Q2 2020 Neogenomics Inc Earnings Call
Ladies and gentlemen, thank you for your patience you were holding for todays Neogenomics second quarter 2020 earnings call. At this time, we are gathering additional participants and we'll be getting momentarily. We appreciate your patience and ask you. Please continue to hold.
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Good day, ladies and gentlemen, and welcome to your Neogenomics second quarter 2020 earnings call. All lines have been placed on a listen only mode and the floor will be open for your questions and comments. Following the presentation. If you should require assistance throughout the conference. Please press star zero to reach a live operator at this time it is my.
Pleasure to turn the floor over to your host it does banorte, Sir the floor is yours.
Thank you Terry and good morning, everyone.
Like the welcome everyone to New York, You know makes second quarter 2020 conference call joining.
Joining me for more Fort Myers headquarters with social distancing precautions and placed our Catherine Mckenzie, our Chief Financial Officer, Rob Shovlin, President of our clinical Division and Bill Bonello President of our Informatics Division in director of Investor Relations.
Joining the call via phone for locations across the country, Our George Cardoza President of our pharma services Division Dr., Larry waste, our Chief Medical Officer, and Doug Brown, our chief strategy and corporate development Officer.
Before we begin our prepared remarks building I will read the standard language about forward looking statements.
This conference call me contain forward looking statements, which represent our current expectations and beliefs about her operations performance financial condition and great opportunity.
Statements made on this call that are not statements of historical fact are forward looking statements. These statements by their nature involve substantial risks and uncertainties certain of which are beyond our control.
Should one or more of these risks or uncertainties materialize, where shouldn't be underlying assumptions prove incorrect actual outcomes and results could differ materially those indicators in the forward looking statements.
Any forward looking statements speak only as of today and we undertake no obligation to update any such statements to reflect events or circumstances. After today.
Before turning the call backs it doesnt want to let everyone know that we'll be making a copy of our prepared remarks for this war in school available in the Investor Relations section of our website. Shortly after the call is completed.
We also want to let everyone know that we're going to limit the number questions. Just two per person in order to get more people a chance to ask questions within the one hour that has been allotted for this call.
Thank you Bill.
This morning, I'll begin with some comments on quarter to results some strategic actions, we've taken to accelerate growth and our outlook for quarter three.
Catherine Mckenzie will then provide a more detailed review of the quarter to financial results.
I will wrap up with some summary thoughts on our strategy for operations in growing the business in these difficult times and then we'll have time for questions and answers.
As expected in order to financial results were challenging.
The revenue and profit loss caused by the Kobin 19 pandemic worst significant.
Revenue was way below our trend.
Margins were affected by the lower volume and also by decisions, we need to invest in our business. Despite the pandemic.
We made several strategic decisions in the second quarter do put us in a stronger competitive position to drive near term and long term growth.
Those decisions are already beginning to show results and we fully expect a rapid and strong recovery in financial results.
The third quarter.
There are six noteworthy strategic decisions and investments that we would like to share with you.
First.
As a demonstration of the value we place a culture and people we retained all of our employees during the crisis.
Skilled employees available, we decided to build a kobin testing lab to do work hard to help in the crisis.
We started with a minimal level of testing capacity and no has steadily building capacity for the past eight weeks.
We currently have capacity to perform more than 10000 tests per day.
Which we may scale up further.
We began the process coated volume in the latter part of June and we have ramped that up considerably in July and anticipate a steady stream of business throughout the third quarter.
Our strategy for Cobot 19 testing is to serve as a network reference lab for our hospital clients labs and for commercial labs.
In this way, we leverage our expertise by performing the molecular laboratory testing, but our partners performed the front end lot logistics in sample gathering as well as the backend reporting.
As a result, our average revenue per Kobin test will be lower than what you might see from other laboratories performing this full testing service, but our costs will also be lower.
We have made sizable investments that equipment supplies are indeed people training and systems to get this lab operational.
For us well, we are benefiting financially from the revenue associated with Cowen Nike in testing.
We view this service as short term in nature and not part of our overall strategy as a leader in oncology testing.
Our intent is to partner with a lab industry to help the country combat this crisis.
[noise], although there is uncertainty about the amount of volume and duration of demand. We expect to covert 19 testing to result in incremental revenue and profit throughout the third quarter and into the fourth quarter as well.
At this time demand is so high that we have redeployed 50 employees and hired and trained temporary employees to perform govan testing.
Over the next several months, we expect our core oncology testing volume will continue to improve.
Colin 19 testing demand fall, we will scale back those dedicated resources and redirect some of our co in testing stats back to our core oncology testing business.
Second we fortified our balance sheet by successfully completing an offering of common stock and convertible securities, resulting in net proceeds of $322 million for our company.
We used approximately $100 billion or the proceeds.
To repay our term loan and terminate the associated interest rate hedge creating significantly increased financial flexibility for our company.
The remainder of the proceeds are available to fund strategic investments and mergers and acquisitions.
Third we formed a strategic collaboration and made at 25 billion dollar minority investment in Nevada.
A leader in liquid biopsy test in technology.
As part of our deal we have a seat on the in about a board of directors and the exclusive option to buy the entire company.
We also have the right to commercialize the envision first one liquid biopsy test in the U.S.
And to help commercialize their minimal residual disease test, which is currently in development.
In addition, first one is a highly competitive circulating tumor DNA next generation sequencing liquid biopsy assay testing three seven genes with it to the care of advanced non small cell lung cancer.
The test covers all national comprehensive cancer network or NCCN guideline recommended genomic drivers with FDA approved targeted therapies for non small cell lung cancer.
The envision first long test is covered by Medicare and various private insurance payers and is one of just to Ngs based liquid biopsy test with specific Medicare coverage.
Fourth.
We launched a suite of solid tumor liquid biopsy test, including the envision first one as well as the neo labs solid tumor liquid biopsy and the kitchen Therascreen Pixthree see a test for plasma.
Neil Labs, so its tumor liquid biopsy is a highly sensitive in specific pancancer ngs test for genomic profiling.
We had previously announced that the estimate was being validated and that we expected to launch it before mid year and we accomplish that on schedule.
That's fair screen their Threec, a test is an F.D.A. improved companion diagnostic test for different.
As you May know, we have worked with novartis on their tissue based companion diagnostic Pixthree CA test and have a sponsored testing program with them. The pixthree see a liquid biopsy test accompanies the existing tissue biopsy test.
Fifth.
We continue to invest in our pharma services business.
During the quarter, we further established pharma specific testing capabilities hired additional sales and business development people in Europe, and Asia and progress with our China OLED in collaboration with our strategic partner PPD, which is expected to be operational by the end of this year.
As you see from our quarter to results from a revenue was negatively impacted by trial delays, resulting from the kobin pandemic as well as reduced enrollment in existing trials.
However, while patient access was an issue net bookings have signed contracts were at an all time high.
With $40 million of new business signed during the quarter.
Clearly there is strong demand for our services and the current backlog of over $170 million in sign contracts should pave the way for strong revenue growth over the next several quarters.
Finally, we continue to invest in our informatics business.
We continue to have subsea substantial engagement from pharma companies.
Writers and payers and have already had some early commercial success.
As the leader in oncology testing, we are uniquely positioned to use the vast amounts of our valuable data to help solve real world problems for our customers and for cancer patients and we are just beginning to harness the true value of our testing data and information.
Our decisions to maintain our workforce and invest in growth opportunities has positioned neogenomics for a strong recovery.
Based on current trends, we expect to report organic revenue growth in excess of 20% for quarter three.
This growth will be driven by a combination of modest year over year organic revenue growth.
In core oncology testing as well as a boost from cobot 19 test.
To give you a better sense of the pace of recovery in the core oncology business and some confidence in our quarter three outlook, we thought it might be helpful to share a few statistics related toward quarter to and early quarter Threed volume trends.
The go at impact on our testing volume was most severe in April.
With volume down nearly 30% year over year.
Volume began to recover in May and further recovery in June.
In total June 2020 volume was essentially in line with June 2019 volume.
Though still about 15% below our pre cobot expectations.
Volume did get better each week in June with year over year growth in the last week at the quarter.
Well I am trends have continued to recover in July, but we are not yet back to where pre cobot expectations. We have experienced a similar volume trend in our pharma services business.
Obviously, there's still a great deal of uncertainty about the continued pace of recovery given the resurgence in infections, which is reflected in our expectations for quarter three growth.
In summary quarter to financial statements or results were poor as expected due to the impact of the Kobin pandemic. Nevertheless, we are confident that the actions. We took in response to the pandemic has positioned the company for a strong recovery.
And we believe that our competitive position and long term growth prospects are stronger than ever.
I'll now turn the call over to capture in Mckenzie, our Chief financial officer to discuss some of the details of quarter to financial results.
Thank you Doug and good morning, everyone I will give a brief overview of second quarter financial result.
Consolidated revenue declined 14% year over year to $87 million, reflecting the impact of the covert 19 pandemic.
For the quarter overall clinical tests.
Cynical divisions have volume, excluding cobot 19 testing declined 18% year over year.
Consistent with what we previously this past April represented our LOE for the quarter as per day decline between 25% and 30% in the month.
Fortunately, we experienced a sequential improvement in both May and June.
Each week of Gen with better than the last and we are especially encouraged with Alaska This year with better than the last week of San and 2019.
Clinical division revenue for cat $351 down 1% year over year end down sequentially from $371.
The revenue for test reflects lower revenue during the quarter on non contracted claims related to legacy Genoptix as a result, HCP or revenue per test was unusually low in the corner.
We would like to know that we have now completed genoptix integration. After just 18 months, despite the distractions from the Covance and on it.
As a result, we are now in position to drive increased efficiencies, including improvements and billing processes and collection over the next several quarters.
We continue to believe that original synergy protection will be realized as expected.
Pharma services revenue increased 3% year over year to $13 million.
Research oriented revenue growth remained strong bolstered by the acquisition of a July oncology as a reminder, we acquired the state of the our Ngs Lat am and boy in California and January of this year, giving us advanced ngs capabilities.
Clinical trial work was down significantly as a result of the cobot 19 pressured clinical trial activity around the world.
Despite the challenging environment Afirma team continued to sign new contract and grow the backlog signed contracts.
And with that new contract signed in the quarter, where $40 million, representing the highest quarterly number yet and the backlog of sign contract increased 63% year over year to $173 million.
For the second quarter gross margin declined year over year at 32.2% as a result of the volume and cost impact of the covert 19 pandemic.
Operating expenses increased 5% or $2 million year over year to $47 million due to investments and informatics pharma services growth initiatives and the acquisition in July oncology.
Increases were partially offset by lower commission significantly reduced travel and decreased tradeshow and marketing expenses.
While we continue to fund our key growth initiatives, we remain disciplined and evaluating and controlling our operating expenses and other cost and we have reduced or delayed certain expenses and capital expenditure where appropriate.
Second quarter, adjusted EBITDA was negative 7.2 million, reflecting the impact of significant volume decline and other challenges experience related to the cobot 19 pandemic.
And Doug previously noted we also made important investments and our people and other strategic initiative, which we believe positions on our strong recovery.
Turning to the balance sheet, we exited quarter to $295 million in cash excluding $36 million and restricted cash designated for construction of our new state of the our laboratory and global headquarters in Fort Myers, Florida.
Destruction of that facility continues to be on track for opening and the fall of 2021.
We were busy this quarter, we significantly enhance our financial position by raising approximately $320 million in total net proceeds from our current equity convertible debt brand from late April.
We utilize a portion of these proceeds to retire our outstanding term loan and related had for approximately $100 million I.
Additionally, we invested $13 million as a part of a 25 million total minority investment end and strategic alliance with antibodies that we announced in late May.
We also received $7.9 million and provider disbursements under the cares.
Of which 4 million with received during the second quarter with the remainder received an early July.
Days sales outstanding increased six days sequentially 92 days, primarily due to the distribution of our revenue in the quarter being heavily weighted towards yeah.
As a reminder, we withdrew our full year 2020 financial guidance on April nine 2020 and length of the Cobot 19 pandemic.
Well, we are expecting recovery in the second half of the year, we recognize the uncertainty remains given the researchers and KOVA cases and potential downstream impact.
I will now turn the call back over to that provide commentary on our key growth initiatives.
Thank you Catherine.
As I noted at the beginning of the call quarter to financial results were quite difficult, but we expect it as much.
We made strategic decisions to invest for long term growth opportunities rather than cutting costs as a response to the short term reduction in volume.
We think these were the right decisions.
Theres no disputing the fact that our decision to stand up probably testing reduced earnings in quarter two.
However, we believe that providing kobin testing is not only the right thing to do but will prove to and Ben financially prudent.
We started to see an uptake in testing volume at the very end of quarter too and that has grown considerably in the first several weeks of quarter three.
Our decision to retain employees during the pandemic. Despite the volume decline also had a significant impact on profit in the quarter.
Again, we believe this was the right thing to do but also has long term cultural and customer service benefits for our company and the clients and patients we serve.
One data point that supports this belief is our most recent customer survey net promoter score.
We surveyed clients in the midst missed a pandemic and received our highest response rate and highest score ever for this for that as nearly 10 fold higher than the average score for our peer group.
We have competitive strategies that continue to change in evolve, but our fundamental business model remains unchanged.
We try to lead with a culture that is purpose driven and values based and we continue to believe that high levels of employee engagement.
Drives high levels of customer satisfaction and retention.
Which in turn drives shareholder returns.
Finally, we believe that our strategic decisions to invest in growth is enhancing our competitive position and we will pay dividends in both the near term and long term.
In fact, we believe that.
We are even better position for growth than we were before the endemic kit.
We now have a full suite of liquid biopsy test, which further strengthens our next generation sequencing product portfolio and solidifies our comprehensive oncology test menu.
We also have a strong balance sheet to support further M&A.
We have a very large backlog of signed pharma services contracts and are well positioned for growth with an increasingly global presence.
And we are advancing our informatics initiatives and are very excited about what that team has already accomplished.
All in all we continue to run our business for the long run and we're looking forward to a bright future.
At this point, we'd like to open the call for questions Incidentally, if you're listening to the conference call via webcast only it would like to submit a question. Please feel free to email us at Bill Dot Bonello at Neogenomics Dot com during the Q in a session and we'll.
Question at the end of the call if the subject matter hasn't already been addressed by our call. It listeners as mentioned at the beginning of the call we'd like to ask each person to limit their questions to too. So that we may hear from everyone and still keep within the hour Aladdin for this call.
Operator, you May now open the call for questions.
Thank you ladies and gentlemen, the floor is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time, if you're using a speaker phone, we ask that well posing your question you pick up your handset to provide the best sound quality again, ladies and gentlemen, if you do have a question or comment please.
Star one on your telephone keypad at this time, we'll take our first question from Alex Nowak with Craig Hallum. Please go ahead.
Great Good morning, everyone.
Doug I was just hoping you could provide some more details how you'd be rolling out some of these newer test within liquid biopsies to the accounts do you expect you'll need to two cents or a higher level education with physicians in the clinic, because you're working with or is simply adding the tests in the menu lists enough to elect demands here.
Good morning, Alex and thanks for the question, we we actually have spent quite a bit of time with our marketing team.
Launching the liquid but the suite of liquid biopsy test and we do as a normal course of business with product launches provide a lot of education for our clients. In this case I would say that we're providing even more education than we typically do.
These.
These tests are.
A little different in as much as they are liquid versus tissue based on many of our clients have experimented with liquid based tests in the past.
But many have not because we serve community oncologist and pathologist and hospitals. So there is a fair amount of education that that we are doing and we we have a terrific collaboration with in of auto to help us so with that.
Okay understood and then just on the broader macro environment here cancer is a little bit of the different disease, and some others, where you can't really differ diagnosis and definitely so just when you're thinking about your volume compared to three core was levels is the primary delta here just that people are going and getting screened.
That's the that's driving the wrote their friends and if so is it really a function that is just getting people to go back to their their primary care physician getting screen for some of these diseases.
And then Neos volume will come back as a result.
Well, we believe first of all that there is some there is some pent up demand but.
As you know.
Cancer patients are particularly vulnerable.
Good day team.
Their immune systems in many cases of it compromised and advice that they're getting from their positions are if you don't have to come in don't.
And so there have been many cases, where oncology groups have.
Postponed or canceled semiannual visits.
There are a number of patients that have delayed surgeries.
We've seen that.
Throughout this throughout this time.
We're worried frankly that there are cancer patients that aren't getting the rate care.
This is.
This is a problem for our country and and we are quite concerned about this but we believe that as that pandemic eases that cancer patients will have access again to either their physicians or clinical trial sites and that our volume will come back to the pre cobot levels.
We have experience.
Okay understood. Thank you.
Our next question comes from Puneet Souda with SVB Leerink. Please go ahead.
Yes, hi, Thanks, Doug and thanks for the details and obviously, thanks for what you're doing.
To serve the community when cobot testing in these times.
First one given the capacity that you have 10000 toast could you help us parse out how much of that contribution is in that 20% organic guide and and.
Traditionally your core business clinical revenue it seems like it's a recovering back to.
Normal levels, but there's still some recovery left to go but can you.
Sort of tell us given your past.
Traditionally a deliberate mid teens level of growth and that's something we can potentially expect here by the end of the third quarter Hope, it's just parse out the 20% or got good number.
Thank you Tony Thank you for the question.
I would first say that there is a fair amount of uncertainty.
In the numbers, we feel that the 20%.
Revenue growth number that we provided is something that we have we have a lot of confidence in.
I would say parsing it out that the core oncology business. We said is recovering and we would expect some modest growth year over year there.
But that as we said you know if we can actually fill the capacity that we have we have capacity today for about 10000 coded test per day, but if demand continues we'll we'll continue to build that.
If that demand is is filled.
You know, we should be able to easily.
Accomplish the 20% growth rate.
So theres a lot of uncertainty Thats why we haven't given more detail about the components of that growth, but we feel.
We feel confident in the 20% number.
I mean I might just.
We needed that I, just I just want to reiterate that we didn't say in the script. The 20% consisted of modest organic growth in our core oncology business.
So I just you know I don't want people they have run away expectations about what volume growth in the core oncology business would look like in Q3.
Okay appreciate that clarification.
On the gross margin friends I appreciate.
The investments towards.
During these times to into employees and overall facilities and capabilities to serve the market, but maybe can you just elaborate on that is this largely volume driven recovery is that what you expect here in sort of.
I know you haven't provided the ASP on decoded testing, but.
What sort of margin contribution should we expect from from Cobot and.
To the clinical business.
Yes, so overall the margin profile in the open testing business it is lower than our normal clinical testing margin.
Just based on that.
Just based on the way that we have the cost structure and bringing up the KOVA testing so.
You should expect at the margin on that will be lower than your historical clinical testing margin.
Okay.
Thanks, and then on if I could ask on pharma services and liquid biopsy.
Pharma services can you if you can quantify the h. Elias or contribution in the quarter, if possible and and it seemed like there were obviously samples collected over time that youre running through and is that still the case and the and the third quarter as recovery happens across the pharma base.
And at what point do you think those samples you'll need more and more increasing levels of.
Breast trial samples coming in.
And on the liquid biopsy front.
If dr. wise can maybe chime into that too.
Yes, obviously has significant number of liquid biopsy launches here what are your expectations for.
Liquid biopsy to grow.
This year and potentially next year should we think of this and in line with the Ngs growth that you have seen or could this be potentially faster than that just help us understand the you know the growth.
We can expect from.
Liquid biopsy given that there is already an existing.
You know market, leading product that's been therefore in the market for some time and this is a new entrant into the market and by that I'm, referring to the Neolab.
Assays on liquid biopsy solid tumor asset.
Any you've officially master.
Two questions and well start with my Angel and then I'll turn it over on the.
A biopsy questions over in July what we're not going to be breaking out if you like contribution.
Early but I will say is consistent with the plan.
That we announced that the acquisition.
That being said in July capabilities are more research oriented and we started the research oriented products or so and relative strength for the clinical trial. So Ken.
And do you deduced what the contribution was on the pharma services there related to.
Hi.
So I do want to talk through the last two little bit.
Yes.
Dr Waste would you care to make a comment.
About debt or should you would you like me to tick.
Sure I can try.
As you mentioned there are a number of liquid biopsy offerings already out in the markets, but I think.
On the day is early and we're still in the early innings of this I think as we rollout our our product.
Our products we are just.
Coming in line with changing.
A consensus guidelines and we do not think we are too late to the game.
I would expect to see growth.
Of our liquid biopsy products, a little more than our solid tumor tissue offerings and I have high expectations for them over the next two years Doug.
I can add anything to that Dr. Weiss it's perfect.
Alright, great. Thank you.
Yes.
Thank you. Our next question comes from Brian Weinstein with William Blair. Please go ahead.
Hey, guys. Thanks for taking the questions just kind of piggybacking on the last one on liquid biopsy can can you talk a little bit more about how you expect to compete in how you expect to talk about the differentiation and what that differentiation really isn't a liquid biopsy portfolio versus the versus the other people go there in the market today.
Highlights some of that for us.
Yes, Brian. Thank you for the question first of all I would comment that the market is growing.
So the market for liquid biopsy test is.
As we as we've talked about.
Many people have published is in the early stages and Theres a lot of growth opportunity here.
That said, we have a very strong market position with apologists with hospitals and without oncologists around the country.
Good how we also compete on the basis of having we think the most comprehensive oncology test menu and many of our clients use us for a as a one stop shop for their cancer testing needs.
And we would we believe that we will.
I have good penetration of our liquid biopsy test because first they're very high quality.
And second because we are I think a trusted partner with our clients. They use this as a one stop shop and I think that they will continue to do that.
The third the third thing is that I think that our liquid biopsy test have very good turnaround.
So they have very high quality as we have noted and the turnaround time, we ex except to be a seven days or less.
And.
And particularly frankly in an environment, where you have kobin 19.
We think that there may be more uptake for liquid biopsy test and then even before.
I'd like to add another reason.
And that is that for the minority of a tissue specimens that had insufficient results. We can easily recommend a reflects to our liquid biopsy products.
Yes, all that makes perfect sense. Thank you.
And then.
Curious about the competitive environment right now just just more broadly for all of your testing services.
No I'm curious if if depend AMAK has caused anybody to kind of.
Your competitors to act differently, we heard from some of the large guys out there, but curious what you're seeing as far as healthy maybe responding to that is for secure and then also.
You have a lot of smaller competition.
That's out there, we'll call them sort of mom and Pops.
Are you seeing any of those balances be impacted and presenting an opportunity for you to either share I, just by taking it or potentially through some M&A opportunities. Thank you.
Thanks, Brian I would say.
As you know first of all I'm proud of the whole industry to the truth I mean are our industry and I think particularly the commercial laboratories have done a fabulous job building Cove and testing capacity and I think right now, there's probably seven or 800000.
Test performed on a daily basis for coded and commercial laboratories are performing at least half of those.
From a standing start you know four months ago, So I'm very proud of the industry and what they're doing.
I think a lot of the players in the industry have focused.
Enormous amounts of their time and attention to fulfilling this this need as demand.
In terms of the smaller competition.
Frankly, we haven't really seen a lot of change yet and I expect that there will be change.
Our industry is naturally consolidated over the years and I think that in many ways. This covered 19 pandemic may be an accelerant for.
For for more consolidation.
As you know, we purposely fortified our balance sheet.
Four months ago as Katherine.
Commented to be prepared for and environment in which.
There might be more competition, and we had been a consolidator and I think we want to continue to be one.
Great. Thank you so much.
Our next question comes from Steve Hunger with Needham. Please go ahead Sir.
Thanks, great job in a challenging environment.
First question just on the honest services bookings very strong and I'm I'm wondering if you could provide.
Some additional color.
And I'm sort of what the composition of that booking goes as far as service slides.
And how are you doing on your international expansion.
My first question, how the second question.
Well I'll comment very briefly and we have George Cardoza on the call. So he will want to comment further but I would say first of all we have a terrific pharma services portfolio of services.
Products and a terrific business development team and I am continually shocked and surprised by how effective they are.
So so we just had a review yesterday frankly and.
The contracts that they are signing our.
Very broad theres, a lot of different clients that they're signing up in a lot in different kinds of testing modalities.
And our service I think is very strong.
And.
We've actually hired a lot internationally, we've hired in in Europe, and Asia and built our teams there where we have a lot of capacity in both Singapore and Geneva to fill those labs.
So we are very focused on international expansion as part of this the George you may want to provide more detail.
Yeah, that's right Doug I mean are starting to really has been across the board certainly in Ngs certainly multiomics.
Doug talked about our informatics initiative and I think the pharma teams are really starting.
To see the value there. So that's kind of number it really was broad based across a lot of the modalities.
International assets continue to be up and running they were clearly impacted by co bid, but our Geneva last week sort of seen at similar rebound in June and July with volumes coming back there, our Singapore lab as newer it actually just got cap accredited in December so thats still sort of almost on a startup phase and then as I mentioned the last piece of.
The puzzle really for US is China, and we're working hard with that with PPD on our plans. They are so yeah extremely strong order on the bookings side and obviously I think once the access comes back I really see the revenue conversion there.
Great. Thanks, and second question is just.
You've now completed the Genoptix integration I realize there's been some variability in the revenue per test.
Is there some form of.
Guidance or color you can provide us as far as what you see that sort of stabilizing and.
The second half of the year.
Yes, we definitely had some.
Variability in our revenue per test specifically around the non contracted claims that genoptix and so now that the vast majority of the claims are going to be and network integration going forward, we're definitely expecting some more stability in our revenue per test.
As we're able to have them all in one billing that and really get the contracted claims on the door.
You know just add that.
Catherine mentioned that we've completed the genoptix integration in about 18 months, despite that pandemic, which caused our sales folks to not be able to visit clients as they normally would.
What we now have is all of our testing done on a common laboratory information system as Katherine set a common billing system and that creates a lot of flexibility for us as we move test around or have the ability to move tests around our network and.
And also frankly, we we said we were able to redeploy some folks in our Carlsbad facility to work on the coding testing so.
All in all we're very pleased that we were able to complete the integration in 18 months.
And we feel very good about it the team did a great job.
Hey, it's just a follow up so the revenue per test this quarter is likely to be the lowest.
We're moving higher from here.
Yes, I would expect Glenn to go higher this is an unusually low.
Okay.
Got it and numbers when you think yeah. When you think about 80, they're going to continue to be some volatility dependent on.
Revenues coming in the door and timing, but yes, it should be higher going forward.
Thanks appreciate it.
We'll take our next question from Jacob Johnson with Stephens. Please go ahead Sir.
Hi, Thanks for taking my questions maybe on on pharma services can you talk about that the competitive environment for this business line I mean, it's just like clinical services kind of all about customer service and a full suite of offerings or are there areas a differentiation and then to what degree does the.
Informatics effort kind of add to the differentiation here.
George would you like to.
Okay.
Yes, absolutely.
You're absolutely right. It is clearly about service.
Yes, it's very common in pharma services for us to start with 60 800000 dollar project you have to prove yourself do you have to show them that you do a good job then the scale goes up and then obviously over time, hopefully you're trying to them into multimillion dollar client so.
But they're very service focused.
Yes, very demanding clients and that's the nature of this business is serving their need certainly we try to have every testing platform that they'll need whether it's it's ngls or immunohistochemistry fish flow cytometry.
Try to have the full suite of operations there but.
The other compelling.
Argument for US certainly it is that we are global versus a lot of the smaller players we can handle their trials and we also have the ability to win rally uniquely positioned in terms of companion diagnostics, because we have the ability to go to them and say you know we can work with you on the clinical trial phases. We can work with you upfront get familiar with the App.
Say, a and then certainly once you received FDA approval, we've got the largest share on the oncology market, we were up with thousands of hospitals and oncology clinics and we can help you commercialize that test and that certainly is becoming a very compelling value proposition, which is also helping fuel our growth. So I think it's our service thats our platform.
Our companion diagnostics, certainly the informatics sent and what's happening there is exciting I think we are starting to harness some of the some of the great information that we have from doing a million cancer tests, a year and I think unlocking some of that potential I think is really going to bode well for us in the future as well.
Got it thanks for that and maybe sticking with George Congrats on that the strong backlog in pharma services. I think you typically expect 70% of that backlog to to translate to revenues over maybe three years does the environment. We're in change your expectations for that at all in the near term.
Okay honestly in the near term, yes, I think we have seen some trials push out we have seen a couple of trial start up in July which is very encouraging.
Certainly in Q2, we were seeing.
Typically a setup a clinical trial they have to go out to decide they have to train the site talk about the informed consent process. It's very hard when people can't travel a lot of sites one accepting visitors so that seems to be easing a bit but we have seen thing slide out. So I do think cobot is still going to have an impact on us in Q3 and a whole.
Probably by the time again into Q4 in Q1, we see sort of this.
More return to normalcy, but theres still will be some short term drag in Q3.
Got it thanks for taking my question.
We'll take our next question from Andrew Cooper with Raymond James. Please go ahead Sir.
Thanks, a lot it's already been asked so I'm just kind of keep it short here, but just as we think about.
QQ, having a lot of moving parts in terms of certainly keeping everybody on and adding new folks for standing up covidien and less t. any and all those different moving parts, maybe give us just a little bit flavor of when you think about topics lines. Both through Threeq, you and then longer time.
You know what what cost that you didn't necessarily intentionally take out, but if you think about being able to do some of those trainings for liquid biopsy and things like that perhaps virtual you know is there anything that's changed in terms of how you think about some of those cost lines that then you could give us a sort of in former thinking that would be great.
Yeah. Thanks for the question so definitely as we're going forward, we're seeing a little bit of a change then the next about back then so what we're seeing great favorability when it comes to travel and conferences and it'll be interesting to see wasn't that actually comes back and where we have decided that even though.
From an investor and analyst perspective, where zoom and Webex. There are good alternative mappings that there is also up off and often cost on a work from home environment, and making sure that weren't fortifying, our I T and our cyber security and making sure that we have appropriate manner.
Here are some place.
That makes for that we're keeping our data phase in our employees effectively working from home and so on the Opex will you see those cost savings on certain lines to sales and marketing there theres other offsetting cost as well we are being as villages at Mccann and evaluating.
When that's going through Opex, and if it's not urgent and we don't need it from a strategic perspective, we are pulling back where we can and so on the short term will continue to keep a that as one of our our at the forefront our discipline and making sure that were being very clear on where we are investing in opex.
Yes, that's a perfect answer and I might just build on it by saying there are some strategic areas that we are continuing to invest.
Which are affecting operating expenses for example.
We are continuing to invest in informatics, we're continuing to invest in.
In our pharma services Division will continue to invest frankly in building, our marketing team and our sales team and the critical division. So there are a number of growth and best oriented investments that will impact the operating expense line, but I think there quite strategic and as Katherine said, we're trying to be us disappear.
And as possible.
Great I'll stop there appreciate it.
Okay.
As a reminder, ladies and gentlemen, if you do have a question or comment you May press star one and your telephone keypad at this time to enter the Q.
Well take our next question from demo with Bank of America. Please go ahead.
Hi, Good morning, Thank you for taking the question.
So first question on margins.
To the color on expenses tied to co lead a better you just talked about.
Oh testing has a lower margin profile, so I wonder what's the breakdown of the base business recovery the higher margin.
Sorry, recovering faster or if there's any though to smoke sense that you can share with us.
And combined with the cost saving considerations.
Do you just talked about and color on the impact on both gross margin and EBITDA margin would be appreciated.
Yes. Thank you for the question Ivy I think a similar to how we discussed earlier theres still a lot of uncertainty on what that mix is going to look like in the back half of the year Oh, we are seeing some modest improvement in our core clinical business social carry with it a similar margins are.
Historical margins, both preclinical and pharma as that volume back. However, we have staffed up and we do you have employees that we have for free that volume. So I would expect that there could be margin pressure until we return to more stable trade school that volume.
And on top of that the Cobot 19 margin profile is slightly lower than our historical margins. So we're looking over the next couple of quarters I would expect that our margins will continue to be lower than what our normal margins have been over the long term as volume come back we should see those come back.
Back to more normalized level, a similar with the operating expenses.
In a and then near term.
We're going to continue to invest strategically and opex and we're going to try to be as disciplined as we can but you're going to see any impact on that lower margin come through on the EBITDA margin was there anything you'd add that yeah I would that's great Catherine I would just add baby that as we get worse.
Areas with Cobot 19 testing, maybe there are couple of things to add one is that.
We are continuing to automate that process.
So we're trying to improve the covert 19 testing margins and the other thing I would say is because of the nature of our cobot 19 testing, where we are operating as a network, where we don't have sales and marketing and gionee expenses associated with that so the.
The gross margins to the extent there our gross margins in the Kobin business.
They tend to fall right down to the EBITDA line.
Great. Thank you for the color and second question more longer term bigger picture. So.
Pulse co lead do you see more outsourcing oncology volumes in general basically you know as we see more funding and stimulus plans going into other parts of the healthcare system do you see hospital labs, maybe building up more oncology.
Testing could pop capabilities and how do you envision bad.
Any impact on your business going forward. Thank you.
Well it pays for the question Ivy I think most of the stimulus money and.
That that has been either disperse stores contemplated is really directed at Kobin testing.
Not so much you know at other kinds of testing and so right now at least I don't see.
A fundamental shift as I look at the industry right now.
In terms of our clients performing more oncology testing in fact, you know to some extent the bad inundated with other things and they've tended to refer work out to us so.
I think the same competitive advantages in positioning that we have.
Had before we would continue.
In that sense.
Great. Thank you very much.
Well take our next question from Bruce Jackson with the Benchmark Company. Please go ahead.
Hi, Thanks for taking my questions two questions on covert 19 first could we get a dollar amount for the second quarter was it like 3 million 5 million 7 million and then secondly, some labs have talked about pooling samples from low prevalence area. As I was wondering if that's something you're considering if you've got with Ritchie.
Graphic.
Customer base, if you've got any low prevalence or is that you could take advantage of that.
Thank you for the question so as we mentioned before it really the volumes for our KOVA testing came in the back end of June and really ramped up in Alaska belief in June so it's fairly minimal for the quarter is about 2 million for the quarter.
But oh, hi, Doug talked a little bit about cooling.
Yeah pulling his.
As a good.
Approach and you've seen the there's been a recent you a.
We're proving that as an approach for.
Eric areas in which you know the prevalence is low so in our sample population.
The positivity rate is been running in the high single digits and so I think for US pooling is not appropriate at this time, but certainly that capability exists and I think men positivity rates come down to a level where.
It makes more sense to pool that and that's something that we could potentially do and I don't know a number of the other labs.
Where they can are contemplating pooling and I think it will increase the capacity of code 19 testing.
And I think it's a good that's a good approach.
All right. That's helpful. Thank you very much I'll hop back in Q.
Our next question will return to see longer with Needham. Please go ahead.
Okay, Great I sound like you did sneak one in here I just wanted to clarify your lab footprint.
In California, and Texas, and Florida, It's in Georgia are you doing Colvin testing just in California and would you consider doing.
Kobin testing in Texas, if you're not.
Steve we are performing coded testing just in our Carlsbad, California facility.
We have devoted a fair amount of space to it.
Probably 40000 square feet.
And we were lucky that we had the space there.
We we had to not only the space, but we had the talent and.
It was easier for us to bring it up in Carlsbad I think it would be more difficult for a lot of those reserves to bringing up either at Fort Myers or in our our Houston, Texas facility.
So right now we're not contemplating that.
Great. Thank you.
And that's all the questions that we have in the queue at this time.
Okay. Thank you very much and thanks for all the questions everyone. As we end the call we would like to recognize the approximately 1675 neogenomics team members around the world, who are dedicated and committed to building world class oncology diagnostics.
The company is performing covered 19 testing for our country on behalf of our Neogenomics team I want to thank you for your time joining us. This morning for those of you listening that our investors or considering and investments in Neogenomics. We thank you for your interest in our country.
Thank you.
Thank you ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
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