is how do you build a firm of5,000 plus a year you keep the rate $26.5 we're building long volume at 80% growth implied at 7,000 long test incremental this year over last year is an 80% growth in volume. And if we can take the rate up 200, and then Julie and the team are working on the publications and the coverage with John will happen is you'll install a big base. And as you get United, Cigna in Blues, our revenue were leaving half our revenue on the table on those products, right? So I understand from people's point of view that they feel like that's not maybe growing fast enough, but the volume you want to embed and see that in the market and then the revenue tailwind will happen, just like what we saw on Afirma.

So we're very happy with it.

Bonnie Anderson -- Chairman and Chief Executive Officer

So we're pretty happy with it. Yes. I think just looking at the numbers in key stack. The first quarter, genomic volume of 9,101 to 96, 99 and 10.8.

That's exactly the kind of layering effect. And in 2018, it was the year that we introduced the GSC for Afirma and then a couple of months after the year started the Xpression Atlas. So the beginning part of that year was pretty low performance compared to in early '19. And because of those new product introductions, we had an acceleration of that in '18, and then with the new lung products coming off.

So we're actually very pleased. I think we've been talking about an Afirma cadence of 5,000 additional tests a year. We delivered 5,500 in '19. So we've been very pleased with the product with its time on the marketplace, having that level of continued growth is really, really great.

Unknown speaker

Great. Thank you. And then just one more quick one on the physician base. Can you just provide a little color on whether you've been seeing more growth from existing physicians or from new physicians? And how do you expect that to play out with the sales force expansion?

Bonnie Anderson -- Chairman and Chief Executive Officer

Yes, John?

John Hanna -- Chief Commercial Officer

Yes. I think are you referring to Afirma or to the pulmonary products?

Unknown speaker

Yes. Sorry, Afirma, sorry.

John Hanna -- Chief Commercial Officer

The performance, it's a mix of both. As Julia and R&D team and our clinical affairs team continue to publish evidence around Afirma and demonstrate its efficacy in new areas like hurtle cell modules the value of our expression Atlas assay to provide insights on both surgical selection as well as targeted therapies. We see greater adoption within existing accounts of the product for additional patients that they previously perhaps didn't test with the assay, and then we have through the demonstration of the value of the extension of the product picked up new accounts along the way that for whatever reason, perhaps didn't use Afirma in the past, used a local homegrown solution and then decided to switch over to the firm assay. And so we're having lot of success in both areas in a very targeted way.

Unknown speaker

Right. Thank you very much.

Operator

For the last question from Brian Weinstein of William Blair. Sir, your line is now open.

Brian Weinstein -- William Blair and Company -- Analyst

Already asked, ma'am. I am good.

Operator

And there are no further questions at this time. Please continue.

Bonnie Anderson -- Chairman and Chief Executive Officer

You can now conclude the call.

Keith Kennedy -- Chief Operating Officer and Chief Financial Officer

Thank you, everyone.

Operator

[Operator signoff]

Duration: 62 minutes

Call participants:

Keith Kennedy -- Chief Operating Officer and Chief Financial Officer

Bonnie Anderson -- Chairman and Chief Executive Officer

Thomas Flaten -- Analyst

Sung Ji Nam -- BTIG -- Analyst

Brian Weinstein -- William Blair and Company -- Analyst

Paul Knight -- Janney Montgomery Scott LLC -- Analyst

John Hanna -- Chief Commercial Officer

Unknown speaker

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