Q3 2021 Neogenomics Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Neogenomics third quarter 2021 earnings call.
At this time, all participants have been placed on a listen only mode and the floor will be open for questions and comments. After the presentation. It is now my pleasure to turn the floor over to your host C. E O Marc Mellon surf the floor is yours.
Thank you and good morning, everyone.
I'd like to welcome to all of the new.
2021 third quarter Coca Cola.
I'm very pleased that for the first time.
Call from La Porte large headboard.
Good to hear.
Chief operating officer, and President of lab operation.
R T strategy corporate development officer evaluated a director of Investor Relations.
During the call via phone from California is that the deal was president of service Division as in the UK President I've been about five months.
With us today are Catherine Mackenzie, CFO and build a president of informatics.
A press release. This morning, we're excited and undecided put out their new roles and yoga.
I want to thank them for important contributions in the cargo.
Hopefully that hasn't continued with their new responsibilities as key members of the Neogenomics leadership team.
Since taking over as CEO immune.
I've been working closely with our board on succession planning and optimizing our leadership team and stuff.
As a part of this process, we've taken important steps to reorganizational, including promoting dorks ahead of a lot of operations and Doctor Wallace ahead of Oklahoma services.
I've also been able to attract world class talent sort of interesting.
Alligators Gilbert is our Chief legal officer, John Mooney is our Chief Technology Officer.
We have some additional leadership position to bill, but I'm pleased with the moves we've made and the positive impact on our business I believe they will have.
What we began our prepared remarks, Charles will reach the Sandy language forward looking statements.
This conference call may contain forward looking statements, which represent our current expectations and beliefs about our operations performance financial condition and growth opportunity.
Any statements made on this call that are not payments that historical fact are forward looking statements.
These statements by their nature involve substantial risks and uncertainties certain of which are beyond our control.
One or more of these risks are uncertainties materialized or should be underlying assumption proven correct actual outcomes and results could differ materially from those indicated and a 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 Patrick today.
Before turning the call back Tomorrow, I want to let everyone know that will be making a copy of our prepared remarks for this morning's call available on 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 of questions to one per person and in order to get more people a chance to ask questions within one hour and it's been a lot of for this call.
Thank God.
I'd like to spend some time sharing some thoughts on our current positioning the strategic value meal.
And how I see is continuing to be a leader and a corgi diagnostics marketplace.
But before we got into my thoughts on our side of the future I would like to take a few comments make a few comments regarding a third quarter financial results.
For the quarter, we continued to demonstrate growth is company revenue increased 12% year over year, excluding the discontinued COVID-19, TCR cutting revenue from a year ago.
And we strongly believes the business would have gone faster if not for the impact of the delta very on record.
As we have discussed previously the researches of COVID-19, clearly affected our business.
More so than others given are significant views rapid presence in the southeast and south central part of the country, where the desert Eric has had the most pronounced.
We continue to see positive signs with excellent growth.
Ah pharmacy services looking for two.
41% year over year Mccain, an all time high of $49 million, reflecting the strong demand for our services.
We exited the quarter of the backlog of $261 million on the services another record that.
With a reduction in Covid cases nationwide, we expect to see higher rates of growth for clinical business and and pharma service is going for.
Oh of course, the results did not achieve our expectations. We view. The current challenges is transient and remains very optimistic regarding our growth prospects for 2022 and beyond.
Do this and we recently presented a five year growth plans to the new Kid on the board of directors and that plan has received with overwhelming support for the investment necessary for us to strengthen our leadership in oncology diagnostics.
We presented a bold plan, which will significantly accelerated growth of our overall business and critically bolstered the launch of radar potentially transformative new essay for minimal residual disease and recurrence testing.
We believe that successfully commercialize radar assays will increase our long term growth rate into the high team.
A key driver of our confidence in radar.
Differentiated performance based on analytical validation data demonstrated 95% sensitivity and 100% specificity and circulating tumor DNA concentration levels as low as 100, 1% very.
Frequency or 11 park permitted.
To support growth initiatives for our existing business and full radar over the next six months, we will be doubling the size of a customer facing salesforce by substantially expanding our decision medicine manager and medical science liaison team.
We believe this investment.
Who will be able to accelerate growth and could lead to a doubling of our revenues by 2025 with the potential to exceed $1 billion annually themselves.
Indeed, I'm very confident in our future over the past 10 years, we've established a solid foundation sdd, leading provided oncology, hoping for community hospital in oncology practices.
Focused on this market segment, because approximately 85% of oncology testing and treatment occurred in the community said.
It has always been our mission to ensure that patients have access to the best and most appropriate care regardless of whether they are treated in a large academic medical center for a small community hospital.
As those who have followed us enough we have endeavored to provide the most comprehensive customers in this industry.
Because of the depth and the breadth of testing that we provide we will serve more than 4000 healthcare provider and a half a million cancer patients this year.
This is a a marketable months milestones to achieve.
We've also established leading testing franchises are highly prevalent Kansas settlements breath loan embarrassing weisel, Kansas.
Having established this foundation, we are not in a position to help usher in the next generation of transforming testing technology.
And to again ensure that these tests are available to patients and all types of set not just to those who are treated into left academic facility.
We often hear Neogenomics referred to as a festival in fact, we have often used that term to describe prescribing for adopting new technology.
We've been able to execute this that followed stripes that because we have the scientific and medical Knowhow quickly.
Quickly develop and launch.
New and often improve Latin about test and because we have trusted relationships with sounds of physicians, who are already ordered a significant portion of this cancer testing from us.
Goodbye and high quality assets with best in class service is enable us to consistently grow faster than the overall cancer testing.
While this strategy has served us well in the past.
It will not be sufficient to take us where we want to be in the future.
As you consider the current testing landscape.
The pipeline of new testing technology, and our own proprietary assets, we realized that we have an opportunity and I would argue a responsibility to be the leader and establishing certain new testing technology.
And a radar acid is a prime example of this and the minimal residual disease and recurrent market.
We are investing to be the clear leader in this massive emerging market, which interested to be an estimated to be in excess of $15 billion.
When we acquired in Nevada early this year.
We knew that the radar update with special.
But as the assay continues to be analyzed and assessed by causing researchers that global pharmaceutical companies and kols in clinical in health I have to.
Become even more convinced that this asset in our opportunity to deliver for patients investors is intact unique.
Detecting those current of Kansas for a patient has traditionally been accomplished.
By ready to represent.
Research conducted unquote radar liquid biopsy MRV assays demonstrate that these new technologies provided and causes of this time sensitive information to act much sooner on a patient at risk of recurrence of cancer.
Evidence strongly suggests that our radar may be the most sensitive assay for detection of recurrent as measured by analytical sensitivity.
Evidenced further suggests that radar potential sensitivity advanced could translate into the text detection of cancer recurrence months ahead of competitive asset.
This sensitivity and Neogenomics strong bomber service capabilities adjoining significant interest from Biopharma class.
We now have multiple active biopharma collaborations the radar and we're starting with the initial collaborations translate into larger late stage development program opportunities with.
We are pleased to share we recently the reward one such opportunity within curtains on several other.
The strong interest of multinational pharma companies has only increased my confidence in the opportunity we have in front of us.
Many of you know my background from the pharmaceutical industry.
In my 30 years in the industry I've had the privilege of these teams responsible for the successful launch of many new pharmaceutical products.
And from a commercial product experience I know that we are holding a strong pain.
Launch into the market aggressively.
Based on this personal experience and what I've learned from NRDC industry experts about radar assets.
That we at Neogenomics have a strong hand, and an obligation to both patients and to our shareholders to move more aggressively toward a successful lost the radar.
Given the concept as I mentioned earlier, we will be immediately pursuing the double of our customer facing team.
We will expand our decision medicine team to 50 precision medicine managers and hire 10 medical science, we agents deserve the medical oncologists, who will be the focus of the loss of radar.
These teams will also continue to support the uptake of envision first loan liquid biopsy tests the lung cancer.
These additional hired will complement our industry leaders existing before the fifth worth of agenda, who are partnering with us in the breast cancer and largely market as well.
Based on the initial M or the market developments in colorectal cancer and neo strong franchises in breast cancer lung cancer testing.
We anticipate we can leverage these foundations to be a market leader remembered retesting.
The combination of these strengths with our expanded precision medicine management team will most certainly accelerate the market penetration of our radar assay benefiting thousands of cancer patients sooner we.
We also expect to be able to accelerate what we believe it could become a multi $100 million per year opportunity where neogenomics.
And as we pursue these massive opportunities I want to remind everybody that we remain on our previously stated timeline of obtaining a mortgage submission for our first indication around the turn of the year with an anticipated reimbursement Google initial commercial launch near the middle of 2022.
I'm clearly excited about the bright future museums.
Our base business is diversified and profitable with sustainable growth.
And this foundation allows us to make smart and bold investment.
And the core business, we're committed to continuous cost an improvement and to grow our base business, even as we pursue upsize growth opportunities.
We anticipate that post pandemic clinical low volume celebration will allow our big business to fund a growth initiatives.
I firmly believe that these investment decisions will ultimately.
Significantly beneficial to all of our safety patient provider employees and shareholders.
I will now ask Kathryn to update you on the quarter net I'll provide some closing remarks will that have time circuitous happens. Thank you mark.
Revenue, excluding COVID-19, PCR campaign credit, 12% operating actual $121 million in quarter three.
Clinical revenues of 100.
Presented 11% year, bringing aircraft, excluding COVID-19 PCI costumes.
Best 11% year over year increase that comprise a 7% increase in clinical volume and a 4% increase in revenue protests.
And coming volume of company lie.
Turning the corner five account for an Internet search.
Similar to the dynamics experienced time prior pandemic Lane higher COVID-19 incident led to reduce patient visits to encounter.
Stanford screening appointment on reduced our team.
We looked particularly hard type account for berrien, given accurate Stanford preference and thus far not in Texas, which together represent more than 20% of my total revenue.
In Florida, specifically, we saw some of the most stringent covered related restrictions put in place that we have seen during the entire pandemic.
These factors culminated in Q3 o'clock on a daily volume track across the state that was roughly 5% below our premium of 2021 months our experienced in January and February.
Let's compare it daily volume track about 9% when comparing the same periods across all of our styles regions nationwide.
Pharmacy services revenue Graham, 14% every year 19 million.
We did experience carbon related to rain and planned clinical trial related work.
<unk> enrollment timeline for pushed out by our customers.
We would emphasize with the vast majority of profit from a corner were delayed rather than cancelled and we would expect to performance work in coming quarters.
Despite lower Q3 growth, our pharmacy services and year to date growth rates during the nine months from a household 36% year over year.
Well, that's very flattering to us is that demand China continues to be strong and our carnal service assistant.
We added a record 49 Marina and signed contracts.
Accident, the quarter with a record $261 million backlog, which represents year over year backlog correct a 41%.
We believe we are well positioned to meet or exceed our long term target of 25.
25% plus revenue growth.
In the coming years.
I Cuddled gap gross margins decreased to $38, 9%.
The first full quarter R N, Nevada related non-cash amortization.
Total adjusted gross margin, which excludes non-cash amortization went down slightly every year to 42.9%.
Lower than anticipated clinical violence from climate services revenue led to lower efficiency on are largely fixed cough cough infrastructure.
The labor market Freescale flat technologists remains competitive.
Pickler lay in southern California, and we are hiring aggressively to expand our Katherine capacity nationwide.
Capitalizing on are fully integrated clinical women's network. We are in the process of bringing up are expanding crime lab analysis pop in multiple cities across the country.
We've identified Phoenix on a franchise Anthony Hopkins a strong path.
Operating expenses increased $38 million every year to $87 million, primarily driven my expat contributions from a recent acquisition of Amazon eliminate and Capello have an additional investments to support growth.
Increase also include the last contingency call upon 5 million related to a regulatory matter, we will discuss in a moment.
Adjusted EBITDA when the last $3 million in Q3 and reflect the flow through.
To the painted revenue as well as the first quarter of expenses from antibiotics, which closed in June.
Turning to the balance sheet, we exited quarter, three with $543 million in cash and micro securities, which excludes an additional $3 million and restricted cash designated to finalize construction of our new state of the Art Laboratory and global headquarters here in Fort Myers, Florida.
Speaking of our new facility in Fort Myers.
We are happy to share that we have here administrative functions into the building and we will be migrating laboratory operations into the new facility in stages over the next few months.
The building tripled our last footprint.
Iron providing much needed capacity for expected growth.
Yeah.
Our balance sheet also includes an accrual for compliance items that will be disclosed for 10-Q that we expect to be filed later today we.
We are voluntary conducting an internal investigation with the assistance about our council that focuses on the compliance of second consulting service agreement with Central South Carolina and regulation.
Based on preliminary findings of internal on that vacation, we voluntarily notify at the office of Inspector General of the U S Department of health and human services.
Our investigation in November of 2021.
Our view of this matter is ongoing we have accrued credit or as I have a $10 5 million per potential sandwiches and liability associated with the federal health care program revenue mystique, sending multiple years in connection with the agreement that issue.
Five during the course of the internal investigation.
Turning to guidance, we are lowering I previously provided annual revenue and adjusted EBITDA guidance.
We now expect consolidated revenue to be in the range of $482.5 million 487.5 million and full year 2021 adjusted.
To be in the range of a whole lot of $2.5 million to positive 2.5 million.
Impact of the darker variant on our business in Q3 was much larger and more prolonged and we had anticipated impacting our Keith reversal in our clinical services and pharma services Division we.
We expect the Q3 reduction in sales team access on the clinical market and delays and clinical trial work requirements services to have appropriate impact on queue for these.
These factors caused us to reduce the level of sequential them prisoner, we anticipate for the quarter.
I will now turn the call back over to my account. Thanks Kathryn.
With regards to the clients complying momentum we've.
We continued to take all reasonable steps to ensure that we have identified and are aggressive all issues underlying ourself disclosure.
Because always strive to maintain a culture of compliance and has a strong record track record of operating ethical.
Moving forward further solidifying our compliance costs, which is a key priority for me and the leadership team to that and I'm pleased that Catherine will be stepping into the newly created role of chief sustainability, the risk of as a help our team capable of mitigating evolving risks in this fast changing business, while also leading our ESPN.
Shifting the discussion back to our business out of it.
Credibly excited about the opportunity carnival that means.
Strategically remains very well position as the leader in oncology diagnostics and you see significant opportunities for growth in the years ahead across all of our businesses.
It is clear to me that radar because the special assets.
We are committed to make the investments necessary to realize sizable clinical and farmer market opportunities for minimal residual disease and the insurance settlement.
We intend to take a leadership role performance this market, which we believe will fundamentally improve the cancer treatment paradigm for patients everywhere now.
During the call back over to covered for fuel.
At this point, we would like to open up the call for questions.
<unk>. If you are listeners conference call via webcast only I would like to submit a question. Please feel free to email at that Charlie has been at Neogenomics Dot com during the Q&A session and we will address your questions at the end if the subject matter hasn't already been addressed by our call on record.
As mentioned at the beginning of this call we'd like to ask each person to limit the number of questions to one so that we might hear from everyone can still keep within one hour of a lot of for this call.
Operator, you May know open up the call for questions.
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time, we ask that while posing your question you. Please pick up your handset if listening on speakerphone to provide optimum sound quality.
Please hold while we pull for questions.
Your first question for today, it's coming from Andrew Kirkwood Cooper. Please announce your affiliation then pose your questions.
Hi, everybody. Thanks for the question.
Maybe just first is to dive into the guide on ebay.
Sort of what this is zachary on top it may look like as you think about doubling the salesforce, maybe just when we think about the fourth quarter can you give us some training for how much aside the lower flow through Lindsey ha-ha in clinical versus the labor components that you mentioned, obviously being tight and then as well as adding the new salesforce over the next six months and maybe how much.
Exactly you get pushed in the third quarter as well thanks.
Seven.
Hi, Andrew Thanks for the question as we're looking towards Q4, there's a couple of dynamics at play one is what we mentioned on the top line as far as the limited access or the last time.
Projected access for our sales team in the queue III will have some impact.
Hotline in queue for but really after looking into the queue for there is a big investment that we aren't working to make and the acceleration for in Nevada, as well, bringing on the sales team. So that announcement that we had this morning as far as doubling our sales team is not really reflected in Q3, but we will be asking onboard on queue for.
Okay, maybe just a quick follow up if I could just when we think about that limited access are more limited access and you had expected can you give us a sense for where you sit on November 4th relatives too.
Earlier in the third quarter, when obviously fever were much worse than they are now.
So Andrew we clearly are seeing improvement and ask us an increase in patients return to the ecology offices.
Wouldn't say, we're back to it again, so the normal prepandemic level and we expect that there was a improvement will continue.
That is positive for us and likely remain very confident.
2022, and beyond and does that go ahead.
Incidents of Covid drops.
Access go up we see patients come back in a business follows ahead is not necessarily a switch of changes will switch, but we're very confident that it will certainly continue to improve and we look forward to a strong.
I appreciate it I'll stop there and jump back in the queue.
Thanks. Thanks.
Sandra.
Your next question is coming from David Westenburg. Please announce your affiliation.
Alright, Thank you David Westberg Guggenheim Securities.
Yeah apologies I I did want to ask you a little bit more of a long-term question, but I am getting questions as well on the guidance here for Q4 could you.
I'm I'm actually thinking about a little bit more of the top line you know your commentary around Florida, I I think it's definitely consistent with kind of the checks that we got.
But it hasn't been subsided and I think the subsiding of that was roughly three weeks ago can you help us maybe conceptualize a little bit more of your commentary around maybe slow start to clinical trial kind of delay and you know it's similar kind of question today, Andrew in terms of like.
Where we stand today.
Could we have seen makeup demand maybe in.
And from Delta delays in October I mean in in August September just starting to hit now and then maybe maybe maybe there's some upside does that guidance again.
It seems very we totally understand the Q3 thing, it's just a little tougher to conceptualize the queue for and again I I wish I could ask the strategic question, but that's the them bounce I'm getting.
And I'll start and then maybe Jim I can explain a little more on the farm aside, but we really I look at it is a two pronged impact on top line because there was the impact.
In Q3 votes from access and just from patient visit.
Impacted our volume in Q3, but that access will impact Q4 as well because.
Portion of our business and growth and the bringing in of new clients and new revenue streams, which takes a little bit of time to ramp up so while we may see we filed previously a bigger at let's say.
Back post Irish our initial covert impact in 2020.
Our our impact of Covid and 21 related to the Delta Berrien was not as low as it was previously and his thoughts I don't see that rebound being asked.
V-shaped, perhaps as it was before but there really are two pizza the returning of our core business volumes in return of patients as well as bringing on new business for for clinical that will impact our top line and again, we feel really good about our growth and our pipeline on our backlog.
But some of that will take a little bit apparently it look to realize that bookmark with.
Captured.
Thank you.
Negative.
Your next question is coming from <unk> soda. Please announce your affiliation 10 pose your questions.
Yeah, Hi, can you spell that we'd be leerink uhm. Thanks for taking my question Mark Uhm.
First of all just in terms of overall on the N G S side of things and the liquid box. He said thanks I just wanted to get a sense of you know how do you view the overall mmm.
Competitive landscape and and how your positioning into that channel.
Obviously.
Number of efforts ongoing of different companies and and along those lines also we just wanted to get a sense from you at a high level on your overall philosophy and M&A and how do you look at acquisitions, both for yourself and how do you look at partners. There's obviously.
Quite a bit of speculation lately and in multiple companies are pursuing the same market in oncology. So I wanted to get a sense from you argue obviously have a broad menu and offering care. So would love some thoughts on that thank you.
Thanksgiving so.
So your first question I was asking about.
What's happening in the marketplace and Ngos liquid biopsy the competitive environment.
Obviously, there's a huge amount of focus on that has been a significant investment and we're committed to taking this desk and making the investments to win in the in the <unk>.
Market with our radar, but also to be a leader in India and liquids liquid biopsy that big I want to really emphasize those we have something that we don't think any of our other competitors have which is this channel that we built up over the last decade, too and community hospitals encore.
And because all of us.
The million plus tests that we do every year that as a foundation that we can build on and leverage and basically helped shift the practice of medicine. As we agree argue ntfs's, we bring in new liquid biotech products like envision and certainly as we launched radar into this market having those.
Relationships, having that flow of products to which to start a discussion of intervene at the moment that physicians are making decisions is an incredible place.
To start a business and candidly part of the reason you're seeing the investment.
What new players because they don't have that kind of a starting position that we have to deal with that.
Well clearly make sure we're taking advantage of and then we're making sure that we put into the additional resources to take of it particularly of radar in terms of the acquisition strategy around that I think we've continued to focus both on organic growth as a first priority, but also inherit granted growth I think you know basically.
Half of our growth would come from for both and we're going to continue to be a focus on where we can acquire innovation or attract businesses that are going to make our overall platform strawberry.
Doesn't want to add a comment.
Canadian it's Doug.
I think what we said in the past and we feel like we would have the scale on the clinical side smartphone we have the channel that we're dropping technology into it and really that's what the antibiotic transaction was about we would like more scale on the farm aside and some informatics withdrawing nicely. There are other tools out there that could be interesting and I would say an area that we are sorry, I'm starting to think harder about as AI and leverage.
And all the slides that we have in our database you are talking about a couple of million slides over the history of the company that had a lot of valuable information embedded in there and if something were exploring preserves a second.
Got it and just lost clarification, if I could I don't know if this was covered but uhm can you pursue on a b L T with the radar athletes.
Thanks.
I was on the photo clubs you want to answer that.
Yep. Thanks for the question by any time as much headway on track for our initial reimbursement submissions for radar around the time of the year will continue to build back from dinner. We are planning for effectively multi tomorrow I'm come to useful radar. So you can expect to see incremental beta across dream of types on.
Further reimbursement on of course, we office here in a parallel FDA path as well.
Uhm, a DLT is something we will consider as part of that so I'm suddenly we thinking that's possible by the time, we haven't disclosed anything around time and get on that.
Got it thank you okay thankfully.
Your next question is coming from Mark Massaro. Please us now to your affiliation then pose your question.
Hey, guys I think thats market P T I G.
I guess the first question is have you seen any incremental pick up within envision first long recognizing it's somewhat early but it has been on the market for some time and then I wanted to get a sense for God.
Doug Doug Van Art, not only coming.
Coming off of the executive chair role, but also planning to retire from the board at the end of this year can you just talk about any change in.
Strategy that you guys might be thinking and then as it relates to.
Replacing him on the board how should we be thinking about you expanding the board and and perhaps.
You know.
Making any changes further changes to the management team the board and perhaps strategic direction. Thanks.
Thanks Mark.
So I think there were three three question. So one is on the uptake of envision first loan actually since we have redoubled, our focus envision Bruce lung.
The August timeframe, we have already started to see an uptick in in performance and actually assessing and reporting a test. This is based on the impact of the performance. The precision medicine managers are happy to have.
It also has to do with that Greg.
Turner grow time that we're able to achieve with our <unk>.
In the research Triangle Park from Nevada.
Were able to get to a five day turnaround time.
Also really.
Having a whole sales organization focused on what we call the patient first really thinking about based on the rotation what is the right first.
Diagnosis and 460% of lung cancer patients.
Sure, it's going to be medically conquer indicated for a biopsy biopsy.
Biopsy sample is likely to be too small and he's a great candidate for envisions worthwhile and our wholesale seem as aggressively facility. So all of those together or leading to an uptick in performance is still early days, but I'm very encouraged what I've seen so far.
You have a bit of both.
Strategy and.
With a better.
Stepping as executive chairman moving towards retirement at the at the end of the year.
In terms of strategy I mean, this is the strategy that.
Over the past year that the board upgraded and we're implementing that spreads.
In fact, what we're doing is we're doubling down on that strategy and accelerating the implementation by moving to expand this is worth significantly next year building a significant medical first team and basically we're going to be looking at opportunities across the spectrum of levers to pull behind radar to see how we can build additional data.
How do we could add.
Gain additional access how we can accelerate moving into that pan tumors.
So it's all still pursuing the strategy of maintaining a foundation of the retail that we have into the community and then bringing in the new technology, particularly radar and first continuing to leverage the fantastic opportunities we'd have a informatics environment. That's the strategy.
<unk> and moving aggressively in that space and.
In terms of the board.
Let's say there is that would continuously are assessing what are the needs for the company and what we can do to help them continue to strengthen and the board.
Where does that with self reflection and so we're always thinking about how we can strengthen the board we've got a great for today.
Continue to look the way to to keep that strong and meet the needs of the company in the future.
Great. Thanks, so much.
Your next question is coming from Brian Weinstein. Please announce your affiliation 10 pose your question.
Hi, Good morning. This is Ah Griffin sorted out for Brian just a question on pharmacy services, they called like that backlog at $260 million can you give us a sense of the league could you would expect coming out of that and remind us over what time frame that backlog takes to work through.
Basically when that last dollar.
Revenue would be expected to be earned.
Oh.
I would like to think that.
Yeah sure Hi, there so our our backlog generally converts.
Over the course as a as a project, which average about three years of our time and some some projects finish early and some projects go over so so we will see an average of about a three year timeline.
And the bad men.
Somewhere between 60 and 80% as as contacts.
On average Hum.
Come through.
Understood and just a quick follow up on radar the indications and multi cancer expansion. There Uhm have you announced the initial indication don't remember seeing that and then rode back to expansion any any thoughts on the timeline there when you should expect.
That'll be teased a additional indications thank you.
But once you pick up.
Yeah.
I'm short on time that we have on time, given the way the the details on timing of indications walkabout store or indeed subsequent ones, but the first one will be around the time of the year.
I can expect to see how those during the cost you know sort of next year no. Much. So we may expect Kendall data comes out and we drive the trial you. So we deliver the data there'll be increasing numbers.
Oh.
T submissions for for reimbursement.
Thank you.
Thanks, Brian.
Your next question is coming from Alex <unk>. Please announce your affiliation then pose your questions.
Great. Good morning, everyone. So I just want a better understand those assumptions around the radar Margaret lodged in reasons to invest in the field and now. So are you assuming you are gonna submit for a completely new L. C D with moldy extra radar or do you plan on falling under an existing else today and then depending on your answer there just what gives you the confidence that you're going to have.
Reimbursement established by at least Medicare by the Middle of 2022, and then I guess, if you don't have reimbursement would you hold back the launch.
So I'm gonna have to talk about why we are confident in sort of our approach through and then I want to say a couple of words about the strategy of moving aggressively now to expand salesforce.
But.
Suddenly thanks for that.
Sure we've had the dialogue with multi X around the room trying to to reimbursement. So we have a clear view of what we need to be done to bring and I'm submitting to get through the path for approval.
Approval.
Confidence in our plan and we're executing against that so is Monica said that we have on track without previously mentioned plans.
Uhm.
So I think that's what made upon that changed Michael talk more about the the commercial sort of launch, but remember there's a lot of activities other than the reimbursement that I'm sure <unk> talk through we started with them on my key opinion leader builds an hour trial data clearly that needs to work through as we prepare for launch so launching and getting and things moving ahead of the actual reimbursement missile plan, but.
Channel 100 per month talk further around that.
So the reason that we're moving forward aggressively now with the Salesforce.
Because there's just so much work to do in advance of a commercial launch a major new brands, particularly when you are actually trying to change the practice of medicine.
You need to build relationships and connections with the oncologist.
Not only about what information education is alive, but you have to have a level of trust you are asking cause us to change what they're doing with cancer patients and so that's a very big deal.
As you would expect there's a tremendous amount of education to get these decisions to be comfortable to start prescribing. This new assay. When it's available there are a number of pets are things that we can do to get them more comfortable and raise their awareness.
And really sort of building almost.
Demand for the launch of a new essay.
A new product and we're going to look at all of those tools and options and it's going to be.
Have to have that sales were in place to take advantage of it and yes. This is going to help us get off to a fast as it is about anticipating that mid year reimbursement, which are confident but it's also about laying the groundwork for what's going to be a multi million dollar opportunity multibillion dollar business and so you can't get.
Started laying the foundation to be a success and a leader in Denmark.
You have understood makes sense and then could you expand on the investigation just more details on what was identified how how long it's been ongoing and that just curious if the investigation of the findings from the investigation all feed into a lower volume number for the implied cute for a guy it or if those are related or not.
So.
In terms of the investigation. This is an ongoing investigation. So there's really not much more and not really more than we can say that will shed and are prepared remarks.
This was something.
The.
Raised that we haven't covered in the first half of the year moved aggressively to start the internal investigation as we came up with the understanding of the situation, we moved aggressively to fully investigate as well as put into any place any changes that needed to be made to make sure. There really are pulling up the highest.
Standards of a compliance Stanford.
Referenced linked to.
Small number of contract and customers and as more information becomes available will provide an update that's basically what we can check pay about an investigation you.
You asked about the perfect I appreciate it I.
I think we're very clear about our performance and what we see in the future and that will remember.
The only thing I really I I appreciate it thank you.
We don't expect that this will have a meaningful impact on our go for revenue.
The items that we've discussed a flat top line really relate to that the downtown area are access and delays agriculture.
Alright, Thanks, Mark Thanks, Kevin.
Your next question is coming from.
Rick deep ruined please announce your affiliation then pose your questions.
Hi, It's Derek Brown from Bank of America. So I just wanted to follow up on I'd quite a follow up on the.
The question on sort of like physician education going through it and going forward. There I mean look there's a lot of companies that are doing a tumor informed approach for so.
So much of what you're doing with radar and obviously you know traditions are going to be faced with a lot of different information and also the regulators Payors I guess, what is being asked by the pairs.
And the regulators to sort of differentiate between these different assays and then then what.
Then how are you going to go for like detail against what do you have to put together competitors are doing in the space I mean, it seems like everyone's all the there's a lot of information can be coming down the pipe that one and it looks like it could potentially slow uptake of may be entire classes sort of like there's a lot of noise on on on who's prices, better and which ones are better than that.
So.
Couple of points here. It's a good question. So yes, there is a lot of education going on the concept and the product I think.
This is a huge market.
There's a huge number of calls colleges and so I think that education, particularly around the disease and how the technology can be used is going to be reinforcing and clever.
It.
The visa a lot of his education is occurring small sort of.
Interactions.
As well as the senior program. So it takes a lot of effort into that time. So I think it's a good thing that there are multiple players out there that sort of building the market.
In terms of how we're going to differentiate we're very clearly as we've highlighted we think we have essentially class moving sensitivity and we think this is the key feature.
For a minimal residual disease recurrence test because the whole point is.
Will be held quickly and it was how much confidence can use a test that occurred come in so we will be emphasizing that that's a simple method is that we can deliver I think the other differentiating is is our platform is the physician that neogenomics has been in the marketplace and our channels with the customer because it's about education, but it's also about trust and.
It's also about being in the right place at the right time with the right relationship to actually include what the position is doing it and nobody else has that physicians away yoga, so with great potential capacity sensitivity combined with our number one channel is what's going to differentiate it leads to success in the energy market.
Great and if I can squeeze in one follow up.
That you talked about exiting this year at $100 million run right on the pharma services I guess, if if you hadn't had these COVID-19 delays would you still be backing that.
Comment.
That this would be a 100 million dollar business as you sort of eggs.
Exit 21.
Yes and.
If you look at the quarterly bookings of almost 50 million.
It suggested this business is growing rapidly and exit.
From in terms of actual sales momentum the answers from the customers really very much Atlanta.
Putting aside the impact on the delays testing said a delay some of that revenue, but it's going to be there and it's going to come through.
Great. Thank you.
Your next question is coming from Matt Sikes, Please announce your affiliation and pose your questions.
Everybody might take some Goldman just one quick one for me on pharma services.
Just give them the gross and a backlog and what you're seeing in that market. I'm. Just curious about you talked about increasing spending and clinical services and I'm just thinking thinking about your internal cap allocation and where are you going to spend money.
How are you thinking about pharma services to support that kind of growth and is there just a lower level of spend needed or higher level of spending for that business in your mind to in order to kind of continue that growth path.
So thanks for that question.
Okay. So what I would say first of all we have already increased our investment environment services. You know we added sites internationally built up over the last couple of years.
Substantial sales marketing medical and scientific team and.
And that team we made those investments but of course, they were hampered with COVID-19, just as on the clinical side that has reduced access or visited it came to all of his assets with farmers into sort of a virtual.
Program are.
Teams have done a great job of keeping the momentum going.
Come through with <unk>.
Progress that we've made but we really feel like we've got the resources in place there and is now as Kobe received as we get more and more active we're going to just keep leveraging that investments are really accelerated growth further.
Thanks appreciate it.
Your next question is coming from K has suffered please announce your affiliation.
Your question Hey, Good morning. This is deja some on for Morgan Stanley.
So uhm two questions for me one of the guide and a quick follow up on the on the investigation. So in terms of the outlook Catherine how old are you thinking about the quarter over quarter increase for each segment is it fair to assume low single digit and chemical in mid teens grilled sequentially and pharma or is the weakness because of the delta Marion.
Sort of residual impact more skewed towards one segment forces the other.
No I think you are thinking about correctly, we're looking at volumes right now, especially for clinical we're seeing some.
Imprisoning just not back to create.
That volume at this point and so ever getting Q4, we're starting to see some of those return, but there are still pockets on the country coming back a little bit slower than others. So it's something we're watching very closely but that's part of what's included in the guide.
Farmer, we generally have.
Around a corner and based on the conflict Q3 to four I think you'll see that but again it comes down to access to sample and frankly, the ability for them to come through from our clients.
Got it that's helpful.
And then on the on the ongoing investigation, Mark I think counselor and you just mentioned no impact the full word revenue.
But as we think about any sort of potential restatements. Two historical periods are you know any contemplated changes you'll have to put in place in terms of you'll go to market strategy or changes in key personnel can you just walk us through any of those potential outcomes.
Go ahead I'll go ahead and talk about the financials and anti csrs the steps are taken.
So.
Trying to clarify things that can be a meaningful impact of revenue on a Gulf war basis, and we have worked closely internally as well with our external council and evaluating.
Any impact historical financial statements, we have no need to restate any financial as a result of this investigation the revenue from a historical perspective, it's not.
Well cast embark on some of the steps were taken from a remediation respectful.
Yeah, you have to question, but one above.
Is going to have an impact out of our business model of approach.
Commercializing business.
And then I think that you also ask you a question of.
Personnel changes so the first question.
We have really strong confidence and overall compliance and ethics.
And so we have very.
Great confidence that the model that we're facility.
Leveraging our base sales team that supported by a great customer service team the policies.
Great connections that we have with our customers and how we provide a report and all those ongoing relationships and then adding a top.
The new team, that's going to be focused on medical oncologist and really emphasizing the new opportunities.
The radar and products like envision low that model, we have 100% confidence. It is we have a track record that has shown that as a model that drive share growth consistently.
Growth overall ahead of the market and we've got the.
Alrighty, then the controls that really attitude that well and that will resonate.
Facility in terms of personnel changes I bucked upfront about really put a lot of effort and the thought about our leadership team that our people and we've got great people and great.
Leaders have full confidence in them.
In the scope of an investigation like this that there were issues.
That is all particular noodles, then we take appropriate action in that case, and we have taken action to change processes retrained.
Make investments in the right type of control. So we were very competent as it can go forward, we're not relax we can do to lift.
Group, but we've got a great business model and we're going to execute continue to act as well against it.
Got it I appreciate the collar guys.
Your next question is coming from Mike Matson, Please announce your affiliations and pose your questions.
Hello. This is Joseph on for Mike Madsen from you need them.
I guess, maybe a question around the five year growth plan.
Neo completes a million tests, you, an incredible amount and test but.
I guess I don't know if you've alluded this before but if you could give some color around <unk> percentage of of testing capacity that meal was at now obviously disclosed the lab infrastructure buildouts that are going to be increasing that and then maybe more generally around testing modalities.
Is there any areas where.
<unk> has been been lagging whether it's from changing diagnostics landscape or just lower market share in general and.
What what's going to be done to be increased adoption in the next five years.
Well, let's start with our capacity.
Obviously, we're sitting here in Fort Myers looking over at our brand New laboratory, we actually either processed our first test there. This week. So as Mark said our teams are moving over there in stages in the coming weeks, but it is significantly larger than the laboratory, we had and it probably over triples, our capacity if not even more in terms of what we could do.
Do we also mentioned that we're adding laboratories again, we're sort of going where the techs are for some of our dry lab and analysis text.
We've opened up in Phoenix, Arizona, and we're also expanding in Atlanta, Georgia to again add those capabilities and to be able to recruit talent or wherever we needed. So we are growing were substantially increasing our capacity.
Even in California, which is the one place where it was probably the tightest right now we are looking to expand their as well.
Expand our capabilities and NTS testing, which is the fastest growing modality that we have our radar assay is actually going to pre processed NRT.
And we have a beautiful new facility there to make sure that we have a dedicated facility. So that we can have great turnaround times and really again to follow the the the demand that we're expecting for that test.
Yes.
Just add a couple above that Logan great strength that we have with neo is that because we work with one last system one overall process.
The same procedures for it.
Any particular test regardless of where they are in the network that gives us quite a bit of flexibility, we can actually have products assets assess.
Assessment in one part of the network and have technicians from any part of the network at any time work on the test and so it gives us a lot of flexibility to respond with fluctuations in demand. The second thing and just being modest well we are confident in overall capacity when you're growing parts of.
Your business at 25, 30% or more you've got to think about how you grow your capacity every day and so we are seeing some tightness, which we talked about and like California, Georgia waking waking up every morning and go to sleep.
Every night thinking further what we can do to make sure. We're keeping capacity ahead of demand.
Add another question that is sort of driving debate right. How do we as we think a boat across the core business.
A growing share and I think it's.
True.
Several things one is we've got to make sure that we've got the resources in the marketplace with other bank competitive and so.
Big part of being.
Being able to expand our team right. So we wanted to be able to launch radar without pulling off of the the opportunities that still remains the basis.
To be achieved that billion dollar ambitions.
We have to have a great success rate, but we have to continue to have a great success with our based business and so resources to do that I think the things that had led to our successes better maintain though with great service, great turnaround time sort of being that leading partner to the community pathologist, an oncologist will allow us to keep driving sure. That's how we're going to go.
So fast in the market would have to take care.
We are a leader, but there's so many players in Saudi patient, there's still room to levels growth a growing share and we're going to go with that track record continuously improving our essay. So that we're always sort of very current and at the highest quality with our asset and we're going to continue to do that.
Okay, Great. That's that's Super helpful. And then maybe just a quick one can you touch on the specific investments.
R&D this quarter, we saw pretty large uptake in that number.
Yeah. So that really you are starting to see the investment countries for antibiotics.
To think about radar and indecision front lawn and the and the work we're doing there that earlier increase.
Okay, great. Thank you.
[noise] that is all the time, we have for questions today, I would like to turn the floor back over to Mark.
Thanks.
Close to.
Two comments I mean, I think maybe the most important thing I can say is just the normal thank you.
An appreciation message sent out to the almost 2000 neogenomics team members around the world They have incredible dedication and passion and commitment to making a difference for cancer patients and they are the reason why we believe we have believing.
Capabilities from an oncology diagnostics and information so thanks to all of our team members around the globe and.
And I also want to thank all of you in in particular.
For those.
Those investors already and neo of those thinking of becoming investors and neo really appreciate your interest. We appreciate the opportunity to have this dialogue and we look forward to continuing to tell you about really exciting things that are head video to them.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.
Uh-huh.