Veracyte, Inc. (NASDAQ:VCYT) Q2 2024 Earnings Conference Call August 6, 2024 4:30 PM ET
Company Participants
Shayla Gorman – Senior Director, Investor Relations
Marc Stapley – Chief Executive Officer
Rebecca Chambers – Chief Financial Officer
Conference Call Participants
Mason Carrico – Stephens, Inc.
Yuko Oku – Morgan Stanley
Maggie Boeye – William Blair
Joseph Conway – Needham & Company
Prashant Kota – Goldman Sachs
Thomas DeBourcy – Nephron Research
Operator
Good day and thank you for standing by. Welcome to the Veracyte Second Quarter 2024 Financial Results Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded.
I would now like to hand the conference over to your first speaker today, Shayla Gorman, Senior Director, Investor Relations. Please go ahead.
Shayla Gorman
Good afternoon everyone, and thank you for joining us today for a discussion of our second quarter 2024 financial results. With me today are Marc Stapley, Veracyte’s Chief Executive Officer; and Rebecca Chambers, our Chief Financial Officer. Veracyte issued a press release earlier this afternoon detailing our second quarter 2024 financial results. This release along with the business and financial presentation is available in the Investor Relations section of our website at veracyte.com.
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 are subject to risks and uncertainties and the company can give no assurance they will prove to be correct. Additionally, we are not under any obligation to provide further updates on our business trends or our performance during the quarter. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Veracyte files with the Securities and Exchange Commission, including Veracyte’s most recent Forms 10-Q and 10-K.
In addition, this call will include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures are included in today’s earnings release accessible from the IR section of Veracyte’s website. This quarter we have updated our non-GAAP measures to exclude stock-based compensation to provide better comparison to our peers and help investors gain a better understanding of our performance. Further, all comparisons to prior periods are to the updated non-GAAP metrics that excludes stock-based compensation. We have included a schedule of the non-GAAP adjustments for prior periods in today’s earnings presentation available on the Investors section of our website.
I will now turn the call over to Marc Stapley, Veracyte’s CEO.
Marc Stapley
Thanks, Shayla, and thanks everyone for joining us today. I couldn’t be more pleased to share with you the drivers of what I believe is Veracyte’s best quarter to date. Importantly, we saw an acceleration of demand for both Decipher and Afirma that exceeded even our highest expectations coming into the quarter. As a result, we delivered second quarter revenue of $114.4 million, growing 27% compared to the prior year period. Testing revenue grew 31% over the prior year period, well ahead of our expectations.
With our disciplined focus and strong fiscal management, this over performance on top-line growth contributed to our most profitable quarter to date. We generated $5.7 million in GAAP net income and our adjusted EBITDA margin was an industry leading 21%. I have previously stated that I believe a well run specialty diagnostics company like ours could achieve 25% adjusted EBITDA margins and as you can see we are well on our way to reaching that level of profitability.
Before I get into this quarter’s performance, I want to remind you that we are highly focused on five strategic imperatives: One, continued growth in Decipher; two, continued growth in Afirma; three, launch of multiple IVD products to expand geographically; four, solving new cancer challenges; and five, serving more of the patient journey. Regarding number three, I am pleased to share that we just submitted our existing Prosigna nCounter test for approval under the IVDR framework. Recall that this is a foundational step that we expect to enable the launch of future IVD tests in oncology around the world and drive the commercialization of our IVD portfolio.
Turning to number four, we’re making good progress on solving new cancer challenges with NIGHTINGALE, our pivotal trial for Nasal Swab. And with respect to number five, we continue to forge our way across the patient journey with the development of our first MRD test for muscle invasive bladder cancer using our whole genome platform, a platform that is extensible across multiple indications. We expect these three longer term strategic imperatives will layer on new revenue growth s-curves a number of years from now, on top of what we believe is durable Decipher and Afirma growth.
Now, turning to the current quarter, I have talked before about the power of our Veracyte Diagnostics platform, which I believe is behind our strong performance and impressive growth. This unique approach relies on broad sets of genomic and clinical data, deep bioinformatic and AI capabilities, and a powerful evidence generation engine. This flywheel for growth builds increasingly strong and differentiated evidence for clinical validity and utility that ultimately drives guideline inclusion and combined with our proven commercial and managed care excellence, ensures broad adoption and reimbursement for our on-market diagnostics.
Evidence of this can be seen in the positive trend in ASP we’ve delivered, driven by our managed care and billing teams, ensuring that patients who are indicated for diagnostic testing are able to access those tests and that we are paid appropriately and timely when our products are selected by physicians for those patients. Our ASP has grown at a 5% CAGR over the last two years as we focused on gaining new contracts and resolving prior payment challenges. Another key to the Veracyte Diagnostics platform is the flywheel of evidence generation, led by our clinical and medical teams, that fuels adoption and guideline inclusion.
The outstanding Decipher and Afirma volume growth that we’re seeing is a direct result of this flywheel in action, together with the execution of our talented commercial teams. Specifically on urology testing, for the second year in a row, we saw a step function change in demand for Decipher during the second quarter. Sequentially, Decipher Prostate grew by 3,400 tests as we delivered approximately 19,900 tests in the quarter, a new record, now reaching more patients in a single month than we did in a whole quarter when we acquired Decipher in 2021. Importantly, volume growth, which equated to 32% year-over-year, was driven by both new physician adoption and deeper penetration into existing accounts. This is another favorable data point that gives us the confidence that Decipher has plenty of headroom for durable future growth, with the majority of the market still unpenetrated.
The updated NCCN Guidelines published in February were a significant catalyst to adoption as Decipher Prostate received the highest evidence level rating among molecular tests in the guidelines and was included in the principles of risk stratification section, which details treatment implications based on the NCCN classification and Decipher score. This result underscores both the mountain of evidence behind the test as well as its broad utility for patients diagnosed with prostate cancer, from those who are low risk and on active surveillance, to those who are intermediate risk, all the way up to NCCN high risk patients and patients after surgery.
Even with the level of evidence behind the Decipher Prostate test today, we are committed to continuing to support additional research to advance prostate cancer science. In the second quarter alone, there were three newly published Decipher Prostate test studies, including a real-world data population-based analysis of Decipher linked to the National Cancer Institute’s SEER database, demonstrating the test clinical utility.
And we are very eager to be able to offer prognostic and predictive insights to patients with metastatic disease, a cohort for whom more information can make an even greater difference of pivotal moments in their cancer journeys. Given that WPS issued their local coverage determination, or LCD, for metastatic prostate cancer last week, we now expect the finalization of the Palmetto LCD soon. This will provide an additional vector for growth, accounting for an estimated 30,000 of the 300,000 newly diagnosed prostate cancer patients annually.
Moving to Afirma, we also reported a new quarterly volume record with approximately 15,700 test results or 17% year-over-year growth. This performance for test that has been on the market for over a decade is a testament to our diagnostic platform and commercial approach and supports our positive outlook – for our long-term growth profile, fueled by both Decipher and Afirma. The differentiated level of evidence for the performance of the Afirma test, alongside the ease of use for physicians, drove volume increases with growth coming from new customers and our current customer base.
Our research-use-only RUO Afirma GRID offering is another way we continue to further our leadership in the endocrinology market. This tool provides physicians with additional data to advance the science around thyroid nodules in cancer. This quarter at Endo 2024, the Annual Meeting of the Endocrine Society, three studies leveraging information from Afirma GRID were presented highlighting the importance of this tool in helping to unlock new molecular insights from thyroid tumors, which may ultimately further personalize treatment of the disease. This quarter, approximately half of physicians ordering Afirma chose to receive the RUO Afirma grid information, demonstrating a high level of interest in contributing to research.
We also achieved a significant milestone in June as MolDX finalized an expanded local coverage determination for Afirma, adding reimbursement for Medicare and Medicare Advantage patients with Bethesda 5 thyroid nodules, or those that are suspicious for cancer. There are up to 30,000 patients with nodules classified as Bethesda 5 annually, of which we assume approximately one third will be covered under Medicare and Medicare Advantage. This is an important step in both expanding our market for Afirma, as well as furthering our leadership in endocrinology.
Our confidence in continued growth driven by Decipher and Afirma has only increased with this quarter’s outstanding performance. With durable market share gains, further penetration into existing accounts, expanded indications, and more use cases in our available markets, we are making progress towards the 80% penetration for both prostate and thyroid cancer molecular tests from 35% and 60%, respectively, coming into the year.
Further, paired with the ASP improvements in the Decipher and Afirma volume catalyst delivered this year so far, there is compelling evidence that we are primed to continue to deliver robust revenue growth for the foreseeable future, near-term, mid-term, and even long-term, especially in the case of Decipher. We plan on underpinning this growth with continued profitability and cash generation while also investing in future innovation.
With that, I will now turn to Rebecca to review our financial results for the quarter and heightened expectations for 2024.
Rebecca Chambers
Thanks Marc. Q2 was a fantastic quarter with $114.4 million in revenue, an increase of 27% over the prior year period. We grew total volume to approximately 39,000 tests, a 23% increase over the same period in 2023. Testing revenue during the quarter was $107 million, an increase of 31% year-over-year, driven by Decipher and Afirma volume, along with ASP growth. Total testing volume was approximately 36,000 tests. Testing ASP was approximately $2,950, which included approximately $4 million of prior period collections. It is important to recognize that while these adjustments are for tests delivered in prior periods, this result is driven by sustainable efficiencies in our billing and collections processes. Adjusting for the impact in the quarter, testing ASP would have been approximately $2,850.
Second quarter product volume was approximately 3000 tests and product revenue was $3.9 million. We continue to expect supply chain issues to suppress supply of the ProSigna encounter tests in the second half of this year and perhaps beyond.
Biopharmaceutical and other revenue was $3.6 million, down 22% year-over-year.
Moving to gross margin and operating expenses, I will highlight our non-GAAP results. Our non-GAAP metrics exclude, where applicable, the amortization of acquired intangible assets, stock-based compensation, other acquisition-related expenses, restructuring costs, and certain other adjustments. Non-GAAP gross margin was 71%, up approximately 350 basis points compared to the prior year period. Testing gross margin was 74%, up 250 basis points compared to the prior year period due to ASP improvements and prior period cash collections.
Product margin was 52% due to favorable manufacturing variances.
With investments in service support in the second half of the year, we expect product margin to be below historical averages. Biopharmaceutical and other gross margin was negative 4% down year-over-year due to lower fixed cost absorption. In July, we executed our voluntary reduction plan in Marseille, which is expected to benefit our cost structure going forward. However, given our anticipated second half revenue, we expect full year biopharma and other gross margin to be at or slightly below the second quarter level.
Non-GAAP operating expenses were up 14% year-over-year to $59 million.
Research and development expenses increased by $3.5 million to $14.6 million given personnel additions with the C2i acquisition and increased costs related to our NIGHTINGALE clinical studies.
Sales and marketing expense declined by $800,000 to $21.9 million due to lower personnel costs from the Envisia sales force reduction, partially offset by higher commissions.
G&A expenses were up $4.7 million to $22.6 million driven by higher variable compensation given our updated full year outlook and other personnel costs.
Moving to profitability metrics as Marc shared, we are proud of our Q2 results. We recorded GAAP net income of $5.7 million inclusive of a $3 million restructuring charge in relation to our Marseille location.
We delivered adjusted EBITDA of $24 million or 21% of revenue, well on our way towards our goal of sustained 25% adjusted EBITDA margins.
We also generated $29.6 million of cash from operations and ended the quarter with $235.9 million of cash and cash equivalents.
Turning now to our 2024 outlook, we are excited to raise our total revenue guidance to $432 million to $438 million from our prior guidance of $402 million to $410 million. This reflects a significant improvement in the outlook for our testing business with revenue growth of approximately 25%, a substantial increase compared to our prior guidance of 15% to 18%. We are also raising our cash guidance and expect to end 2024 with between $260 million to $270 million in cash, cash equivalents and short-term investments.
Moving to the third quarter, we are forecasting a sequential decline in total revenue given typical seasonality and the impact of prior year period cash collections in the second quarter. We expect Q4 revenue to be a sequential step up from Q3. Additionally, we anticipate adjusted EBITDA margins in the second half of the year to be slightly above the first half of the year as we sustain our fiscal discipline.
I’m thrilled with our strong start to 2024 and our commitment to driving revenue growth with a focus on profitability and continued cash generation. I’m further grateful for the contributions of all of our employees towards our vision of helping cancer patients globally.
We’ll now go into the Q&A portion of the call. Operator, please open the line.
Question-and-Answer Session
Operator
Thank you. At this time, we will conduct the question-and-answer session. [Operator Instructions] Our first question is from the line of Mason Carrico with Stephens, Inc. Your line is now open.
Mason Carrico
Hey guys, thanks for taking the questions here. Marc or Rebecca, could you remind us what steps you still need to take or go through? I guess, once this metastatic LCD is finalized in order to secure coverage in how you’re thinking about the timeline there?
Marc Stapley
Yes, happy to. So once we get the finalization from Palmetto, which would cover Viridian as well, we’ll have to go through the tech assessment process, which will take a number of months. And then obviously, we’ve got to train our sales force and make sure we do a structured rollout as they work with physicians to make sure they understand the metastatic test and how it’s to be deployed. And then we’ve got to go through the billing process.
So we think of this as a 2025 activity, more so than 2024, with really starting in the first half and obviously ramping up as the year goes on. A reminder that there are roughly 30,000 patient incidences per year of metastatic that could apply here, and roughly two-thirds or so would be Medicare or Medicare Advantage. The other element of this is, of course, we’d have to work through commercial payers as well, and that takes a little bit longer.
Rebecca Chambers
And just to be abundantly clear on this, Mason, there’s nothing currently embedded in our 2024 guide for metastatic.
Mason Carrico
Perfect. Okay. That’s helpful. And then on the cash generation during the quarter, the balance sheet’s in great shape. Could you talk about how you’re thinking about capital allocation going forward? What are some of the key internal investments you’re making here? How does M&A fit in? Do you plan on adding commercial heads anywhere throughout the organization?
Marc Stapley
Yes. If you think about organically, the investments that we’re making, we’ve been making all the investments that we feel like we need to make. We’ve been generating positive cash flow for a little while here. Obviously, this quarter was very strong, but we’ve not been holding back is probably the best way to say in terms of adding commercial teams. We’re getting tremendous leverage out of the commercial team. We’ve got every sales rep we need.
We’re adding a couple here and there, wherever we need to launch new territories. And then on the R&D side, we’re investing in three long-term growth drivers and programs that each are roughly equal, give or take a few million dollars in terms of the investments that we are making in each of them. And together, they account for more than half of our R&D spend.
So, organically, I don’t think our positive cash generation really changes much around our strategies and focus. In terms of M&A and that type of activity, again, I don’t think it really changes much. We’ve always said the type of targets that we’d be interested in would be something that has a clear path to reimbursement and positive growth and revenue generation.
We don’t want to take on multiyear R&D projects. We’ve got enough of those that we’re working on ourselves. And so there’s not a lot of, I’d say, suitable targets out there. Having said that, we always kick the tires, we always take a look at whatever comes our way. And given how well we’ve been performing in the strength of our balance sheet that you can imagine, we get a lot of inbounds.
So no change in our approach here, and we’ll continue to positive – generate positive cash flow going forward and deploy it. We’re right in the middle or about to start our 2025 budgeting process, so we haven’t even decided the capital allocation for next year.
Mason Carrico
Understood. Thank you, guys.
Marc Stapley
Thank you.
Rebecca Chambers
Thanks Mason.
Operator
Thank you. Our next question comes from the line of Tejas Savant with Morgan Stanley. Your line is now open.
Yuko Oku
Hello, this is Yuko on the call for Tejas. Thank you for taking our question. With IP litigation increasingly coming into point of focus, particularly in light of TwinStrand IP licensing by Exact Sciences, what are the implications, if any, for your MRD portfolio strategy? Can we see you participate in any patent pool sharing along the lines of what we saw between Personalis and Myriad recently?
Marc Stapley
Yes, great question. So, as you know, we acquired our C2i business in early part of this year. And as we mentioned when we did that, we took a very specific approach of looking for an asset that is a whole genome based approach because really primarily, it fits with our Veracyte diagnostics platform of more data is better. And so for every time you run the sample, you get a whole genome and you’ll see – you’ve seen us leverage that kind of approach with Decipher and now Afirma with GRID. So that was the primary purpose.
Secondarily, of course, we looked at the freedom to operate in the IP landscape, and that approach gives us a lot more room than, I think, some of the targeted approaches that you’re seeing a lot of this activity around. And so we don’t feel. We don’t believe that that is a, I mean, you never know, but we don’t believe that that is an area of concern for us because specifically of the approach that we’ve taken. Going forward, I don’t think there’s necessarily any need for us to get involved in patent pools and so on. And we’ll see where this – how this whole space evolves over time.
Yuko Oku
Got it. Thank you for that. And with respect for Bethesda V for Afirma, with about third of the population coming from Medicare, how quickly do you think that commercial payers could come on board following the reimbursement? Have you started to have discussion with payers already?
Marc Stapley
Yes, I mean, over a period of time, there has already been some element of commercial payers paying for Bethesda V. So now Medicare has caught up with that, and then there’s some that are obviously now with the LCD, we’re able to go to those commercial payers and leverage that to try and drive an update in policy. So we’ll continue that activity. You know, it takes a long time. There’s a lot to go and do a lot of blocking and tackling, and there are other big priorities, too. So Bethesda V remembers is about 30,000 patients. So we’re getting some of that already.
Rebecca Chambers
Yes. And I was just going to add, in the volume number that we cite for Afirma, Bethesda V samples are included in that that are being run and reimbursed for, well, that are being run for Afirma at this point in time. And then the commercial component is also embedded in that ASP for Afirma. So just so you can have an understanding of where we’re at.
Yuko Oku
Got it. Thank you very much.
Marc Stapley
Thanks.
Operator
Thank you. Our next question comes from the line of Andrew Brackmann with William Blair. Your line is now open.
Maggie Boeye
Hi, everyone. This is Maggie Boeye on for Andrew today. Thanks for taking our questions. Maybe just to start on the Decipher front, just as you think about the levers of growth in the back half of the year and into 2025, how much of that should come from elevated incidents versus account penetration and then versus share gains?
Marc Stapley
Yes, great question. I actually don’t think, it’s really to do with incidents, although the incidences of prostate cancer are going up. If you look at some of the data there, it’s kind of high-single digit growth, and the incidence is, of course, metastatic for us enables us to target that entire 300,000 a year annual incidence of prostate cancer now. So it gives us the final piece of that puzzle.
What we’re seeing and what we believe we’re going to continue to see is both penetration in the market. If you remember, beginning of this year, we said the market is about 35% penetrated, so there’s a lot of white space to go after there. So further penetration at market and even further share gains, it’s pretty evident that in the numbers that we’re posting, we’re seeing a combination of both, and they’re both significant drivers.
And I do think, I mentioned this in the prepared remarks, but I do think the NCCN Level 1B guidelines and the specific table around that are a significant driver of what we’re seeing as a step function increase this quarter and maybe a new normal. Too early to tell in terms of the growth curve, but certainly it stepped up in Q2 like it did this time last year when we got the first NCCN.
So clearly a significant factor in growth. And this is why we’ve said, plus obviously the ASP gains that Rebecca talked about, this is why we’ve said we feel very comfortable with the durability of the growth in Decipher.
Rebecca Chambers
Yes, absolutely. I was going to add in the ASP gains, but I think it’s really important to note, Maggie, that we had two major catalysts for Decipher really present themselves over the course of the first quarter, which were manifested in the second quarter, which Marc cited. And I think those were really great wins for the internal teams, which drove both the publications in support of NCCN Level 1 and well as the conversations with the major payer that we cited.
Maggie Boeye
Great. Thanks so much. And then maybe just one on the pipeline, could you level set us on MRD and then just what we should be expecting in terms of catalyst and data generation for the MRD assay and just how we should be thinking about the next six quarters or so before it comes to market.
Marc Stapley
Yes, thanks for reminding us of the timing there. And remember, the MRD, our approach is while this is a platform, a whole genome platform that can address multiple indications, and you can imagine us thinking about the indications that we’re currently in as well as new indications. We are starting with our first, and it’s more than a proof of concept, but think of it as our pilot MRD launch in muscle invasive bladder cancer.
And so yes, we will launch that test in 2026. You will see us do obviously [ph] have to do the tech assessment, get the reimbursement again train the sales force, very similar to what we talked about the Decipher metastatic. But we got to run some samples there and do some of that activity as well as set it up in our clear lab.
Regarding the automation, for we don’t do whole genome today, so we have to ingest that into our lab. We do transcriptome today. So we’re going to have to add that workflow and do the necessary activities around that. So that’s why it takes a little bit longer to get that launched. And so I think what we’ll probably share with you first is when we’ve done that tech assessment and we’re clearly seeing that path to reimbursement.
Maggie Boeye
Great. Thank you so much.
Operator
Thank you. Our next question comes from the line of Mike Matson with Needham & Company. Your line is now open.
Joseph Conway
Hey, Marc. Hey, Rebecca. This is Joseph on for Mike. So I guess first question, just around Afirma GRID. Marc, you talked about the three studies presented at ENDO in your prepared remarks. Just taking a look at those abstracts, it seems like GRID is kind of powering some new discoveries in thyroid cancer research.
I’m just wondering if any of those kind of molecular insights that have been found or could be found, could be implemented in an updated Afirma or an add on clinical test in the future of wondering how GRID RUO could progress in the future.
Marc Stapley
Yes, it’s a great question. And I can draw comparisons here to Decipher and what we’ve seen there. But let me just start by reminding everybody that GRID is our whole-transcriptome approach. It’s fueled by the fact that we run a whole-transcriptome. It’s ordered roughly half of the time in both Afirma and Decipher’s case, and it’s clearly fueling new research.
And you cited the three that came out at ENDO 2024, and included in that were things like new biomarkers or groups of biomarkers that people are doing analysis on, researchers are doing analysis on to determine there’s correlations there. And that is really what GRID can do. We’ve seen that actually with Decipher, where there have been some specific biomarkers that have been used multiple times, and I’m trying to remember the name. [Indiscernible] is one of them in Decipher, where there have been a number of publications around that.
And so I think you’re going to see similar things with Afirma. It’s really helping to renew investment and research around endocrinology and thyroid cancer, and it’s wonderful to see that. And so whether those end up being commercial tests in the futures to be determined. But again, remember, from our standpoint, the fact that we run a whole-transcriptome means we always have that data for every patient. So it’d be nice to see some – yes, some new tests in the future potentially. But I’ll wait and see how that pans out.
Joseph Conway
Okay. Great. Yes, that’s very helpful. And just maybe a quick one. Do you have an approximation for NIGHTINGALE in terms of data release for clinical utility, or is that kind of too far out to put a quarter down or for an approximation?
Marc Stapley
Yes, too far out really to put a quarter down. It’s one of our long-term growth drivers, as you know. And yes, what we need to actually do is complete the study. That’s step number one. Analyze the data at several points along the way. See, when we have the clinical utility, take the refill that we have, take it to get it published, take it to MolDX, and go forward from there. So it’s multi-years before we get to that point. We’re still enrolling for NIGHTINGALE at this point. We still got close to 100 sites enrolling, and as I said last quarter, I’m not going to predict when that finishes, but we’re progressing.
Joseph Conway
Absolutely. Okay. Well, congrats on the quarter.
Marc Stapley
Great. Thank you.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Prashant Kota with Goldman Sachs. Your line is now open.
Prashant Kota
Hey guys, congrats on the quarter. Really strong results. Lot of questions have already been asked. But just going back to Afirma, how are you thinking about ASP trajectory, given the addition of GRID and Bethesda V classifications? So, for example, once GRID is potentially becomes available for patients as opposed to RUO.
Marc Stapley
Yes. Maybe I’ll tackle that last time. And Rebecca, you can hit the ASP, but I see GRID as a research use only tool for the foreseeable future. I don’t think that becomes a clinical tool. It could lead to, as we mentioned earlier, some clinical discoveries that end up in a clinical setting in the future. But I don’t see that right now. It’s a firmer clinical test as we have it, and then the research use only GRID to power research.
Rebecca Chambers
Yes. So on the ASP front, obviously, the Bethesda V updated LCD is great news for us, as Marc highlighted in the script. And in parallel, obviously, the large payer on the Decipher side in the first quarter is also another positive trend for us on ASP. And so when I think about ASP in general, I would like to think about it more at the total testing level and the high level positive trends that we have to that end.
We’ve cited a 5% CAGR over the last two years on ASP. And I think when it comes down to it, these are the things that we need to continuously do to drive ASP growth above and beyond the volume growth that we’re delivering. And so you can do the rough math on a third of the 30,000 patients being Medicare for Bethesda V and back into. If you assume whatever our penetration level is and share level is for Afirma, you can back into the absolute dollar magnitude there. But it won’t necessarily be hugely impactful, but is another important driver, if you will, to that continued ASP gains over a multi-year period.
Prashant Kota
Got it. That’s really helpful. And then as far as evidence generation for your tests, are there any notable upcoming studies we should be aware of aside from Nightingale?
Marc Stapley
Always. The level of activity around Decipher continues to be very, very broad studies that we’re involved in as well as many studies where we’re aware of it, but we’re not necessarily driving it. And others are, again, fueled by GRID in many respects. And so you should expect to see more there. There’s always a nice steady cadence of studies. And now I think that should pick up with GRID for Afirma. And then in other indications between lung and breast, there’s a lot of activities going on. So, yes, nothing that I would point to right now as specifically notable. Just keep an eye on the steady rollout.
Prashant Kota
Great. Thank you so much.
Operator
Thank you. Our next question comes from the line of Thomas DeBourcy with Nephron Research. Your line is now open.
Thomas DeBourcy
Hi. Thanks for taking the question. I was just wondering, I guess, kind of sort of a combination – the level of investment in C2i in the quarter or for the year and/or how are you kind of thinking about your adjusted EBITDA margin trajectory from here? I know you haven’t given long-term guidance towards that margin, but obviously the level of spend of C2i can obviously be a ceiling on that level. So any additional commentary you have in terms of how you balance those.
Marc Stapley
Yes, great question. I’m glad you brought that up. If you think about C2i, one of the things that it’s important to note is we certainly didn’t take on the burn run rate of the company as a standalone company, because we’re adopting a very different approach to how we’re utilizing that MRD capability and platform. And we’ve already kicked off our first project or product, if you like, as we talked about earlier. And so what’s happened is we now have legacy Veracyte, team members working very closely with the C2i team on that project, and we have C2i team members working on other Veracyte projects.
So those expenses have become very blended. And so we don’t even talk about or think about the C2i expense run rate or burn anymore. It’s just now part of Veracyte. If you think about that investment in MRD, which is really the bulk of what the C2i team brought to the table, that is, as I said earlier, there are three big projects MRD, it’s the Nasal Swab with our NIGHTINGALE study in particular, and then it’s our three IVD projects or products that we’re launching. If you take each of those, they’re roughly similar in size, give or take a couple of million dollars either way. And together, all three make up more than half of our total R&D spend. So, yes, I don’t see a significant change in the trajectory of spend that we’ve been tracking for R&D, given that acquisition or anything else. And then I’ll let Rebecca…
Rebecca Chambers
Yes. So I think that plays very nicely into the adjusted EBITDA look forward perspective as well, Thomas. I think Marc highlighted that we don’t see meaningful changes inside trajectory. That being said, we also commented in our prepared remarks that the second half would – that adjusted EBITDA in the second half would be slightly higher than the adjusted EBITDA in the first half, and that we’re going into our 2025 budgeting season. And so therefore, we can’t necessarily comment on when or the duration to get to that 25% adjusted EBITDA goal. But obviously, we’re headed in the right direction. We’re incredibly proud of the portfolio approach we take to managing this company. And philosophically, I don’t think anything will change on a go forward basis. In any given year, you can obviously have puts and takes, but we’ve abided by this philosophy now for many, many years, both here and elsewhere, and I don’t foresee that changing.
Marc Stapley
And I do want to just punctuate that, the 21% adjusted EBITDA for the quarter, I think, is a significant milestone for us, and it’s great to see it, and it’s what we’ve been heading towards, that kind of a level of profitability and growth. And it’s about – I think it’s about 600 basis points higher than we achieved in Q1. Really impressed to see that, and it’s certainly something that we want to sustain and grow from.
Thomas DeBourcy
Thank you.
Operator
Thank you. I am showing no further questions at this time. I would now like to turn it back to Marc for closing remarks.
Marc Stapley
Thank you, Lauren. I appreciate it. So, in closing, I believe that our Decipher revenue growth of 43% year-over-year, a firmer revenue growth of 21% year-over-year. Our 21% adjusted EBITDA margin and almost $27 million of cash generation in the quarter sets us apart. Add to that the durable growth in both tests that we’re experiencing and our three incremental long-term growth drivers, Veracyte clearly has a very unique profile in the diagnostics industry that is not getting the attention I believe is warranted of the space. Molecular diagnostics are proving their value when supported by evidence, and I believe that Veracyte leading that charge.
I want to thank all the approximately 850 employees at Veracyte who have contributed to this excellent performance over many years to make a difference in the lives of over 500,000 patients that we have served to date with our advanced diagnostic tests. I look forward to updating you again on our Q3 earnings call. Thank you.
Operator
Ladies and gentlemen, this concludes our call today. Thank you for joining us. You may now disconnect.
