Q2 2021 Neogenomics Inc Earnings Call
[music].
Okay.
Good morning, ladies and gentlemen, and welcome to the Neogenomics second quarter 2021 earnings call.
At this time, all participants have been placed on a listen only mode and the floor will be opened for questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host CEO Mark Mallon, Sir the floor is yours.
Thanks, Kate and good morning, everyone.
I'd like to welcome you all to have Neogenomics 2020, 1 second quarter Conference call. Joining me for this call from our Fort Myers headquarters are Kathryn Mckenzie, our Chief Financial Officer, George Cardoza, President and Chief operating Officer of our lab operations Bill Bonello, President of our Informatics Division and Doug Brown, our chief strategy and corporate development Officer.
Joining on the call via phone from California, as Dr. Jean and Waller President of our pharma services Division and via phone from the United Kingdom as President of Nevada, Dr. Clyde Morris before we begin our prepared remarks, Doug will read the standard language about forward looking statements Doug. Good morning. This conference call may contain forward looking.
Statements, which represent our current expectations and beliefs about our operations performance financial condition and growth opportunities any 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 1 or more of these risks or uncertainties.
These materialize or should the underlying assumptions prove incorrect actual outcomes and results could differ materially from those indicated and the forward looking statements any forward looking statements speaks 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 back to Mark I want to let everyone know that we will be making a copy of.
Our prepared remarks for this morning's call available on the Investor Relations section of our web site. Shortly after the call is completed we also want to let everyone know that we are going to limit the number of questions to 1 per person in order to give more people a chance to ask questions within the 1 hour that has been allotted for this call.
Thanks, Ed.
So we are really pleased to announce strong quarter 2 results highlighted by 40% annual revenue growth to $122 million for the quarter.
All 3 of our divisions grew significantly over a depressed Q2 from a year ago and importantly, we grew our core revenue 7% sequentially over Q1 of this year.
Especially pleased to note that our strategic growth areas of pharma services informatics, and MTS testing and clinical services were strong contributors in the quarter and these growth areas now account for greater than 1 third of our total company revenue click.
Clinical revenues of $101 million represented 37% year over year growth and our clinical businesses experienced a noticeable recovery versus quarter..1 and this number included no contribution from COVID-19, PCR testing revenue.
On a sequential basis, our core clinical cancer volume increased 8% with a record 281000 clinical tests performed in the quarter.
While the quarter to recovery and volume is encouraging and strong volumes have continued into Q3. We are monitoring a few market related factors that may impact continued volume uptake in the back half of the year, we had anticipated that our sales team would have full access to their customers by quarter 3.
But that remains to be seen in certain territories. We believe that much of this can be attributed to the recent spike in COVID-19 cases, driven by the delta value. Additionally, and market data shows that many patients are still not going in for critical screening appointment and key Kansas continue to be under diagnosed.
We believe our strong sequential volume growth and quarter, 2 is evidenced that our clinical business will benefit as reopening of offices continues even if at a slower rate at zone and some parts of the country.
Our pharma services business continued to shine during the quarter, putting up record revenues of over $20 million with year over year growth of 55% demand was also robust during the quarter as more than $40 million and new bookings drove signed contract backlog to a record 238 million eggs and exiting.
Existing the quarter.
This backlog gives us confidence that as we exit 2021, our pharma segment will be approaching $100 million in revenue and a run rate basis up from just $20 million annually a few years ago.
It's also worth noting that our pharma services business continues to migrate up the value chain of our biopharma customers. As we are winning a larger percentage of phase II and phase III opportunities. These larger contract awards demonstrate the strong confidence our customers have and neo awarding some of their most important drug development projects to our pharma services team.
Our informatics capabilities, which improve the ability of biopharma companies to identify patients for clinical trials and provide these clients with commercial analytics to support product launches continue to be and high demand informatics is the fastest growing of our 3 operating divisions and the team continues to make strong progress.
And while still relatively small this business posted record revenues again in quarter, 2 and you'll hear more from Informatics Division President and Bill Bonello later in our prepared remarks.
During the quarter. Our team also successfully closed on 2 important acquisition. We are excited about the addition of Capello health and antibody and Neogenomics and while still very early days, we can already see multiple opportunities to drive growth and support our overall strategy of bringing innovation to the community oncology market.
Capello has closed in April and the acquisition is now fully integrated as a subsidiary of our Informatics Division, you'll hear more about capello and informatics updates later in the call.
And Nevada closed in June and our integration activities are well underway, we plan to leverage the advantage of Neogenomics strategic position and commercializing our residual disease and recurrence assay or radar with a multi pronged strategy for success.
As we've discussed our first priority is ensuring rapid submission of radar to mold yes.
And reviewed the plans and progress of the team and we remain on track for a submission around the turn of the new year, assuming a typical review period, we'll be able to launch into the clinical market in the middle of next year.
Since we have acquired and Nevada, we've accelerated the acquisition and retrospect of testing of multiple cohorts and samples and multiple tumor types to support and the initial multi ex submission and launch and future areas.
Another priority is to gain biopharma support for radar our pharma services team is now fully engaged and supporting in Nevada and.
Pulling through a large and growing portfolio of pharma opportunities.
And a clear recognition by Biopharma teams of the companies of the leading sensitivity and specific specificity of the radar assay.
We expect to leverage our strong relationships with nearly 200 biopharma companies to generate revenue and 8 and building evidence and evidence base for treating minimal residual disease with radar.
MRV testing will play and.
Parent roll and the development of therapies, particularly in places like the Neo adjuvant setting as a course and recurrence monitoring.
Studies, and the adjuvant setting and 1 example of how MRV radar specifically it can be used to transform drug development and it could be and opportunity for quick successes.
Today, approximately 70 percentage of patients with early stage cancer or occurred by their initial treatment.
And if it's difficult to know which patients and as a consequence patient enrollment into adjuvant clinical study includes large numbers, who do not have residual cancer.
By utilizing a test like radar to facilitate more effective trial enrollment pharma sponsors can help healthy patients avoid unnecessary treatment reduced trial enrollment and sizes improve the quality of readouts from the trial and reduce costs along the way, we believe biopharma adoption will be and important part of success and the clinical market.
And we will utilize the relationships and oncology expertise of our base clinical sales team, who have been calling on our key clients for an average of 6 years or more we are recently built out and additional precision medicine managers and team.
To focus on driving the next generation sequencing and liquid biopsy adoption. This team will be and place well ahead of our planned radar launch and it will be tasked with helping drive uptake.
And also earlier this year, we struck and important commercial arrangement with leading breast cancer oncology testing company agenda to co commercialize radar with breast cancer focused physicians upon launch.
The partnership with Virginia, and Theyre growing U S sales force of over 40 breast cancer specialist as a focused way to gain more feet on the street selling radar at a reasonable cost.
And we've already received multiple Inc.
Corey from other companies, who have sales teams of a similar size and reach that our focus on various other cancer types and we're actively evaluating these opportunities.
We believe that radio is best in class published analytic sensitivity of 97% at 20 parts per million of circulating tumor DNA or <unk> 002 percent variant allele frequency is a true differentiator.
And this elite level of sensitivity at such low concentration allows radar to may cause other assets fundamentally it may not be enough to make.
We believe these other potential partners are recognizing the assays differentiation as well and.
And finally, we believe that Capello clinical decision support software can be a technological multiplier for our sales efforts at the platform is adopted and additional clinical evidence is published for minimal residual disease testing and treatment.
Fast reimbursement comprehensive evidence generation and <unk>.
<unk> biopharma customers targeted.
These opportunities were quick wins are possible and a multichannel approach to selling and will be the success factors to make greater a leader in the RV market and we are rapidly working on each.
Overall, I am proud of our team.
Quarter, 2 performance and my first quarter as CEO of Neogenomics and excited about the early progress from our 2 recent acquisitions from a big picture perspective, I've been very impressed by several strength and Neo and my first 100 days on the job.
It's just how comprehensive oncology platform and Neogenomics truly is as I have dug in and see how broad our broad portfolio of surfaces and provides a value proposition to all the constituents of the oncology ecosystem providers farmers payers and of course patients.
Our portfolio of multi modality solutions is comprised of hundreds of assets that provide time sensitive bio market and market specific answers for oncologists pathologists research scientist at pharma trials teams.
Customized targeted panels allowed us to provide the right information at the right time for providers and patients at the right price for our direct Bill and third party payers and that broad menu based menu that differentiates and clinic clinical is also a great value to our biopharma customers and is the real driver of growth for us.
As we test nearly half a million patients per year, the value of the data and related informatic capabilities are gathering.
We are gathering only continues to snowball every day.
Critically these strengths have translated into leadership and 3 key franchise franchises. We are the clear leader and diagnosis of hematologic cancers, with and especially strong position and have strong franchises and both breast and lung segments, where we run more than 100000 tests annually.
These are real platforms for growth today and in the future.
I must say that.
And then equally impressed by our culture as I've now had the pleasure of meeting hundreds and my fellow teammates and Neogenomics and.
And is truly a feeling of patient first mentality at all levels of the organization as I have visited many of our facilities. It's obvious that our lab employees are dedicated to patient service. This consistent dedication has translated into industry, leading turnaround times and many of our test modality and is also reflected in both our strong net promoter scores.
And the extremely high customer retention rates.
And I know, we can do much more we believe that the commercialization of the radar assay can help transform the cancer care paradigm for millions of patients in need of cancer recurrence monitoring, we see opportunity to drive broad adoption of a leading clinical decisions and software for our oncology customers to help them navigate appropriate testing for the patients from both.
Technology and cost benefit perspective.
And while we are the leader and the U S oncology market I see so much more opportunity outside the U S. As we look to further globalize and globalize our offerings.
We have multiple facilities around the world that have ample capacity to scale and we have ongoing discussions with various biopharma companies regarding our ability to further support them globally.
Along with these organic growth opportunities right in front of US. We also have corporate development and inorganic growth opportunities that we have no intention of slowing down we are strategically well positioned and are well capitalized for further dealmaking as we look to keep pace with the constantly changing and highly competitive marketplace and oncology.
When I put it all together.
A very well positioned very well diversified player and 1 of the most attractive end markets and the world and I.
I believe all the opportunity in front of us puts us and are positioned to accelerate our historical mid teens top line growth rates overtime, which will enhance our margins as well as we fill up our laboratories and continue to implement efficiencies as you can tell I am very excited to be part of Neogenomics and I could not be more optimistic.
<unk> of our company.
I'll now turn the call over to Kathryn Mckenzie to discuss some of the other details of our quarter 2 financial results. Thank.
Thank you Mark.
Second quarter clinical division revenue grew 37% year over year, driven by a strong bounce back and clinical volume compared to the depressed volume during the initial wave of the pandemic during the second quarter from 1 year ago.
As a reminder, we made the decision to wind down our COVID-19, PCR testing capabilities and quarter, 1 and we had no contribution from COVID-19 testing and quarter, 2 compared to $2 million and the same period last year.
Clinical division revenue per test was $360 and quarter sales compared to 362 for the full year of 2020 and $351 and quarter 2 of 2019.
Pharma services revenue grew 55% year over year.
And continuing its rapid growth trajectory demand continues to be very strong and we signed over $40 million and new bookings.
Exiting the quarter with a record $238 million and backlog.
Our total gross margin of 43, 5% and quarter..2 included amortization of intangible assets related to developed technology acquired through the antibody assets Act.
Acquisition.
Excluding the amortization of these acquired intangible assets, our gross margin improved to 44, 1% and quarter 2 driven by efficiencies on increased volume and clinical and higher revenue and our pharma services Division.
More consistent sample volumes allowed for more predictable staffing levels, and we were able to see more normalized leverage on our largely fixed cost Cogs infrastructure.
Gross profit increased $11 million sequentially on only $6 million of revenue growth compared with a year ago gross profit increased $25 million on a $35 million revenue increase.
These levels of incremental gross profit provide confidence that gross margin can improve and we continue to grow and we believe that over a series of quarters, we should be back to previously achieved gross margin approaching 50%.
However, we continue to see the same temporary labor and supply chain constraints that the rest of the country is experiencing and these capacity constraint challenges combined with high demand are continuing to affect service levels and cost per test.
Operating expenses increased $28 million year over year to $75 million, primarily driven by onetime acquisition related cost and expense contribution from the recent acquisition of antibiotics and sure Palo increased commercial cost on higher revenues and additional investments to support growth.
Concurrent with the completion of the Nevada acquisition, we recorded a gain of $97 million within other income related to our prior minority investment and in Nevada.
This gain represents the amount by which the fair value of the company's minority investment and antibody immediately prior to the acquisition exceeded the carrying value of its previous held equity interest and purchase option.
Adjusted EBIT EBITDA of $4.6 million and Q2 reflects improvement in our core cancer business.
By expense contribution from the recent acquisitions of antibiotics, and Chicago and higher payroll and create commercial costs and other certain personnel related expenses.
Turning to the balance sheet, we exited quarter, 2 with $572 million and cash and marketable securities, which excludes an additional $4 million and restricted cash designated for construction of our new state of the Art Laboratory and global headquarters and important Myers, Florida.
During the quarter, we utilized $390 million and cash to exercise our purchase option to acquire the remaining unknowns equity and in Nevada, and raised gross proceeds of $200 million and our related strategic private equity transactions.
We also utilized 36 million and cash for the acquisition of propeller health, which was announced in March and closed in April.
We are maintaining our previously provided annual revenue and adjusted EBITDA guidance based on strong second quarter I will now turn the call back over to Marc and thanks Catherine.
And as we've done in previous quarters, we'd like to dedicate some time on this call to providing our investors with a progress update.
1 of the most exciting areas of our business for this quarters call <unk>, the president of our Informatics Division Bill Bonello to discuss the exciting projects he and his team and have been working on and I'll turn the call over to Bill that Bill.
Thanks, Mark it's great to be able to speak about our informatics initiatives the.
And the Informatics Division is building data and technology solutions to improve patient care and drive growth.
And 2 short years, we've grown from a standing start to a team of nearly 60 people and are progressing nicely towards our longer term goal of establishing a $100 million business.
And our core informatics business, we provide products and services and life science companies to support clinical and commercial analytics clinical trials and digital pathology.
Over the past 2 years, we are engaged and over 59 contracted projects with 26 different companies and we have nearly 100 unique project and our pipeline.
We are engaged with many of the largest global pharmaceutical companies often for multiple projects as well as several leading contract research organizations.
I'd like to highlight just a few of our current projects to give you a better sense of the type of work that we're doing it.
And 1 case, we help support the commercial launch of the non small cell lung cancer therapy.
By analyzing biomarker testing patterns, among both oncologists and pathologists.
We use this information to identify potential sites for our phase II clinical trial as well as to identify gaps and testing.
We also constructed patient cohorts to identify individuals that might benefit from the therapy or need follow up biomarker testing and shared this information with treating physicians within 48 hours of FDA approval.
Finally, we implemented a sponsored testing program to Olivia alleviate patient financial burden.
We have several other projects, where we are identifying patients that might be candidates for a specific clinical trial proactively following up with the.
Treating physicians and facilitating enrollment we also have several other projects, where we have identified gaps and biomarker testing to support commercial initiatives.
Another area, where we have engagements is around digital pathology and image analysis and.
We are engaged with several companies to provide and the team to digital images in some instances supported by our own proprietary machine learning algorithms.
We're also very excited about Trapelo health, which we acquired in March of this year.
Trapelo health is a precision oncology company focused on clinical decision support from both test and therapy selection as well as streamline prior authorization for both testing and treatment.
This comprehensive order to result perspective differentiates trapelo from any other clinical decision support tool and the market.
As we all know from precision medicine to work patients must be tested for the appropriate biomarkers and order to even and that they're a candidate for a therapy or clinical trial.
And the front and Trapelo identifies which biomarkers should be ordered for a specific patient and which specific lab tests include those biomarkers. The product is designed to be lab agnostic, enabling providers and payers to designate their own preferred laboratory network.
Real World data underscores just how important this biomarker guidance is.
We know that up to 35% of patients with non small cell lung cancer, and actionable genetic mutations and up to 55% of patients with metastatic non small cell lung cancer patients.
Excuse me long share counts clinically relevant mutations and <unk>.
Nevertheless, less and 25% of non small cell lung cancer patients received testing for all 4 of the most common and Biomarkers and just 7% of patients received testing for all 7 genes that are included and clinical guidelines and that's just 1 example.
On the backend Trapelo identifies which therapies and clinical trials may be appropriate for an individual patient based on the test results and other clinical information.
This guidance is also critical ensuring the highest quality patient care.
About 80% of treatment occurs and the community and most of those and colleges are seeing a very broad range of cancers, making it next to impossible to keep up with most current science and the guidelines are.
Also guidelines alone can change and a pretty rapid clip and sometimes a guideline for a specific cancer can change as many as 6 times over the course of the year.
All of the recommendations from both testing and treatment are supported by scientific evidence, which has been collected and curated into a proprietary knowledge base, which is supported by our own team of Phd curation specialists.
While it's still early days client response has been overwhelmingly positive and we are in active discussions with a large number of provider organizations payers and electronic medical record companies.
We will also be integrating the testing portion of clinical decision support into our Neogenomics online order process and hope to have that product available to select clients in the fourth quarter of this year.
Now I will turn the call back over to Mark for some closing remarks.
Thanks Bill.
So in summary.
I believe our Q2 results have confirmed that our strategy is working and will ensure value creation for shareholders and patients we achieved 40% growth driven by record test volumes and our clinical services Division and grew gross profit ahead of revenue.
Fully 1 third of our business now comes from our growth drivers, our pharma services and informatics and NDS testing.
We are positioned to drive more growth the launch of 2 potentially transformative innovations to cancer testing with the acquisition of Capella.
Hello, and and Nevada with the radar MRV tests.
We remain laser focused on transforming the lives from cancer patients by being the leading cancer testing and information company.
Doug and wanted to take us through Q&A.
And thanks, everybody at this point and we'd like to open the call for questions. If you are listening to this conference call via webcast only and would like to submit a question. Please feel free to email us at <unk> Dot Brown at Neogenomics Dot com during the Q&A session and we will address your questions at the end of the subject matter Hasnt already been addressed by our call and listeners as mentioned at the beginning of the call we would like to ask each person limit there.
Questions to 1 so that we may hear from everyone and still keep within the hour allotted for this call operators and Mount you May now open up the call for questions.
Thank you, ladies and gentlemen, and the floor is now open for questions. If you have any questions or comments. Please press star 1 on your phone at this time, we do ask that while posing your question you. Please pickup your handset if listening on speakerphone and to provide optimum style and quality. Once again, if you have any questions or comments. Please.
Press Star followed by 1 on your phone at this time, please hold a moment, while we poll for questions.
And our first question today is coming from David Westenburg at Guggenheim. Your line is live.
Hi, Thank you for taking the high yes, Hello, and happy Friday.
Okay, and do you ever and <unk> America, right I had a net issue and earlier, okay and perfect. Okay.
Good quarter, and nobody is raising guidance because.
Nobody knows what's going on with patient volumes and.
The Delta variant, but when we add when we ask about July people say.
And theyre coming in and we just can't detailed the sales force so.
And I don't mean to be overly pointed here, but how genuine is the concern and the back half of the year in terms of patient volume and how should we model cadence.
Volumes for the rest of the year, given this kind of dynamic and.
And walked through kind of the genuine genuine Delta case.
Genuine and I can't detail.
And just sales force and detailed kind of case and.
And the puts and takes with that and since my question is complicate I'll just stop at that 1 question and get to that.
Thank you.
Thanks, David.
Yes. So unfortunately, the evidence of an impact on sort of access to active offices.
Israel, we've been getting the examples from pretty much across the country of hospitals that had been open to sales representative and closing and what I think.
Lee, it's causing us to have taken.
Take it seriously is that a number of these are and places that hadn't closed before so, particularly we're seeing reduced access and places like Florida and Texas.
You know that we're actually these places have set records above even the previous records for.
Covid Covid cases so.
On a positive side, our sales team has been working with customers directly face to face, but also virtually so we've built up a lot of capability in this area and they are super passionate and about continuing to make a difference for cancer patients and we're going to be working hard to keep driving the volume we have good momentum coming out of the second quarter, but I think it's really.
Too early to say, what's going to happen and we know the spike is occurring and it is causing changes and practices and multiple institutions around the country. The question is how long and will.
Last and I don't think we can really give you any more guidance than that.
And I ask you, but I did want to get the cadence.
Should we model then down Q3, and then maybe move up Q.
For just a clarification there.
Go ahead Catherine.
And I definitely based on what we're seeing with the Spike and Covid cases, and the access that would be.
Good assumption on how I would expect that to come through again, it's unknown as to what the impact will be and Q4 at this point, but I would expect a softer Q3 compared to Q4 as we get a handle on that okay.
Thanks, Kevin and thanks, Dave.
Next question.
Thank you. Our next question today is coming from Brian Weinstein at William Blair. Your line is live.
Hi, Brian.
Yes.
Talk a little bit about the pharma services side.
Talked about kind.
Kind of moving into phase II phase III trials here I'm just curious about.
And what that means in terms of size of deal flow that bring John and the opportunity there and then as you think about the broader pharma services side.
And you highlighted ways that youre, winning but could you be a little bit more specific on when you win and why you win and where there are maybe some gaps where competitively.
Sales teams out in order to be even more effective there. Thank you so much.
So I'll say, a word or 2 about the shift up upstream with pharma companies and and I'm going to ask.
Gina to talk about 1 of the reasons why we win and when we win.
And you can expand on the first part of the question as well so.
So we are moving into the phase II phase III work first of all I think.
Logical for 2 reasons, 1 we've had tremendous success and some of the earlier phase work over the last couple of years and we've built really strong relationships with multiple companies and so we would own.
And the national as projects progress into later stage that they want and continue to work with a company that they are having great success.
I think the other thing that supports moving and the later stages, we really have significant capacity and capabilities right as the studies the bigger studies they want to work with organizations and they know can deliver and I think we've shown the way to do that it's very exciting growth because once you line.
We have acquired the business for a phase II or phase III program that can be quite large and net and secure test revenue for good number of quarters now of course, the time to set those studies up can take a little bit longer.
So we have to we're going to continue to watch and see how our pull through growth, but overall, we're super excited about this because it really represents incremental business and some of the most important work.
Customers are doing Dan do you want to talk about why we're winning.
Sure. Thanks Mark.
In terms of and the shift from research and Slash phase 1 phase 2 trials to phase III and 1 of the large contributing factors to that as our global capabilities with the opening of our site in Europe, and Singapore and now China.
And this provides a global solution to our pharma companies and need and so therefore, we are at the table for those phase III discussions.
And when it comes to providing services and oncology I think we win across the board in terms of that global solution.
And that area key areas that we have identified include being able to provide companion diagnostic services ex U.
Yes.
We provide and holistic.
And terrific service within the U S.
And we seek to bring that ex U S.
That is what our clients are looking for.
I think did that address your question.
Yes.
Appreciate it thank you.
Thanks, Brian.
Okay.
Next question.
Thank you. Our next question today is coming from Alex Nowak at Craig Hallum Capital Group. Your line is live.
Good morning, everyone.
The company last quarter's spoke to a number of investments and team is making on the radar assay to get it ready for prime time.
And I'd say at the same time, the 2 main competitors out there. They are spending very large amounts of money getting their respective assets ready can you maybe expand on the competitive environment now now that you've had some more time within Nevada under the Hood and then what additional investments and really going into the made to get the cash rate for our clinical launch net next year.
Sure Let me, let me say a couple of words about.
Im thinking about it but then I would like to talk a little bit more about specifically, what we're doing to get ready.
So I think the first thing I was.
Looking at when you're thinking about launching new technology is the profile of the product and.
And so I can comment a little bit on it but as I come in and then really seen the data that we that's been published and what we're developing internally I'm very confident that this assay is as.
Good or better and our ability to really detect at very low levels.
Kansas before they are recurring.
Recurring from a visual perspective is outstanding and that's going to give us a strong base on what I think is going to be the key dimension of competition.
In terms of the investments and the companies are making investments, both and evidence generation and as well as in having.
Having sales forces.
Those are surprised these companies are starting from a position where they don't have large customer basis, largely initial volume and <unk>.
Long long extreme oncology and.
And Conversely, Neo has all of those.
And we have a customer base of over 4000 customers were doing.
And tests per year on a half a million patients and we've got and experience that our experienced sales team now over up to 60 salespeople. We've got a big customer service group, we have and over 100, pathologists and we have really and incredible infrastructure and a starting point as we move into this and are absolutely we're going to have to have dedicated additional resources.
And we are defining what thats going to be and we will have those in place from.
<unk> middle of next year.
Was there and lifestyle and maybe say a few more is about the <unk>.
Profile and remind us about why we're so excited about the profile of the product and how he's thinking about competing in the marketplace.
Thanks, Mark Thanks, Mark and thanks for the question.
Yes.
Sandoz have a day Mark just said.
I think the sensitivity and specificity, we see of the assay we know.
Im sorry critical from these early stage cancer patients who've already on the Gulf and treatment and then you're detecting microscopic disease effectively and therefore, the blood traces of DNA at very low and we believe they need the radar on San Jose is a fantastic compelling profile to to win in that space.
With that.
And you sort of working on a range of different aspects you talked about evidence generation and sort of getting ready for clinical launch. So we have a number of clinical cohorts that we're exploring across a range of tumor types.
As Mark mentioned, we're looking for submission for initial reimbursement around the turn of the year. We then leading to launch and are with.
With a reimbursed test towards from Midland next year.
But overall, we see many of you to the potential sort of.
Different indications, we could approach with <unk> and <unk>.
And like radar and we are building that evidence using a mix of either ongoing or archival steady cohorts, where we cannot close them, but increasingly also seen sort of prospective studies, which of course may be more practice changing and the long term, but take a while longer to bring through so we'll stop that with more observational data getting.
And 2 interventional into prospective and keno.
Ultimately they will obviously drive the long term items here and we see and those prospective studies with academic.
Collaborators with cooperative group collaborators and indeed with Biopharma as Mark mentioned.
And we're building net stable so I'd say overall.
Overall, we believe the market is right at the beginning of data.
Evolution of this sort of clinical testing market and will continue to grow like the income of the bank.
And sort of additional sort of cash and indications being reimbursed.
Sure you are aware today the range colorectal cancer coverage.
4 and a terror and.
Wait there is a pan cancer coverage and more generic LCD from the multi ex group.
And we and others will also look at to using.
And I would expect to see increasing indications building over time and it does makes and we aim to be partaking within that.
And alongside the evidence generation cost, there's a lot more that needs to go into.
Successful launch from the key opinion leader development.
Thinking through and physician education, and how do you think about a cost and through into sales and marketing and we're in the process of planning those out and more detail and commensurate with the launch timing side Mark mentioned.
And I hope that answers the question.
It does very helpful. Thank you.
Thanks, Doug.
Thank you. Our next question today is coming from Mark Massaro at BT IAG. Your line is live.
Hey, Mark Hey, guys, Hey, Guy.
How does it go and thanks for the questions I guess, if I can ask a 2 parter. The first is.
Curious if you're seeing any increased.
Adoption of the envision first lung tests.
And then I wanted to ask Bill Bonello.
There's been several interesting.
Digital pathology machine learning and.
Okay.
We're sorry because of technical difficulties, we are unable to vote. Your call. Please try and call again this is from recording.
1.613.
And I just wanted to discontinue technique nickel and gets you in a day.
And I think Debbie.
The athlete and evolved since the day Mr clean.
From 1.613.
We're sorry because of technical difficulties, we are unable to vote. Your call. Please try and call again, this and semi coding.
1.613.
And I just wanted to discontinue technique and you guys soon and presents it Debbie.
And <unk>, who since the day massage Inc.
From 1.613.
Yeah.
Patient first.
Our approach in the lung cancer space.
Fully 60% of patients and lung cancer patients really are eligible under the current LTV for envision first lung and is the best choice for these patients and we're going to really emphasizing that these are patients.
Really it's medically contract and indicate that to do a biopsy.
And the physicians are clear and they probably won't be able to get enough of the tissue and we can go right to envision and the first line, which is a great profile.
I think with a really stepped up effort.
Clearer messaging further investment and resources, we can take what is a growing.
And make it into even the faster growing test so it will be putting a big emphasis on the second half of the year.
Bill do you want to ex parte sure. Thanks, a lot for the question Mark.
Sure.
Most if not all of the companies that you're referring to and in many instances.
We're actually working with those companies.
And various ways.
I would say that the kinds of algorithm work that we would be doing and our projects are fairly basic things.
Things that make though R&D work easier for pharma customers, who are using digital images to do their research so that may be things like slide and circling tumor calculation.
Histology.
Detection.
Et cetera.
Distinction I would make from some of those other companies and what we're doing we are not currently.
Working at all on any kind of a clinical assay.
And that is not within the scope of what we're trying to do it doesn't mean that it couldnt be in scope of what we try and do at some point in the future.
We would need significantly enhanced resources and capabilities to be able to do that I would say the 1 thing that we have that differentiates us from many of the other players is we probably processed more digital images and a year.
And anybody else in the marketplace and.
And.
We have dozens and dozens of pathologists that can help.
And with training and evaluation and validation of algorithms.
Sure.
Created and hence 1 of the reasons and if any of those companies want to work with us as do many of the pharmaceutical companies. So hopefully that gives you some sense of where we're at.
Thanks Bill.
To your question Mark.
Yes that was great. Thank you.
Thanks Mark.
Thank you. Our next question today is coming from Tejas Savant at Morgan Stanley. Your line is live.
Hey, guys good morning.
So just just a couple of quick follow ups and then.
And then I have a separate question for Kathryn.
And Nevada, Clive do you envision different versions off radar for the recurrence detection and versus response monitoring indications and secondly in your mind, how important is FDA approval for broader adoption of Mardi.
A modality and general and then for Katherine can you just give us an update on when you expect.
Fort Myers lab to be fully operational.
And any color on Opex cadence, you're heading into the back half of the year.
So Glenn you want to take the first part and actually since we've got George Cardoza here, who is responsible for our lab operations and I'm going to have him and give you an update on Fort Myers, if that's okay.
Sure.
And so at Limbach.
Yes.
<unk> and assay like radar range.
Completely suitable for both the residual disease detection following surgery and then the ongoing monitoring potentially for the recurrent disease. So we create the assay highly.
Highly sensitive with trucking a high number of areas and so we're looking at 48 nowhere and per patient with great sensitivity, which means even if there are changes in the landscape and genomic landscape and the patients. The majority if not all of those will be conserved and we then have a very good detection rates and the early data we've presented and.
And breast and lung.
And cancer showed that actually we can detect.
And the recurrence many months.
And then actually using conventional mechanism. So we can use the same tests and really for both of them is the short answer to the first question in terms of FDA.
The assay has been built with a view to moving through this sort of LD as an ODT initially and then with a view to that and future FDA as we've already said, we have and FDA breakthrough device designation already and we were discussing with pharma and I think certainly.
I think to working with pharma and I think that FDA approve ability and access is key because clearly the drugs that have tested these become a companion diagnostics for those therapeutics and the future. So we want to make sure we're ready to be performing.
<unk> regulatory and clinical trials with pharma partners and the full regulatory scrutiny and overall.
And then of course as those trials readout hopefully positive then of course, we then naturally partnering with a pharma company to run those through and companion diagnostics ultimately cost and all day of approved up and further reinforces the clinical use of <unk> and guidelines and everything else and the eventual testing so that will continue to drive the up.
Take of such testing long term, so we see that FDA readiness and eventual FDA.
<unk> approval as a key part per day 70 day short term biopharma and the long term clinical adoption.
Thanks, a lot George George can take the other.
Sure Yes.
By the Fort Myers headquarters every day, and it's looking really nice day come so far and it really looks beautiful and I think the team is very excited.
2 building and the admin building, which will be the corporate headquarters and Thats, obviously, the easier 1 to move and that that will happen fairly soon.
<unk> is open right now that we have tested in the laboratory doing equipment validation is doing testing and validation.
Obviously all of these tap tap to be validated and the new facility, which does take a bit of time, but the team and certainly working hard and our expectations right now are in the fourth quarter that we will be open and we will be testing and the new laboratory facility. So the team is very excited and and also just in terms of the capacity and the ability for us to streamline some of our workflows.
And our Fort Myers facility is as of the data and and we are fairly cramped and that facility and we're very excited to get over into an open concept laboratory, which I think is going to allow us some efficiencies and they really ability to scale our growth over time, the team and extremely excited about the new facility.
Got it and Katherine on Opex.
Okay.
Go ahead Kevin.
The question can you repeat the question on Opex.
Just wanted to get your views on the Opex cadence heading into the back half of the year I mean anything.
Particularly noteworthy <unk> versus <unk>.
And now consistent with what we said before we are seeing some pressure.
And some capacity constraints that could be.
<unk> impacted and that third quarter on fourth quarter related to Covid, but theres no significant other impacts between the quarters.
Perfect. Thank you.
Thanks, Kathryn I just wanted to add.
To clarify our pointed out something that maybe is sort of obvious to us, but probably we could do a better job of clarifying and.
And the thought about it and Catherine was answering about the question and sort of Opex and which goes to the resources.
As we're getting ready for the launch of radar.
We have in place already.
60 sales of very experienced salespeople at neo.
We've got the partnership with the agenda, which is going to add 40 very experienced people.
So a year before the launch we've got and placed 100.
Highly experienced people actively selling into these markets and we have.
Backing them up very substantial customer service.
Team very substantial and medical team actually with Neal, we're talking over 100 medical doctors and Phds and so I think this is a starting point that would be.
Put up against any lab that was launching a new test and the last few years as a starting point and we're going to also work on what is the additional dedicated resources that we need to have in place for the launch but make no mistake about it and we have the resources to compete compete in this market and what's great is there already experienced calling on customers and.
And in place today.
So just wanted to highlight that and make sure we're clear and I take the next question.
Thank you. Our next question today is coming from Mike Mattson at Needham and company. Your line is live.
Hi, Mike and thanks for Hi, Thanks for taking my questions.
I guess just following up on on the comment you just made about the <unk>.
<unk> reps youll have selling radar.
I was wondering I mean is it realistic to assume that.
And this could add a couple of points to growth maybe and.
The 2023 time frame if not 2022.
$500 million or something and revenue.
Deciding 510 and $15 million in pretty short order or is that quicker easier.
So what we've said and so no its not crazy to be clear that we can add.
And material impact on growth and 23.
Said that and we see 'twenty to 'twenty, 1 and 'twenty 2 is a year, where we're focused on getting reimbursement and getting resources and all of the activities in place and focused on driving pharma sales and making sure. We're building the evidence, but as we get into 'twenty 3 we definitely expect to see sales starting to come in on <unk>.
Radar and a material way and.
Especially in 24, so I think youre thinking about it just the right way.
Okay, Great and then I wanted to ask 1 on M&A.
You've done a couple of deals here recently, it sounds like you called that out and the prepared remarks.
Youre still looking at other things so.
The deals you've done seem to be more kind of <unk>.
Technology oriented I guess, if you will.
And 1.
And 1 in terms of specific test but.
So is that the main thing your type of deal you're looking for would you do deals per scale, our breadth or you just an overview of kind of the approach here in terms of M&A. Thanks.
That's a great question I'm going to have dug into that effort. Yeah. Thanks, Mike for the question you are right I mean, I think there's been an evolution, how we've gone to market with M&A right. The first couple of deals were about scale and the last 3 we have done and are about technology or adding a test when we think about more scaled transactions frankly, it's on the pharma side and it would be probably from a global perspective.
As we think about clinical and might be about adding more technology into the channel and then the informatics. We could also look for scale there as well, but we have a lot of opportunities that we're evaluating and as mark echoed it continues to be a major driver of growth here.
Okay, great. Thank you.
Thanks, Thanks, Mike. Our next question. Our next question today is coming from Mac Sykes at Goldman Sachs. Your line is live.
Great and thanks, Good morning, everybody Hey, thanks for taking my questions.
Just 2 from me.
Just the first 1 and I apologies I apologize if you guys have outlined this in previous calls but.
Any additional color on the economics for the commercialization agreement with agenda on radar and then what percentage of volume do you think you expect to run through agenda versus your own in house sales team. I know you mentioned sort of 60 and house salespeople versus 40 and agenda, but are there any expectations for how the volume might look in terms of.
And how radars coming through the market.
So we havent communicated I don't believe the.
The economics of the details of the agreement with Avengers, and we see those as confidential information and I think.
That's the first thing and climate, if I Miss anything jump in the second point and in terms of volume again, I think it would be premature to.
Try to estimate volume going through the agenda, what I would say is.
Clearly agenda is a very successful and experience.
And the organization in the breast cancer market. They are driving significant growth of their products with <unk> and blue blueprint and they have tremendous capabilities, particularly and evidence generation. So there I think is super exciting a partner.
And then you add that together with neo which has.
Not the leading 1 of the leading positions and breast cancer testing.
As I mentioned I think earlier in my remarks, we do over 100000 tests per year, which I think is a fantastic and needed.
Patients are patients that potentially could be early disease patients that are or have been treated comparatively that are going to need.
And <unk> tests confirm that this Medicare and theyre going to be great candidates to transition to recurrence monitoring.
We're super excited and the breast cancer area I think.
The profile of the radar brings with it.
Sensitivity and specificity is outstanding.
And so I think it's going to be it's going to be great opportunity and Clive do you want to add anything.
And so pulled out and any additional bad debt changes further clarifications cost agenda will focus exclusively on breast cancer, whereas the cost per test like radar how to utility across other tumor types.
And colorectal and and all of that so again agenda will be driving needs and to breast cancer part of this alongside assets have neogenomics.
And the other part is the agreement we have with the agenda and also covers the EU and not just the U S. So again and good in terms of bringing that type of breast cancer channel and commercialization to the European Union as well. So just 2 things to think about it and say, yes and complementary in many ways.
And it will help to drive that breast cancer alongside the in house assets and there may be additional partnerships, we share in the future as well and different areas and different geographies and something we're currently looking at around how do we get the test which is to you and we believe a great test to as many patients who need it as possible as quickly as possible.
Thanks, Great does that answer your question really helpful. Yes.
That's very helpful. And then just just lastly, a more bigger picture. When you were talking about pharma services and it sounds like there is an opportunity for ex U S.
You mentioned companion diagnostics I'm sure. There are other things do you have sort of a <unk>.
And in mind in terms of of expanding that business ex U S and growing it.
And if you want to take that.
Sure.
We are evaluating several.
And that's that as you know companion diagnostic offerings.
And included a multitude of factors, including.
Region.
On quality and compliance.
And so we're looking at and.
Building it versus buying it.
And and assessing what what we have and what we might need and I know that.
Vague, but theres a lot of different ways that we could go about that expansion.
Including doing it ourselves or.
Looking at M&A.
Got it thank you very much.
Yes, I would just add.
Maybe 2.2 points on this and it's also of what I've, just overall and what I've seen and the pharma services business that are excited and me. So 1 is that.
And the team is extremely effective at partnering.
We worked with other.
Laughs, we've worked with other work with certainly a crows and.
And we work with some of the device test.
Chip manufacturers very closely.
And I have announced a couple of exciting partnerships already in China that will be collaborating to run studies locally and I think 1 thing that's true with the lab businesses that to be successful globally and you certainly have to have and are positioned around the world and we do that but you've got to be able to partner because diagnostic testing is sold locally.
Even that if you can't sort of collaborate and partner and I think thats something that neogen exceptionally well and the other thing that is really excellent and not just in the driving global or ex U S opportunities, but its bad quarter, the successes and the customer focus that they are renowned for here in the U S and the clinical labs.
And what they are bringing to farmer account.
We focus on farmer full is front and center. We are really response, and we're able to customize tests, we have fantastic service levels and a mindset of really customer first and I think that has been a core.
Yes.
And with pharma companies because they wanted a company that the only thing that thinking about it is how do we deliver on the study in front of us and nobody does that better than Neal I believe.
That answer your question.
Yeah, that's great I appreciate it thank you guys.
Thank you. Our next question today is coming from Derik de Bruin at bank.
Excuse me at Bank of America. Your line is live.
Eric.
Hi, good morning, and thanks for taking my taking my question. Most of mine have been answered, but I just wanted to clarify a couple of things can.
Can you talk a little bit more about the R&D investment and how thats going to ramp I mean, obviously with the <unk> auto coming and that's going to pick up significantly and then I have a follow up.
Kathryn and I want to talk about.
R&D and ramp up and expenses overall.
So the addition of propeller and and Nevada definitely increasing our future R&D expenses.
We've mentioned before and Nevada.
Brian and around $3 million.
And cash and a lot of that is focused and R&D and we do expect and on the back half of the year that and Youre going to see.
Increased R&D related to and Nevada in particular ethylene to prepare for that while the exploration around the turn of the year set.
And before that could be but coupon and a lot of about $13 million to $15 million per quarter, and then again as Mark mentioned, we are looking going forward.
For Q3 years, and what that investment will look like to support the further development and commercialization of radar.
Great. Thanks, that's what I was looking for and just on <unk>.
I just want a bigger question on the <unk> market.
The data from but looking at the literature and then just from some of the other stuff coming out from.
Other companies.
It looks like there, particularly for cancer recurrence, there does seem to be.
Good indications that you need that certainly the data is enhanced by adding epigenetic component to it.
And the analysis versus the.
The personalized approach I'm, just sort of your thoughts on the need to maybe expand the assay to book and epigenetic markers.
And just your thoughts on on when can we expect to see.
I guess some data on studies sort of like comparing to 2 approaches.
Not from you, but just from the overall, but just from the overall market are you aware of any assets out there.
Sure Clive do you want to take that.
And now suddenly so thanks for the questions.
Cognizant of time, I will turn and be very brief, but essentially people I really searching for sensitivity to levels of DNA cancer DNA and these early stage cancer patients who have undergone therapy are very low so traditional sequencing with fixed panels tend not to be sensitivity now. So the 2 avenues people have pursued is 1 is to try and personal lines.
And youre tracking and no number of variants.
And <unk> from Natal, and the Entre PCM IRA and radar test have come down that route. The other 1 is to move into epigenetics to try and look at other things that may be more abundant and such.
Does that the genetic changes and.
And you can see and for jumbo and the Garden's test.
<unk>.
We believe that actually both of those can improve sensitivity and.
But actually based on what we're seeing on our sensitivity that we see the tradeoff between the technology advantages and the tracking the high variance.
And we're very pleased with the levels of sensitivity that we see and let's say.
And it couldnt be further improved by adding other markers to be determined what they are but from what we've seen and today. We believe that we will have and incredibly sensitive test that will be very competitive. So we may look at these things and the future, but there is no eminent plans to add these and based on things like recurrence monitoring as you say.
And early preliminary data we had got it.
And reliable detection of recurrence and actually many months.
The studies, we showed we are off to the year ahead of clinical relapse, and we would detecting Cte DNA relapse. So we can already do that I think with a high degree of precision and accuracy.
Something to look out and in terms of comparative studies.
These are notoriously difficult and time will see these as more tests come through.
Today, we're still validate and independent tests at some point, they will come and of course, and the meantime, and you'll get sort of more cross trial comparisons with our equivalents patient populations of studies that will enable some of those comparisons to be made but I think we're probably some time off before we get fully completed head to head studies.
And I'm part of the reason and the setting these studies as a perspective study a very long durations and they take a long time to do so even starting today would be and number of years before they read and.
Thanks, Jay and thanks for that question Derek and Clive.
Hopefully that answered it.
Yes. Thank you.
Well.
Thanks for all the great questions, we'll take 1 more question.
Thank you for running a little bit over but we'll take 1 more question and then wrap up.
Thank you our final question today will be coming from Andrew Cooper Raymond James Your line is live.
Hi, Andrew Hey, everyone. Thanks for sneaking me here at the end of what's been asked but.
Maybe just 1 we've talked about it a little bit before but when we think about the pathway for radar partnering with agenda brass certainly seems to be a focus but I guess as we think about where you focus your efforts from prospective data generation and things like that and especially as we think about pharma layering and as well what are.
Some of the indications that you feel like should bump to the top of the priority stack and how do we think about.
Again, just kind of comparing where some of the others have started do you want to be a fast follower there with a good assay or would you rather carve out and a niche and in some cancers that maybe there's less data from the competitors first just thinking about sort of the ordering and stacking of indications.
But.
Yes, I'm not sure I can answer that and a very short to segue other than saying.
All of those things you alluded to a possible so that you can.
Clearly there are some assets already and the marketing on a tear and colorectal cancer. For example, so clearly we would not be first if we entered that but we believe we could be a fast follower and based on the profile. We say, we think we could still be compelling and that market is still very nascent and so we're still developing and we think there is good opportunity of a fast follower.
We also believe that the.
Leading and certain indications is also possible and we are exploring a number of indications where that may well be the case.
And we think certainly the high levels of sensitivity that we see may open up some indications that may be more difficult for us and.
The last part I would say is the nature of a personalized assay versus a if you like and epigenetic based assay and the last question means we can be somewhat tumor agnostic. So clearly we need to develop the data we clearly need to look at the utility and the.
The value proposition and an indication.
And we're able to take the same assay into different tumor types and that's certainly the strategy. We are pursuing so expect to see a mix of fast follower and some in some way we may be leading.
Great well I'll stop there I appreciate the question.
So thanks again to everybody for the great questions.
I would like to and actually probably was the most important thing I need to say, which is thank you.
And so recognized incredible work that our 1900 Neogenomics team members around the world are doing on behalf of cancer patients as I have been through the labs and that with 2 people on video calls and.
Around our sites.
As I said earlier I'm, just so impressed with their commitment every day.
And employee really carrier cancer patients and their heart and the passion and that they bring and.
Commitment.
It's really taking my breath away and so thanks to all of my colleagues really appreciate it thanks everybody.
Thank you ladies and gentlemen, this does conclude todays event you may disconnect at this time and have a wonderful day. Thank you for your participation.