Q4 2021 Neogenomics Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Neogenomics fourth quarter and full year 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 Chief Executive Officer, Mark Mallon, Sir the floor is yours.
Ali good.
Good morning, everyone I'd like to welcome you to Neogenomics fourth quarter and full year 2021 conference call joining.
Joining me on this call from our Fort Myers headquarters are Bill Bonello, Our Chief Financial Officer, George Cardoza, President and Chief operating Officer of our lab operations, Doug Brown, our chief our Chief strategy, and corporate development Officer, and Charlie I've been a director of Investor Relations joining.
Joining on the phone I got the Gina water President of our Pharma services Division, Dr. Clyde Morris President of the Nevada, and Colin Taylor President of our Informatics Division.
Before we begin our prepared remarks, Charlie will discuss the forward looking statements and the non-GAAP measures used on this call.
This conference call includes forward looking statements about our 2022 initiatives 2022 financial outlook growth opportunities and anticipated operating results and performance.
Each forward looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements.
Additional information regarding these risk factors appears under the heading forward looking statements in the press release, we issued this morning and in the risk factors section of our annual report on Form 10-K for the year ended December 31 2021.
That is filed with the Securities and Exchange Commission and available at Www, SEC Gov and on our website at Www Dot Neogenomics dot com as well as subsequent filings with the SEC.
The forward looking statements made during this call.
Only as of the original date of the call and we undertake no obligation to update or revise any of these statements.
In addition, during the conference call.
To get greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results.
These non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by GAAP. It should not be considered measures of liquidity.
Unlikely to be comparable to non-GAAP financial measures provided by other companies.
Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in a table available in the press release, we issued this morning.
Before I turn the call back to Mark I want to let everyone know that we'll 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 one per person in order to give more people a chance to ask questions within the one hour that has been a lot.
For this call.
Thanks, Charlie.
For today's call I'll briefly review, our full year 2021 highlights provide updates on each of our core businesses, including key 2022 initiatives and discuss an exciting. New addition to the near term as a leadership team a new executive Vice President of R&D, and Chief Scientific officer, Dr cyclical cargo.
Bill Taylor will then provide a more detailed review of the financial results and introduce our 2022 financial outlook. We will then have time for Q&A.
2021 was an eventful year for Neogenomics, our team successfully navigated constantly changing environment and took important steps in executing our growth strategy.
I'm incredibly proud of the resolve our employees showed in providing excellent care for cancer patients often under very difficult circumstances.
Our teams also took on the challenge of moving our court Meyer lab operations into our new lab and headquarters facility. The majority of the move is complete with the final stage set to occur in April .
The new laboratory triples, our capacity in Florida, and will support our growth in the near and long term.
In 2021 parent labs processed almost $1 1 million clinical test and generated revenue from over 1000 fiber projects ending the year with $484 million in consolidated revenues. This represents 16% year over year growth, excluding Covid PCR testing revenue. These are strong results.
Given the extraordinary environment.
During the year, we also executed on two highly strategic acquisitions that we believe will boost our growth in the years ahead.
Both in Nevada, and propel as a fully integrated into the organization and are proving to be strong cultural fits with Neogenomics I'll touch on some early progress by both groups later in my remarks.
While our acquisition of certain excitement the foundation of our company is our clinical business, which represented more than 80% of our revenues in 2021.
We've continued to strengthen our leadership position in the market through our comprehensive menu of tests focused only on cancer, our exceptional service levels, our managed care and hospital relationships and our overall partnership approach.
These critical differentiating factors support new growth and drive high levels of customer retention.
In 2021, our average customer account with more than 250 tests during the year and many of our customers view us as their primary reference lab for cancer testing.
This dynamic is supported by the results of a National survey of independent Labs and hospitals conducted in December 2021 by laboratory economics, and which Neogenomics was named as the number one preferred reference lab for cancer testing by pathologists.
Also pleased to share that Neil again achieved a net promoter score in excess of 60.
A world class results I want to thank our committed employees, who are the key to our strong customer relationships and our track record of delivering elite service.
As we turn the page to 2022, we are confident that the formula we have used to drive market share gains for years will play out as we emerge from the pandemic.
To ensure we can meet this additional demand we've expanded our lab operations staff in 2021, and we'll continue to do so in 2022 as needed.
With that said similar to previous ways of the COVID-19 pandemic, our clinical business was heavily impacted by the <unk> Barry in January February .
February has been much better than January and we anticipate an even better March by quarter. One to date has been challenging.
Now many of the strengths I highlighted on the clinical side of our business also apply to our pharma services business.
Our biopharma customers clearly appreciate our strong focus on cancer, our comprehensive services and our outstanding service levels or.
Our global footprint and ability to launch a test to our leading clinical channel in the U S. Additional reasons why biopharma clients view us as an excellent partner.
Demand through the pandemic across our pharma service offerings has been strong and over the course of 2021, we booked $172 million in new signed contracts and ended the year with $267 million in backlog.
Services revenue grew 29% year over year in 2021, despite COVID-19 impacts.
While COVID-19 conditions have slowed our pace of converting backlog into revenue. We believe that many of these projects will convert as conditions normalize this will put us in a great position to grow this business in 2022.
We also made progress with our global pharma services strategy during the year and successfully opened up a new laboratory in Suzhou China.
The demand from Biopharma customers for capabilities in China has been extremely strong we expect the lab to be a strategically important as we look to compete for global clinical trials with study arm in China is for China based clinical studies.
We believe our global network is now largely set in 2022, we will focus on filling our international lab and using the power of operating leverage to improve our pharma services profitability.
Our informatics efforts continue to progress rapidly and our growth trajectory in this business has been largely unaffected by COVID-19.
Our team launched a cloud based cohort buildup in January that is already getting very good feedback from Biopharma clients, we anticipate that software as a service tool will accelerate our sales results.
The <unk> health team is also making progress on scaling the next generation clinical decision support tool for oncologists and.
And we anticipate launching a web based quick start version by the middle of this year.
For our Trapelo clinical decision support platform adoption by oncologists as the most important key performance indicators and we are monitoring closely our primary goal will be to accelerate adoption over the course of 2022.
It's been less than a year since we announced the Nevada acquisition and we are proud of the progress. The team has made towards realizing the potential of our leading minimal residual disease and recurrence test radar.
<unk> ability to detect circulating tumor DNA in blood down to levels as low as 11 parts per million with 95% sensitivity and 100% specificity is differentiating and this is resonating with our biopharma clients.
Our sales pipeline is robust and growing quickly we expect to sign a first significant clinical trial contracts this year, which will add to the farmer backlog overtime.
Evidence generation remains a focus for the team and we have a number of patient cohorts anticipated to readout over the course of 2022 with multiple datasets expected to be published in peer reviewed journals.
Earlier. This month, we were pleased to announce the Linus prospective head and neck cancer cohort data was published in the British Journal of cancer.
This represents the first peer reviewed publication for radar.
And the line of studies blood samples taken from 17 patients with stage III or for head and neck cancer, who received curative intent primary surgical treatment were tested using radar to detect circulating tumor DNA as evidence of minimal residual disease and recurrence pre and post surgery.
All patients had detectable CTV in a prior surgery.
And license it'll monitoring after surgery <unk> was detected in five patients at levels as low as six parts per million with lead times ahead of clinical confirmation ranging from 108 to 253 days and the remaining 12 patients there was no recurrent detected, indicating a 100% clinical specificity of.
The radar asset and confirming post operative tumor clearance. This is a remarkable results.
The team has also made considerable progress on the reimbursement front and we announced two important regulatory milestones in January .
First we received CE Mark for radar, which we believe will be an important for biopharma and allows us the ability to make this test available to clinics and hospital systems throughout Europe to support patient management and clinical research.
Second we achieved our goals as planned of submitting radar for the U S reimbursement of our first indication via the Mol Dx pathway. This submission keeps us on track to commercialize the assay in the clinical market around the middle of 2022.
To summarize.
We are incredibly excited about our market position and the progress we are making across our businesses towards becoming the worlds leading cancer testing and information company.
The attributes that have made <unk> successful in the past remain as foundational drivers for growth.
We've added new differentiated capabilities that will boost our growth trajectory over the coming years I see a truly bright future ahead for neogenomics.
Part of working towards that bright future is adding top talent and so before I pass it over to Bill I'd like to highlight an important upcoming addition to our leadership team.
Relative to some of we announced the appointment of Dr. Shashi Kulkarni as executive Vice President of R&D, and Chief Scientific Officer. Dr. Kulkarni is considered a world renowned expert in key opinion leader and cancer genomics with the focus on the application of genomic and multi ohmic technologies to improve the understanding of human disease and the precision of clinical data.
<unk> prognosis and treatment.
He is also an experienced commercial laboratory leader, having played key roles in commercial laboratories at Washington University and in Belize partnership with Morocco Holdings.
<unk> unique combination of world class clinical scientific commercial and regulatory talents to the goal.
We are thrilled to have such a well respected global oncology, which was already like optical time, leading our research and innovation teams.
Tactical card it will be a vital member of our executive team drawing in user research expertise, our strong network of peers and a passion for innovation and precision medicine.
Joined us officially on March seven.
<unk> is very excited to get started.
I'll now turn the call over to Bill <unk>, our CFO to discuss some of the other details of quarter four financial results Bill. Thanks Mark.
And walked through the numbers I wish to point out that the growth rates. We cite exclude prior period revenue from COVID-19, PCR testing. We've made this adjustment to make the year over year comparisons more useful as we stopped performing COVID-19 testing in the first quarter of 2021.
Fourth quarter consolidated revenue increased 7% year over year to $126 million.
Clinical division revenue increased 6% year over year with test volume up 2% and average revenue per test up 4%.
Consistent with our experience throughout the pandemic our volumes declined during Covid surgeons, and then recover quickly as Covid subsides.
We saw a steady volume recovery in October and November as the Delta Varian receded.
But so volumes decline again in December with the emergence of OMA crime.
Clinical division revenue per test of $383 increased 4% from the fourth quarter of 2020 and 2% sequentially.
The Q4 improvement in revenue per test is primarily driven by billing and reimbursement initiatives, which drove reimbursement that was higher than initially anticipated.
For all of 2021 revenue per test increased 2% year over year.
Looking forward, we would expect that <unk>.
We'll be in line with two modestly above our full year revenue per test of $370.
Pharma services revenue increased 13% year over year to a record $22 million in the fourth quarter.
For the full year pharma services revenue increased more than 29% to $80 million.
New bookings were strong once again for the quarter at $49 million, leading to a year end backlog of $267 million.
Cancellations in projects classified as storm it were $21 million.
Primarily driven by a few larger project cancellations.
We are optimistic about the strength of this business as we look forward to 2022 and beyond.
Our total GAAP gross margin was 36%, reflecting a sizable impact from antibody related non cash amortization.
Total adjusted gross margin, which excludes noncash amortization related to the Nevada acquisition was 39, 9%.
Gross margin was impacted by lower than typical clinical volume growth and pharma services revenue growth on our largely fixed cogs infrastructure.
Coupled with both wage and supply cost inflation.
In addition, during the fourth quarter, we moved into our new Fort Myers Lab facility.
While this move will drive productivity and efficiency improvements, we did incur extra costs related to operating two different Fort Myers labs during the transition.
Our gross margin was also impacted by a three 8 million reversal of prior period credits related to the employee retention tax correct.
Our Tc.
Well, we continue to believe that the company may be eligible for certain credits from the RTC.
The IRS guidance related to E. RTC eligibility has evolved over the past two years, leading us to conclude that a reversal of prior period credits is appropriate unless or until we have new evidence in support of the credits.
The change in our TC credit reduced gross margin by roughly 300 basis points in the fourth quarter.
Excluding this prior period reversal fourth quarter consolidated gross margin would have been 43%.
We're essentially flat sequentially.
On the Crown and inflation notwithstanding our gross margin is not where it should be.
We are taking near term actions to address our cost structure and we are developing a long term plan to drive step function improvements in productivity and efficiency through automation and process improvement product payer and customer mix and pricing.
Driving gross margin expansion is a top priority for me as I step into the CFO role and I am confident that we can return to approximately 50% gross margin or better over time.
Operating expenses increased $35 million year over year to $87 million.
The increase was primarily driven by the acquisitions.
In Nevada, and Trapelo as well as additional investments to support growth.
Adjusted EBITDA loss was $10 million in Q4.
The loss is attributable to significant investments to develop and launch new assays, including our mrna assay radar offset by contribution from the core clinical and pharma services business.
The previously discussed reversal of prior period credits related to the employee retention tax credit reduced adjusted EBITDA by $5 9 million in the quarter.
Excluding this change in accounting estimate for prior periods adjusted EBITDA would have been a loss of $4 million in the quarter.
Turning to the balance sheet, we exited quarter, four with $515 million in cash and marketable securities.
We believe our balance sheet positions us well to fund our growth initiatives with optionality to pursue M&A as well.
Next I will discuss guidance.
We expect full year revenue of 532, $515 million, which equates to top line growth of 10% to 14%.
We expect adjusted EBITDA to be in the range of negative $40 million to negative $25 million.
Our guidance reflects Q1 revenue and adjusted EBITDA that is both down sequentially and lower than we would see in a typical year.
As we discussed during the call are January revenue was significantly impacted by the spike in COVID-19 cases, while we have seen a nice recovery of volume in February the January impact is sizable enough to impact our quarterly results. Therefore.
We expect Q1 revenue to be in the range of $118 million to $120 million.
From a profit perspective, we have continued to staff our lab at full capacity. So that we are able to handle increases in test volume that will come as COVID-19 incidents receipts.
We are also seeing a significant impact from both wage and supply cost inflation.
With these factors in mind, we anticipate that Q1 adjusted EBITDA could be in the range of negative <unk> 15 to negative $12 million.
Our view on first quarter results is not indicative of our view of the underlying growth and profit profile of our business.
We anticipate that Q1 will be a significant outlier and expect to see growth in profitability increase as the year progresses.
Our full year revenue guidance of $530 to $550 million implies a return to mid teens revenue growth for the remainder of the year.
With outsized growth in the third and fourth quarter as we begin to reap benefits from our expanded sales force.
We also anticipate that EBITDA loss will decline sequentially each quarter as we realize increased revenue and leverage our fixed cost structure.
We also expect 2022 to be an outlier year in terms of the adjusted EBITDA.
We are making a substantial investment to support and launch radar, including clinical studies to support evidence generation and publications.
An increase in the size of our sales force and medical science liaison team and associated marketing costs.
These expenditures will be incurred before we're able to generate significant revenue from this new product as.
As we look beyond 2022.
Anticipate that our continued investments in radar will be offset by both <unk> revenue and.
And increased breadth of daily.
From our core businesses and we expect to turn EBITDA positive once again in 2023.
I will now hand, the call over to Charlie Edson to lead us through Q&A.
At this point, we'd like to open up the call for questions.
Incidentally, if you're listening to this conference call via webcast only I would like to submit a question. Please feel free to email us at Charlie Donaldson 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 calling listeners.
As mentioned at the beginning of the call I would like to ask each person to limit their questions to one so that we may hear from everyone and still keep within the one hour allotted for this call. Operator, you may now 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 one posing your question. Please pick up your handset listening on speaker phone to provide optimum sound quality.
Please hold while we poll for questions.
Your first question for today is coming from Brian Weinstein. Please announce your affiliation then pose your question.
Hey, guys.
I think you all know Brian Weinstein of William Blair.
<unk> for taking the question so.
Just just to hit on some of the comments that you made on the guidance to get that out of the way.
You talked about a significant tonight I caught the infection and told them. They have a significant impact on revenues in January .
As well as the significant impact that you guys have seen on wage and cost inflation in general I was hoping you could provide a little bit more context for how significant that that impact really was.
And really when you.
Think about what we heard last quarter from you guys as it relates to delta there seem to be more of a sort of a lingering effect as a result of not being able to get in with customers and have conversations with them, but I'm not hearing that kind of conversation. This time. So can you talk about maybe the difference between the lingering effect from Delta that you called out.
I'm not hearing a lingering effect on omicron being so hopefully that all makes sense.
Sure absolutely Brian . Thank you very much great questions and I'm happy to.
Elaborate.
So first of all when you think in terms of the impact of omicron on on volume and revenue in Q1.
We do think of ourselves as normally.
A mid teens.
Revenue grower.
And implicit in our Q1 <unk>.
<unk> is the fact that we will be.
Mid single digit.
On the low end of mid single digit.
Grower of revenue in Q1, the vast majority of them that impact is going to be from what we saw in January we're starting to see recovery in February and we expect it to be greater.
In March and so that gives you some sense of the magnitude of the Covid impact on revenue that we saw just from the month of January .
In terms of wage and supply cost inflation.
We are seeing things in the in the range of 6% plus.
On an apples to apples basis in terms of payroll expense.
And thats significantly higher than what we would have seen in prior years, which might've been more in the sort of 3%, 2.5% to 3% level.
So absolutely that that is a change.
And what we're seeing and that will have an impact on Q1 results and obviously results throughout the year.
As well, we don't expect that to subside anytime quickly.
And Thats why we are taking some of the margin actions that I discussed in terms of your question about the lingering effects. We are optimistic we are seeing green shoots we are starting to hear that our sales team is getting back in front of claw.
As you know historically about half of our growth has come from market share gains. It is very difficult to achieve that when you arent out meeting face to face with your clients. So we're very optimistic about the growth rates picking up as we move throughout the year.
Now that things are opening back up as well as any rebound, obviously and utilization of patients being tested and treated we're also seeing things begin to open back up on the pharma services side and seeing some green shoots on that on that end.
You could see that we won a substantial amount of business. Our team has done a great job through the pandemic of winning business, but it's difficult to convert that to revenue when clinical trials aren't enrolling or enrolling at a much slower pace.
So we're starting to hear wins of those trials picking back up in activity starting.
And so yes, much less of a trailing faster than what we discussed with delta.
Sure.
Alright, I'll respect the one question rule and.
Hey, guys. Thanks.
Thanks, Brian .
Okay.
Your next question is coming from Mark Massaro. Please announce your affiliation then pose your question.
Hey, guys. Thanks for the question Mark at <unk>.
So bill I heard you talk about obviously 2020 to being in.
An outlier year as it relates to spending.
In Nevada et cetera, I think on the Q3 call you talked about.
Plans to add 50 sales reps and I believe 10 medical science liaisons.
I'm curious if you can just give us an update on that and just if youre able to kind of quantify or give us any additional details about.
The investment going into in Nevada.
There's other areas and head count that would be helpful.
Absolutely so I'm going to turn that one over to Mark to talk about what we're doing with the sales force.
If he wants I can add a couple of dollar comments around it.
Thanks for the question Mark So as we communicated in the third quarter, we are on track to.
Expand our precision medicine team, we're setting up a second team.
In the second quarter, we're also going to be bringing onboard.
Really our first medical science liaison team both of those support radar and our other ACSF.
And reaching out to oncology.
We will get that team started to expand in the second quarter in line with what we see.
Reimbursement from old yet or radar and then we will expand that through the course of the second half of the year to make sure that we've got the right level of resources behind radar.
In offices with oncologists and supporting our whole NCS portfolio with I'll call. It.
Does that answer your question Mark.
Yeah, sorry, I might have missed it just the number of head count adds is that in the 50 reps in the 10 liaison range or if I missed it I apologize.
No.
The plan that we announced that the play we're continuing with what we did talk about.
50.
Up to eight to 10, MSL, but that will be through the course of the year right. We're going to start getting our team stood up in the second quarter and then we'll expand that sort of in line with the opportunities we see.
Excellent thanks, guys.
Your next question is coming from Alex Norwalk. Please announce your affiliation then pose your question.
Greg Good morning, everyone, just going back to the revenue guidance to Bryan's Mitch.
Initial question just focusing on the second half acceleration here just what are you baking into the guidance for the rebound of cancer cases cancer diagnosis and then also how quickly an impactful kind of new reps contribute what sort of visibility do you have on that and then the visibility around radar contribution I know, there's a couple of questions there, but I'm just.
Trying to understand it.
These additions.
Yes.
Anyone.
Operator.
Alex Your line is still live.
Ask as you go into <unk>.
Okay, operator, why don't I I think we got the gist of the question I can respond to that so the other people on the call can.
Can hear it and if Alex comes back even taken complete.
He can complete the question.
So in terms of what we're expecting on the Covid front.
Clearly at the high end of our guidance were assuming.
That we're closer to smooth sailing and Covid recovery again that would be projecting 15% revenue growth for the remainder of the year.
And so that is a pretty a pretty good growth clip in a normal environment. We did intentionally give a wide range of revenue guidance.
Because we know that.
Covid has been incredibly difficult to.
To predict and so the lower end of the range allows for some continuation.
The virus as we move throughout the year in terms of what we have for the impact of the new sales force.
We do anticipate that in the back half of the year. They will contribute to revenue that may be more so from sales of our.
Other NGL products into the oncology market.
And it is from the radar assay itself that we do think we will have preliminary radar sales as well in the back half of the year.
Particularly following securing of reimbursement. We also think that we will have some radar revenue on the pharma services side of our business.
And that will be the more significant contribution from radar to revenue in the first couple of years with the clinical market picking up overtime.
Okay, Great I appreciate the update thank you.
Okay.
Your next question for today is coming from Puneet soda. Please announce your affiliation then.
Question.
Hey, Hey, Mark Thanks.
So first question.
I mean really let me keep it to one.
I mean, you are baking in.
<unk>, what's the clinical growth in the pharma growth that you are baking in vol.
Volume appears to be down obviously in the first quarter.
But just wondering what how should we think about asps.
Is that in line with sort of the fourth quarter or the $3 70 number that you talked about and then on the cost side should we expect elevated costs to meaningfully elevate from the current levels into the first quarter.
As well because I think that there are obviously a number of questions on the first quarter guide and if there if I could just get a brief follow up in there what are the indications that you'll be pursuing for <unk>.
Radar right out of the gate at the time of the launch and for submission to Mol Dx. Thank you.
So let me take the revenue growth question and the.
Indications. The question then I'll, let bill comment on a couple of the more specific.
Number of questions.
Sure.
Our view is as we get as we said we get clear of the Covid effect that we are seeing or saw in the first part of the quarter that we would return in line with what we expect from our businesses both in clinical environment. So in clinical we talk about getting into low teens, we've talked about pharma or being a business that can grow over.
North of 20% and so in aggregate if you think about the last three quarters of being back to what our expectations are for the business from a revenue standpoint.
Aiming for mid teens growth in the last three quarters and I think we've got the.
The resources in place we've got the products in place the team is motivated and energized with access to opening up again and those who we know the.
Twists and turns from from Covid, we feel good about the last few months Bill do you want Oh in terms of indications as we said before we're not going to comment on which indication is it so.
Get the reimbursement.
<unk> sensitive information radar is clearly a pan tumor assay.
We've got data that we've already shared in multiple cancer areas, including breast and lung, but we see this as.
Tool for pretty much a broad range of solid tissue types of cancers, and we're able to pursue both.
<unk>.
Approvals via that.
<unk> and <unk> or clinical programs in both areas.
Sure.
The average revenue per test and in terms of cost inflation I will just reiterate what we said on the call we would expect.
Average revenue per test to be in line with the full year amount.
$370 to up modestly we do have a number of interesting.
Reimbursement initiatives that could drive some upside to that on the flip side. There is some pressure from the Medicare physician fee schedule and so we think thats, a pretty prudent number to put out there in terms of inflation again, we're seeing payroll inflation around 6% or so.
It significantly higher than in other years, and so that is contemplated as part of the Q1 guidance as well as part of the full year guidance.
<unk> challenge for Q1 from a profitability standpoint is as we said, we expect revenue to be down.
Sequentially.
We arent going to make a bunch of immediate cut backs to our laboratory staff as a result of a temporary.
<unk> in omicron, we need to be prepared to handle the volume when it comes back as it has started to do.
But when you have.
The overhead there and the volume not.
That's a big hit on profitability for that particular quarter.
Okay. Thanks, guys.
Your next question for today is coming from Dan Brennan. Please announce your affiliation then pose your question.
Thanks, Dan Brennan from Cowen Hey, guys how are you.
So.
Couple of part question first.
I was wondering if you could take out a little bit within the 'twenty two guidance.
What's your expected contribution.
And manav in generics.
It all in Mds that would be helpful as well.
And then secondly on the net promoter score, which you talked about.
60, how does this compare to the recent trend in particular Nims should meet the feedback has been given I know on prior calls you've discussed some staffing issues given COVID-19 .
Wondering kind of how you kind of manage through that.
From the field.
So Dan I will take the second part of your question and then Bill will comment.
On the first part so.
Having we've continued to maintain our net promoter score in our in the sixties, which is really good on this metric for those of you not familiar with it. It basically is sort of the net of those that we are actively promote your services.
Colleagues.
And our businesses minus those that would be the practice and so it's a very high bar.
We headed into <unk>, and so I'm really proud of the team that despite COVID-19 . Despite challenges of access they have been able to.
Clinical team to sustain that type of customer service I think it's a testament to the relationships built over the years and the effort they've put in over over the last two years and gives us a lot of confidence as excess comes back that when we get a chance to really have more face time indirect or direct interaction with our customers that will really see.
Further progress in the clinical business.
It's a little bit harder to get that type of score.
The Biopharma world, but really we deliver the same level of a great service to Biopharma companies. It's a core part of our strength and similarly, we're starting to see opening up.
A part of our business well in terms of interactions, we're starting to see a face to face conference is coming back which is a really important way to meet with biopharma customers as well. So a lot of encouraging things to look forward to the rest of the year from our sales teams.
I think the other part of the question sure. So again, we don't guide specifically to.
Two the growth rates for the individual.
Businesses, we have said.
Longer term, we expect our pharma services business to grow north of 20% and we expect our informatics business to grow north of 25%.
We have said initially at the time that we acquired in Nevada that we would expect it to have a modest contribution maybe somewhere in the single digits of revenue.
In 2000.
In its first year and so that's kind of what we'd be expecting.
In 2022.
In terms of revenue. So I think I would look at the growth rate from from pharma and informatics to be more or less consistent with.
With our long term growth rates and then some modest contribution from in Nevada as well.
Got it okay guys. Thanks.
Thanks, Dave.
Your next question is coming from Andrew Cooper. Please announce your affiliation then pose your question.
Alright, everybody Andrew Cooper from Raymond James.
Maybe just to ask it another way I know youre not disclosing the indication that.
Youre going for first on radar, but can you give a sense for maybe the pacing of additional submissions. How many do you think you might have ready to go maybe this year and sort of what that build up to what you call.
In cancer of flexibility sort of looks like overtime.
Thanks, Andrew I'm going to ask Clive to take that question.
Yes, Thanks, Marc hopefully you can hear me okay.
Now as you mentioned, we havent disclosed.
The indication.
We've initially sort of worked through.
That's the way to think through that.
This is a journey building out a.
Huge potential market, we see the potential for radar across tumor types and we see this as a multiyear program to build breadth of evidence.
Starting from the first indication, but then broadening out into new indications as well as abroad.
Same thing again.
Data within each indication.
And we haven't commented specifically on what or how many additional ones that may be this year.
They're both.
Additional submission our submission this year, saying, we're not disclosing at this point exactly the tumor types, but you can imagine that as we start to present data at conferences.
It's been six to nine months lead time on those things that can come through into peer reviewed publications on the day.
We need that will ultimately need to.
Support those reimbursement application, so if you're keeping a close eye on the sort of things. We are publishing sort of last year and then this year as we get into the major conferences, where we were expecting a number of presentations.
That'll be the guy to those sort of things you can then expect to see with a little time lag in peer reviewed publications on across the types of things will ultimately go into reimbursement.
The only other thing I would say it's cost it's a competitive environment.
A number of other companies are of course active in this space and as any of us gain reimbursement changes that landscape. So it's something that we will look at dynamically over time, we have our own plans, but we're also being reactive to what others are doing.
Great. Thanks, and if I can sneak maybe just one more in quickly.
Bill you mentioned some of the reimbursement initiatives driving the ASP in the fourth quarter can you give a sense for how much of that was sort of true prior period makeup versus.
Or maybe relative to the $3 70, you talked about for the full year.
Yeah of course again.
Because.
Looking forward, we would expect the <unk> to be in the range of $370 too.
Slightly higher I think you could assume that most of the benefit in Q4 was being able to realize revenue that we had not previously anticipated and thats through a number of different initiatives.
That allow us.
Get paid.
In terms of.
Working through denials et cetera, again the proactive.
Opportunities going forward.
A number of them would drive ongoing.
And permanent increases in reimbursement if we're successful.
Great I'll stop there thanks, everybody.
Your next.
<unk> is coming from Derik de Bruin <unk>. Please announce your affiliation then pose your question.
Hi, Derek Brown from Bank of America, So I've got a.
A few short ones.
First of all can you update us on the regulatory matter and sort of what are the incremental costs associated with that that's one.
Just with pricing for radar and your anticipation for reimbursement levels. That's two and then assumptions for <unk>.
Amortization depreciation and 22 thanks.
So thanks, Eric I'll take the first.
I'll, let <unk> answer question on pricing for Nevada, and then I'll, let bill come back to your question on amortization.
Basically we don't have.
Significant updates.
On the.
Submission that we made on the Subsys goes around the compliance matter our investigation.
Continuing to the large part is complete.
Taken all of the necessary remediation actions and continue to do.
Everything we can to meet any of the needs of the government through this self reporting process.
We did you will see in the 10-K, a slight increase in the us.
Above accrued for this.
I think of about 700000, just up from 10, and a half to a bit more than $11 million.
And if it can change.
And really that we've got everything we need to do and continue to do.
To meet the expectations of the government in the submission.
Now the timing of additional is going to be largely driven by feedback.
From the government, which is it was just hard to predict.
As I was when I came here include the past 10 months and looking forward.
High confidence to the values and commitment to compliance with this organization has.
Handled this exactly the way you would want this organization to do that.
Taken the remediation steps needed and we're focused on driving the business going forward.
Cloud you want to talk about pricing for radar.
Sure.
We haven't disclosed list pricing at this point, but I think the best way to think of it as broadly consistent with what you've seen sort of across the market for high quality high sensitive high specificity tasks like radar.
Tissue informed as to whole exome components in the blood. So I think you've probably got good analogs out there in the market.
Clearly, we will establish pricing as the reimbursement comes through so once we have the indication the first one is through.
We will share further details on that but.
Actually that will be through the multi X pathway, we do see the potential for.
And <unk> sort of status and our investments in the future. That's on the back of the initial Medicare coverage of course, that's not something that can be worked through and of course at this point nobody really has any private payer coverage, but that's something that will get negotiated with the commercial payers and building on that as the data sort of comes on board and of course, the Medicare reimbursed.
<unk> come in.
Builds over the next few years hopefully that gives you some color on how to think about it.
Yeah, and Derik in terms of amortization, our guidance assumes an amortization amount of about <unk>.
$34 million.
For 2022 in case people Wonder, we're assuming about $38 million of depreciation amortization was about $23 million in 2021. The reason that you see such a big uptick is because of the time.
<unk> of the antibiotic acquisition and the amortization of developed technology.
Tangible assets that we have a full year of that in 2022, instead of a partial year of that.
And there is if anyone's curious we do include a table on page 13 in our press release that gets you from net income to us.
Adjusted EBITDA, and we give our guidance for.
Items, such as amortization and depreciation.
Thanks, Eric.
Your next question is coming from Mac Sykes. Please announce your affiliation then pose your question.
Hi, Good morning, everybody. Thanks for taking my questions, Matt <unk> from Goldman Sachs.
Maybe just on the gross margins you kind of outlined sort of aspirational goals of 50% over time, and maybe just help us kind of walk through the progression to that number maybe over the course of 'twenty, two and beyond and how much is that.
Leverage from the.
Fixed cost leverage in clinical and pharma versus cost actions you might take just wanted to get a sense for where you see the biggest levers are to get that gross margin up to that goal level.
Hey, Matt. Thanks, a lot for that question it will be a gradual progression backup to that 50% level.
I think it will be driven by a series of factors a big part of it will be leverage of the existing fixed cost structure.
Revenue rebounds, and we emerge out of the.
The COVID-19 environment and as we can.
Have a larger sales force.
So fully generating revenue across that fixed cogs structure.
As <unk> as well.
So that will be the immediate driver.
Yes.
The the <unk>.
Longer term driver.
On gross margin will be efforts to drive continuous improvement.
In productivity and efficiency across the laboratory.
Those are things such as.
<unk>.
Automation process improvement.
We will also target selective pricing increases the reimbursement initiatives that I talked about and those are all things that take a while they don't happen overnight.
They happen over over a period of time.
The one other factor over time that will drive gross margin is our product mix as well as we continue to see mix shift to higher gross margin products and that will be particularly true as we secure better reimbursement on our Ngls.
Assays and over time as we ramp up on on radar.
So all of those factors will be will be drivers overtime.
Thanks, Matt.
Okay.
Your next question for today is coming from Nathan Carrico. Please announce your affiliation then pose your question.
Hey, guys Mason character from Stephens.
Maybe similar to the last question could you provide some commentary on your expectations for how pharma services gross margins trend in 2022, and maybe what the drivers are there is it just filling up capacity is there a shift to higher value projects or any color on the expansion.
Attunity is there would be great.
I'm going to ask George maybe to talk about the gross margin and then maybe David can talk about our priorities for growth in the year.
Yes, certainly.
As Mark mentioned, one of our goals on the international side and we're thrilled that China has opened now but with operations in the United States with operations in Switzerland, Singapore, and China, We really believe that the footprint is built.
And certainly we have capacity at those international lab and one of the main focuses of our commercial teams is going to be to fill those laboratories up. So again, we've got the infrastructure cost and we have a significant gross margin opportunity as we move revenue.
So those sites and fill those out certainly so that's a big part of this obviously, we continue to expect 20% plus growth in the pharma services sector, which also fills up capacity. We are looking at some cost actions as bill said and we implemented a pricing increase that earlier this year.
In fact, our clients so certainly.
That's happening, but we believe the IP infrastructure is largely built and certainly our expectations on the pharma business is going to continue to grow rapidly and then we will fill that up annualized talk about some of the commercial initiatives.
Yes, absolutely. Thank you for the question.
And so we have a terrific sales team that's really created a strong backlog.
Diverse.
Portfolio of both clients and project type.
So and this includes.
The ex U S sales team has really taken off in.
In 2021, despite despite obstacles that that Covid has presented.
So we feel very confident that we are going to fill up those <unk>.
Our national Labs, and the investments that we've made.
Set us up for growth with the with the strong backlog that we currently have.
Okay got it thank you guys okay.
Thanks Nathan.
Your next question for today is coming from Mike Mattson. Please announce your affiliation then pose your question.
Yes, Thanks, Mike Matson from Needham <unk> company.
So we've heard a lot about patients differing care and.
Theres, probably some cancer patients out there that have progressed to later stages.
So I understand the whole concept of a backlog of testing and whatnot, but I guess I'm wondering if there's any kind of second order effect.
These kind of later stage patients do they do you have any feel for whether they would require more test per patient maybe more expensive tests.
Or maybe the opposite of that is that a is that a positive or a negative for your business. I guess, if you have any feel for that.
So Mike Thanks for your question I think.
Theoretically and unfortunately, you could imagine that people are getting diagnosed later are already going to be it will be further progress and may have more complex.
<unk> or complications and that could lead to some incremental.
Testing request.
I think it's really too early to say that for sure, but I think.
We can say is.
At least.
Our business with cancer testing is that when the COVID-19 levels received the patient to get back into the offices, we do see steady rebound at a significant rebound in testing volumes.
I think we expect that we will continue to see that and I think the other thing is that we will that add to that effect is of course, our sales teams can get back into that.
<unk>.
Our actions with customers.
That helps.
Existing accounts to get them to order additional business, but importantly, it really helps them, adding new accounts.
Has been historically, a strong part of our growth as we can.
We still see lots of opportunities to add new accounts is a very fragmented market even though.
We're the largest player so.
<unk>.
Hard to say, what's going to happen in terms of those.
That delayed getting diagnosis.
But I think overall, we expect the volume front.
Sorry about that.
Okay got it thank you.
Your next question is coming from Jay Haas Savant. Please announce your affiliation then pose your question.
Hey, guys.
For the time here just just a quick clean up question Informatics, and then I have a follow up on Biopharma.
On Informatics I think you had said in the past that you plan to launch a clinical product on the trapelo side by year end.
Could you just like talk to whether this happened and what the early traction looks like over there.
And then on Biopharma, you spoke of delays last quarter, but I think this quarter you flagged some elevated cancels.
Driven by a few large projects.
I guess drove your backlogs to be flat sequentially.
Just some color on sort of what's driving that and I am trying to sort of juxtapose that with comments from some <unk> stocking of IRS rfps being down significantly in January and so on because of <unk>.
But absent near term breather in funding, especially for smaller biopharma customers. So I'm just trying to juxtapose. What you guys are seeing there, but the elevated cancels sourcing some of that commentary. Thank you.
So I'm going to ask Clint to take the first question can you give an update on how.
Decision support services and some of the.
<unk> that we're putting in place how that's progressing and then ill ask Athena to make a comment on the project cancellations.
I'll just say upfront.
What was impressive again is that.
Fight those cancellations, we did see an increase in the backlog from 261 of the 267 so.
The underlying demand for our services is still come through but the deal will say a word about the cancellations, but let cliff do you want to start and give an update on capello decision support services.
Sure sure happy to so.
We are in the process of launching and I say that because we have kind of a soft launch.
It's already happened.
For a configuration of Capello called quick start what we learned in the past year or so is that.
When groups look at the so Paulo, and they think about immediately on the integration it becomes it looks daunting. So we created a configuration.
Capello that makes it much quicker much easier to implement within a couple of weeks.
And you asked about the response to it has been very very positive in fact, we have our first contract already this year. We have another one that's in the works and several more in the pipeline.
It's been really well received that's not the only reason someone makes a decision to do something but this certainly takes a lot of the a lot of the friction out of doing something new.
Group like this.
Okay. Thanks.
Tina do you want to.
Comment on the cancellations.
Yes, absolutely and thank you for the question, we always expect some portion of our backlog.
<unk> experienced the cancellation and Thats when that program at our client is no longer going to be supported because some some data that Scott.
This quarter, we had some cancellations that were larger in dollar value, but definitely we expect that.
We've also heard some.
Changes in demand from pharma, but we haven't experienced this ourselves.
I think that.
Testament to our sales who has seen this and refocus.
An honest and different types of clients and projects.
I mentioned before we have a diverse portfolio and our backlog of projects consisting of.
Earlier Phase research all the way to a phase III pivotal pivotal clinical trials.
It reflects the diverse.
Product offerings that we have to support all phases.
Koby starts for our clients. So we feel very optimistic about that even though we have been hearing at these changes.
Got it helpful. Thank you.
Hey.
Okay.
There are no further questions in queue I would now like to turn the floor back over to Mark for any closing comments.
Okay. Thanks, Paul and thanks to everybody for participating in this call I'd like to close as we always do.
On behalf of the Neogenomics leadership team to just say thank you to.
All of you, but quarterly to also say thank you to all our employees and all the great work that they do I also want to say to those of you listening that are investors or are considering an investment in neogenomics. We thank you for your support and interest in our company and.
And we look forward to continuing our dialogue.
In the course of the quarter.
I look forward to talking to all of you soon thanks, so much.
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.
You for your participation.
Okay.