Q3 2022 Neogenomics Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the Neogenomics third quarter 2022 earnings call.
At this time, all participants have been placed on 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 highest Mr. Chris Smith CEO of Neogenomics, Chris the floor is yours.
Thanks, Jenny and good morning, everyone.
Like to welcome you to the Neogenomics third quarter 2022 conference call.
Joining me for this call from our Fort Myers headquarters are Bill Bonello, our Chief Financial Officer.
<unk> secret President of Pharmacy service Division and antibody.
And doctors Sochi, Kulkarni, President of lab operations, and our Chief Scientific Officer.
Before we begin our prepared remarks, bill will discuss the forward looking statements and the non-GAAP measures used on this call Bill.
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 in our annual report on Form 10-K for the year ended December 31, 2021 that is filed with the Securities and Exchange Commission.
Forward looking statements made during this call speak 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 this conference call in order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. The non-GAAP financial measures presented should not be considered to be an alternative to financial measures require.
By GAAP should not be considered measures of liquidity and are unlikely to be comparable to non-GAAP financial measures provided by other companies.
The 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 turning the call back to Chris I want to let everyone know that a copy of our earnings presentation is available on the Investor Relations section of our website.
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 allotted for this call.
Thank you Bill.
As you look at the first slide one of the thing Youll begin to see in all of our presentations is that we'll talk directly about the mission and the number of patients that we're able to impact.
On a daily basis, and I'm really excited about joining you for my first earnings call with this great team at Neogenomics for.
Today's call I will begin by discussing our recent performance Bill will then review our third quarter financials in detail before turning it back to me to provide some initial observations from my first three months with the company on the current state of the business and highlight some of the actions we're already taking to drive improvements. We will then have time at the end for questions and answers.
However, before we jump into our third quarter performance.
I want to talk a little bit about our team.
As most of you know at the end of the quarter on September 28, Fort Myers, Florida, where our corporate headquarters in one of our testing labs is located was severely impacted by hurricane in.
A strong category for storm and while I was only a few weeks into my role here at Neo I was able to be part of a team from a response perspective and I couldnt be more proud of how we've reacted our team was prepared and responded as well as I could ever hope coming together to ensure that patient care disruption was very minimal.
But there were also there for each other some of our employees were significantly affected by the storm.
And one of the reasons I was so excited to join <unk> was the dedication to the mission of serving the patients and the culture of Neogenomics that I've heard so much about.
The team sponsor just team's response just reinforced my enthusiasm about the passion towards the patient care and the great opportunity. We have ahead of us.
I want to thank everyone for their dedication during such a trying time.
Now, let's move on to the third quarter performance.
Third quarter results are encouraging revenue growth increased 6%.
Pricing was strong and increased 5%.
Adjusted gross margin improved sequentially and adjusted EBITDA loss declined for the second quarter in a row.
We also saw meaningful improvements in turnaround time, a key indicator in our markets.
While we have a lot of room for improvement we are definitely moving in the right direction.
Yeah.
We have seen consistent sequential improvement in all key categories throughout the year.
As I mentioned revenue increased 6% year on year to $129 million driven by improvements in revenue per test in our clinical business and high teens growth in our pharma service business.
I'm, especially pleased to report that we've already performed over 800000 tests and have helped to approximately 450000 patients year to date.
As we move to the individual divisions clinical service revenue increased 4%.
Revenue per test increased 5% and volume declined 1% we.
We did see an uptick in volume at the end of the quarter, which continued into October despite the impact from Hurricane Hanna and importantly, we saw better growth in our high margin modalities, including Ngls.
And as a reminder, as more and more customers move from multiple single gene tests to mgs panels, we will see a decline in volume, but a positive impact on our revenue.
Revenue per test increased year over year for the sixth consecutive quarter. This improvement has been driven by our strategic focus on higher value tests and improvements in reimbursement and collections.
While we are encouraged about the opportunities for revenue per test I would remind everyone that it is not unusual to sometimes the volatility in this metric from quarter to quarter.
Okay.
Pharma services.
Which is our business that focuses on pharmaceutical company and our partners.
That revenue grew 18% driven by strong NGL volume from our large pharma partners.
While we are encouraged by this improvement pharma services is still not performing at the profit level, we expect and we are pursuing initiatives to improve profitability and drive innovation in this business I will discuss these initiatives in greater detail later in the presentation.
I will now turn the call over to Bill, who will review quarter three financials in greater detail.
Thank you Chris Chris focused on the revenue results I will highlight on the rest of the income statement GAAP gross margin was 38% adjusted gross margin, which excludes in Nevada related noncash amortization expense was 41, 7%.
Adjusted gross margin declined 120 basis points from the third quarter of last year, primarily due to wage inflation higher supply costs and increasing logistics costs.
Adjusted gross margin improved 270 basis points sequentially.
Driven by the combination of increases in clinical revenue per test and decreases in clinical cost per test along with leverage on increased pharma services revenue.
We're encouraged by the steady sequential improvement in gross margin and see opportunity for continued improvement over time.
In addition to the revenue and cost saving opportunities that we've identified through project catalyst. We also expect to benefit from improvements in revenue cycle management and continued mix shift to more profitable offerings, our strategic reimbursement excuse me and its strategic repositioning of our pharma services business and the <unk>.
Fertility for radar revenue.
Sales and marketing expense increased $1 million or 7% year over year to $17 million, primarily due to the expansion of our precision medicine sales team.
G&A expense increased $400000 or 1% year over year to $64 million, primarily due to inflation.
The sequential increase in G&A expense is primarily related to nonrecurring costs associated with project catalyst.
Reducing G&A expense is a major area of focus for the company. We've already initiatives initiated a number of cost saving programs and expect to take additional actions in the months to come.
Chris will talk about some of these initiatives later in the call.
Adjusted EBITDA loss was $12 million for the quarter, which is a $5 million improvement for Q2, but an $8 million greater loss than Q3 of last year.
Turning to the balance sheet.
We exited quarter, three with $444 million in cash and marketable securities Dsos were flat sequentially at 80 days consistent with our normalized range.
I would like to spend a little time discussing our outlook for the fourth quarter. As a reminder, we withdrew our 2022 revenue and EBITDA guidance in March in conjunction with the departure of our previous CEO , but we did provide some guardrails on their Q1 and Q2 calls and we'll do so again today.
We expect revenue to be flat to up modestly on a sequential basis in Q4 and up modestly year over year for both the quarter and the full year.
We expect adjusted EBITDA to improve modestly from Q3 levels.
We continue to view 2022, as a rebuilding year, where our primary focus is to improve our current product offerings drive operational efficiency generate clinical evidence in support of radar and lay a foundation for long term sustainable profitable growth.
We expect to incur certain one time charges as we make investments to drive improvements in both growth and profitability longer term.
We intend to reinstate annual guidance and provide a more detailed review of our strategy and growth outlook. When we report Q4 earnings in February .
I will now turn the call back to Chris.
Thanks, Bill and we will turn to slide 13.
Since joining the company in mid August I've spent the past two five months meeting with customers patients and teammates both in the field and then our labs to gain deeper understanding of our business.
After two five months I truly do believe that neogenomics can be the leading provider of cancer testing information and decision support.
In a sense owning the category and oncology testing.
I, especially see this in the community settings, where the vast majority of care occurs and where we already are the market leader we have a strong.
<unk> Foundation in the market, having established deep and long standing relationships with thousands of community pathologists and oncologists.
Many of whom send us the vast majority of their testing.
The breadth of our test menu is still a competitive advantage, even with the proliferation of large <unk> panels.
But the connection with our customers runs much deeper than our test offering.
These physicians see neo as a true partner in delivering care to their patients. Our teammates are deeply committed to our mission of improving patient care and that commitment matters to our customers.
We've also built a solid foundation to service Biopharma companies with offerings that cover the continuum of pharma activity from discovery and translation medicine, all the way through commercialization.
With the expansion of our precision oncology decision support and informatics capabilities, we are very well positioned for the next phase in our journey.
That said there is no doubt that we need to significantly improve execution.
I believe that we've had some of the elements of an effective strategy in place for years, but we simply have not executed on those initiatives.
From a customer facing standpoint, we need to enhance the customer experience and win on service.
This includes reducing turnaround time, making it easier to do business with us.
Expanding and optimizing our field sales organization.
While improving our product offering.
I am confident that when we do these things we will start to accelerate growth move.
<unk> more market share increase our volume growth and ultimately improve profitability.
From a financial perspective, we need to increase the productivity and efficiency of our labs, we need to begin to tightly manage our SG&A spend and focus investment on the chosen few and not try to be all things to all people.
And finally, we need to get paid for the work that we're doing which means that we need significantly increase our focus on revenue cycle management.
I spent the first 60 to 90 days learning the business, including our strengths in areas, where we need improvement in over the next 60 to 90 days with the team we will finalize our strategic direction for the business going forward.
In the short time that I've been with the company several people, including teammates and investors have asked while we focus on revenue growth in lieu of profits or sacrifice growth to drive profitability.
Candidly I believe we need to and that we can do both.
From the get go we will target building sustainable long term profitable growth.
As we do this we will balance our focus between efforts to drive operational efficiency and investments to drive innovation and growth.
We will set clear priorities of which opportunities to pursue and importantly, not to pursue and then ultimately we will focus the entire organization on execution.
Moving to slide five while we need to execute better we are pointed in the right direction with project catalyst, which is really all about execution and driving efficiency.
This program has been a framework for identifying prioritizing executing operational improvements and will become the foundation for our annual value capture.
Movement going forward.
Let me tell you about some of the actions that we're taking part in project catalyst to improve customer experience accelerate growth and drive profit.
One of the key areas of focus has been on lab optimization.
We've deployed deep neural network, our DNN technology to automate cytogenetics analysis with over 40% efficiency gains.
We've also deployed automation platforms for fish and molecular that will deliver major improvements in the last throughput.
We are developing a digital pathology solution for Ngls that will improve specimen flow and improved turnaround time.
And we also are working to rationalize our footprint to enhance workflow achieve economies of scale and create testing centers of excellence.
We've already begun to see improvements in both turnaround time and cost per test throughout the quarter. As these initiatives are taking hold but there is definitely still opportunity for improvement.
As part of the competitive growth pillar, we have established an enhanced revenue cycle management program to further improve revenue per test improved billing practices enhanced strategic reimbursement.
Revenue cycle management will be a focus area in Q4 and a top priority in 2023.
We're also continuing with average to improve both our product mix and our client experience.
We're currently validating.
And improved NGF panel that will cover approximately 500 genes include both DNA and RNA and report MSI <unk> and <unk>.
We expect this new assay to a significantly better turnaround time than our current panels.
We have additional initiatives underway in all the pillars and we will update you on these activities as they continue to occur and then more around our strategic direction on our Q4 earnings call next year.
Moving to slide 16, I want to spend a minute on radar.
I'm also personally very excited about the prospects of radar our proprietary assay for detection of Mardi and reoccurring.
And want to talk just a bit about our plans to commercialize this test.
As we noted in our press release on October 28, we were informed by multi acts and additional clinical evidence is needed in order to secure Medicare coverage for radar for colorectal cancer.
As a result of our discussions with multi X, we decided to initiate a multi pronged approach and launching radar.
First we will work with multi X and begin additional data collections for colorectal cancer.
But second because of the strength of our published clinical data in breast cancer, we have decided to accelerate our commercial launch of radar for breast cancer into Q1 of next year, along with the launch of colorectal cancer.
We already have a body of published clinical data, including peer reviewed study published in the journal of clinical oncology and presented during the plenary session at <unk>. This summer.
Our initial focus will be to continue to gather clinical data.
But to gain early adopter experience and generating evidence to spoke both reimbursement and adoption.
Our managed care and our field organization team will work to secure payment from commercial payers and private pay patients why we continue to work closely with Medicare and other payers to gain coverage.
While we were disappointed in the decision for <unk>, we remain confident in the assay performance.
We will expand our clinical research studies for colorectal as well as other cancers and remain incredibly confident in our ability to secure reimbursement for Medicare and other payers.
But as a reminder, as we previously disclosed in these calls we did not anticipate to generate any meaningful clinical revenue from radar until at least 2024.
As we move to slide 20, I want to talk about re managing our pharma service business.
We are repositioning our pharma service business first to improve profitability and drive innovation and then to accelerate growth.
Over the past couple of years, we have focused too heavily on bookings at the expense of being selective about the types of projects that we perform and the profitability of the business.
This transition is more about discipline than it is about capabilities.
As we have most of the capabilities that we need to deliver high value projects.
That said, we need to sacrifice some near term revenue growth as we work to improve our mix of business and enhance innovation partnerships with our pharma partners we.
We expect our pharma service business to be an important engine for ongoing innovation for the entire company.
And under <unk> leadership, we are building a product roadmap that will increase our presence in precision oncology and afford us the opportunity to work closely with our clinical partners to enhance patient care in the community settings.
Importantly, we will be strategic in our approach of innovation, focusing our investments only on the chosen few projects that have high potential to drive significant improvement in patient care.
We will also be mindful of the return on these investments consistent with our strategy of pursuing profitable growth.
We expect that these initiatives will have meaningful impact on both revenue growth and profitability over time.
While we do expect to drive improvements in margin, we may choose to reinvest some of these gains for future growth of the company.
In summary.
We are pleased with the progress that we've made this quarter and are confident that we are starting to move the company in the right direction. We still have a lot of heavy lifting in front of us and we acknowledge that some of the improvements will take time.
But we are laying a solid foundation.
We look forward to providing more detailed plans when we report our fourth quarter earnings next year.
At this point, we'd like to open the call for questions. Incidentally. If you are listening to this conference call via webcast only and would like to submit a question. Please feel free to E Mail us at Bill Bonello at Neogenomics Dot com during the Q&A session and we will address your questions at the end.
If the subject matter hasnt already been addressed by our call in listeners as mentioned at the beginning of this call we would like to ask each person to limit their questions to one so that we may hear from everyone and still keep within the hour allotted for this call.
Operator, you May now open up the call for questions.
Thank you ladies and gentlemen, the floor is now open for questions. If you do have any questions or comments on the phone lines. Please press star one on your phone handset. We also while posing your question you pace pick up your handset if you're listening on a speaker phone to provide optimum sound quality. Please hold wilsey poll for questions.
Thank you. Your first question is coming from Alex Nowak of Great Craig Hallum Capital Group, Alex Your line is life Okay.
Okay, great good morning, everyone Hi, Chris.
Great to hear from you for the first time or in the Q&A here look forward to working with you as a lot of questions to ask but maybe just one for me maybe stand on some of the internal changes you're making at neo to the sales force.
You can see theres been one team calling on pathologists. Another team was ramping late last year to call on oncologists for the precision medicine function now that plan has been also now there really hasn't been a hunter gatherer structure either so how are you thinking about the sales force now and also going after the four operating units that you outlined on page 13.
Yes, Hey, thanks, Alex for the question and look I think ultimately in our business.
Field organization is one of our greatest assets and as you probably know I mean, we have these deep relationships with pathologists.
Caplin lives on but as we introduced radar and I think as the industry pivoted to more precision medicine, a lot of that business. As you know has moved to oncologists. So the strategy I think to hire a separate sales force to call on the oncologists, which is in a different setting usually than the pathologist I think was a great idea.
I will say the one place that we have changed is we now have one leader of all of sales into our clinical customers. So we will not have to.
Sales leaders will run it through one leadership team, but we will have separate folks calling on them that being said I think we probably have underestimated the breadth of our menu and the impact it can have on the oncologist as well so that historically wasn't a call points or whether it's things like Ngls that we've had for a while for a full menu. We think we're going to get more pull through from that group.
Rather than just the radar product or NGF and so what you'll see now more as a partnership out in the marketplace with our two reps working hand in hand.
Trying to provide the best possible coverage in the best possible care I hope that kind of answers your question.
It does yeah, thanks for the update.
Thank you.
Thank you very much. Your next question is coming from Andrew Brachman of William Blair. Your line is live.
Yes, hi, guys. Good morning, Thanks for taking the questions.
Obviously, youre seeing sort of continued sequential improvement throughout the year and just sort of recognizing where we are in the calendar can you maybe just sort of give us some major building blocks, you're thinking about as it relates to 2023 as we're working to fine tune our models heading into next year. Thanks.
Yes look I think we shared some of those.
On the call, but I think the way you think about it I mean I go back to that one slide it's about driving customer engagement or customer experience and then driving operating profit and I think one of the things the company did great job. The middle of this year is rolling out this project catalyst, which is really.
Think about it as a souped up or.
Value capture program to focus on driving efficiencies and I think youre seeing that come through I will say one of the new ones that we've already gotten traction on even in the short time that I've been here as this revenue cycle management, so you're going to see a lot of lift there because I think candidly in our business, we're not getting paid for all the work that we're doing and I think creating a focus to do a much better job.
There I think youll see.
A lot more cohesive and a lot broader sales reach next year I think thats one of the places that from a company perspective that we can do I think a much better job is optimizing the field organization and candidly as you probably saw in the 8-K that was filed we've made a change there and I think thats going to be positive for the.
Going forward I would say the next one for me is around is really around lab operations and candidly, we're starting to call. It enterprise operations because it really is the end to end, where we think we can get significant improvement on the margin.
In the labs and some of this includes the footprint, which you heard me just touch on briefly but it's also about doing what we do better every single day and then finally I think it is new product innovation I think one of the challenges for the company.
Without question I think radar will be a significant.
<unk> for us that was a large acquisition that changed the dynamics of this company from a financial perspective, but there's a lot of innovation internally and I think with Sochi, and Vishal partnership I actually believe youll see some things coming over the next 12 months to 24 months that are pretty significant as.
As we get on the front side of that care. So I know, it's kind of a little bit of a smorgasbord will give you a lot more insight we plan to roll out the strategic plan to all our investors and analysts when we do Q4. So we'll hit on the Q4 and the year end results, but then we're really going to dive deep into giving you a detailed roadmap of where we're going but.
I joke with the team here your trip over opportunity here and I think part of US is look prioritization I think we've tried to be too many things to too many people and I think our ability to focus on the chosen view and execute is going to have a remarkable impact on the business.
Thank you very much.
Next question is coming from Mac Sykes of Goldman Sachs.
Matt and his life.
Hey, guys. This is Dave on for Matt Chris Congrats on a strong start to your time in Nemo Neo.
Can you tell us more about <unk>.
Great.
Any indications do you expect to be.
Be applicable in the next two to five years.
Of the more than 125 pharma partners you currently have.
What percent of them do you expect to use radar eventually.
Yes, thanks for that.
Look I think radar is one of our most exciting things that as you look at it this company's horizon for the next three to five years and where cancer care is going I think it's I think it's going to be one of the major innovators.
Got the Shaw with US this morning around the table, who is just living and breathing that every day, including the pharma side Vishal do you want to give a little more color, yes capex.
So if you look at.
The indications that we've already have publications on those are in breast cancer, and head and neck cancer, a little bit in Io and also in bladder. So I think we're going to expand on those indications.
Get those out as fast as we can but also we're getting a lot of interest from pharma across other indications like pancreatic as an example, like ovarian as an example, so we're building that evidence. So I think over the next three to five years not just on the public side, what we have published but also expanding those indications is going to be key for us.
If you look at it on the pharma side right. We went from very little I would say pharma or using radar off our existing customer base to now getting a lot of interest on radar. After our asphalt planets binary presentation that we had and I think that's where we're starting to see the start we've actually integrated the.
But our pharma team at the Neal pharma teams together because our call points were the same and that's also helped us reach a lot more people within the pharma companies and give them visibility to radar. So we're going to see a lot of that going into 2023.
Great. Thanks.
Thank you very much. Your next question is coming from Puneet Suiter of SBB Securities Puny. Your line is live.
Hey, Chris.
And bill Thanks for taking the question so.
<unk> is obviously an important growth driver for you and the conversion from molecular too.
Awards molecular is happening across the company obviously across oncology.
Could you maybe remind us what was the growth you saw there.
In the quarter and what is sort of the mgs roads.
That's baked into the guide rails.
<unk>.
Our guardrails of the guide and then on <unk> spend.
And could you maybe Chris maybe characterize for us what's the level of moderation here versus before and how should we ought to think about the spend in opex. Here. Obviously this was a big focus before but it seems like there is moderation here.
But at the same time, you want to continue to invest because this is an important category for you.
Thank you yeah, a lot in that question. So let me try to break it up into parts and start with the NGL side and then.
You talked about I think the pace of spend I think you mentioned it with radar, but is really I think the whole business, but look our molecular we're really excited about where the company is in molecular I mean, we had incredibly strong growth.
Strong double digit growth in molecular and really in Ngls.
Significantly even stronger in the quarter and the reason being is that we have now released the ngls offering into both sales forces. So if you remember in the past we would have only gone through pathology salesforce and really in the quarter. We had our oncology group start to sell that product and we've just gotten up to the 21 people I think.
The last two or three were hired in the quarter. So.
And that has had a huge impact and the interesting thing about it is you're coming in Youre new in this business and so you come in and you look at what's being reported or our models and I think where we probably haven't done as good a job as we talked about units, but you have to remember if I'm selling three single gene.
And now I'm moving to an NGF panel Youre actually growth has gone down negative two units right because youre doing one test versus three but our revenue has increased significantly as is our margin and thats, what I think youre really going to start to see in the business going forward is this accelerated growth in Ngls.
Which is going to improve AEP is going to improve operating profit, but it will have an impact on units.
So I think every quarter I look I would tell you that we've talked about what we're going to disclose on Ngls I don't think we've settled in on that but I would tell you every single quarter that is like one of the two or three metrics that I keep an eye on because most of these customers that we may be not gotten the NGL business from we own all of their other testing. So it is a great cross selling off.
Opportunity looking by move real quick to spend I think it's about balance and I think that look if you think about antibody as a business. It was.
I think it was back in.
Kind of the heyday of a lot of these cancer companies that were running really hard at innovation and ultimately trying to get the revenue and spending I don't think is under control.
To be fair, we never integrated that company. So we're going through the process just right now to integrate that company into Neil where we think we will get big cost savings, but that being said, we probably underinvested in R&D and other parts of the business. So it is going to be about this blend and how do we pace it but I think what you.
You will find is that.
We are focused on long term again, not a quarter long term sustainable profitable growth and Thats, what youll see as we start to move forward as a company.
Got it that's helpful.
Thanks, I'll hop back into the queue.
Thank you very much. Your next question is coming from Andrew Cooper of Raymond James Andrew Your line is live.
Hey, everybody congrats on that.
<unk> thanks for the question.
Maybe just a little more detail in terms of validating the broader NGF panels will be great in terms of what that offering.
Made up of whether you've gone a little bit more off the shelf or doing something a little bit more LDP kind of internally driven.
And when we can expect that validation to be completed in the product to launch and then secondly, just on pharma if you could.
Maybe give us a little bit more sense, when you say potentially give up a little bit of near term revenue can you size that a little bit and help us think about what we should be expecting.
From a near term growth perspective in that business given the backlog that you do already have today.
I Love you guys. Because all you guys are taking two very different questions and building into one so I'll address both of them start with Ngls and I'm going to give a highlight and then throw it over to Sochi, who probably has one of the most renowned leaders in the world in this space and I think we're really fortunate to have him as the guy now steering that that chip, but if you look at <unk>.
Like we are we will release I would say, we're going to end up doing both I think one's pretty innovative to the market. That's in the pipeline and one I think it's to accelerate our building on turnaround time and both of those will come to the market in the next 18 months our goal would probably be one in the first half of next year and one probably in the first half.
What you are thinking about for this for the investors. So very quickly and briefly we have been working.
Validating an assay that is.
Our market, leading about 500, plus genes, which will have DNA and automate together. So we can build for comprehensive genomic profiling, which will have all the six the horsemen of accomplished Apocalypse.
If you.
If you think about it.
Putting all the <unk>.
Features we need the.
Capture for to help our patients, but we're not going to stop there thats just our quick way to get into the.
Competitive landscape, we have already been <unk>.
What's the gating and looking into a lot of options, where we will have a much more comprehensive whole exome whole genome.
The whole transcriptome.
Type assays.
And also looking at other options for liquid biopsy.
We're all working on together.
So.
That answer and maybe Michel you kind of give you can just follow up on SaaS you just on what you are filing because of the way we're doing radar how quickly it allows us to move into whole exome do you want to.
So I mean, I think with radar right the input going into radar is whole exome. So what's nice about it is that we already have that component.
Now how do you get that into the clinical setting as the next part of the story here.
But what's nice is that we already have we already have the technology and are really acknowledging is already haven't validated and so on so we just need to get it into the clinical setting. So that's something we'll work on.
Josh is health care.
And that's I think one of the things when I talk about we really hadn't integrated the business I don't think we looked at that at the time of the acquisition is how can we transfer that over I think the second part of your question is how we're going to manage his pharma revenue piece going forward and Michele you want to take that one yes. If you look in the pharma side as Chris mentioned in his.
Called earlier right I mean, what's happened is that we've taken all types of work in the past without worrying about profitability and I think that's something that we're paying a lot more attention to it.
We're seeing actually we're putting a lot of steps.
Going into the first half of this year and we're seeing improvement there already and I think that's something we just have to accelerate going forward and basically focused on projects, where we see that are going to add more value not just from a pharma perspective, but also from a clinical perspective, which really means focusing on modalities like molecular.
Like.
We can't give up stuff like IAC, because we know thats part of oncology anyway, but where the growth will occur as more on the molecular side and the whole exome side and so on that transcriptome, that's where we see a lot of requests coming from pharma and Thats what were going to focus our energies on.
Great. Thanks, Sean Great I appreciate it.
Thank you very much. Your next question is coming from Derik de Bruin of Bank of America. Derrick Your line is live.
Hi, Good morning. This is John on for Derek.
If I could dig into it a bit more obviously the stronger adoption of Ngls would be a headwind to.
The volume, but a tailwind for the pricing should we expect volume to taper down over the next few quarters.
And on the ASP side, what kind of.
Stable growth can we expect.
And I think the question was asked earlier and also in terms of re.
Re prioritizing your pipeline and prioritizing profitability, what sort of opex.
Opex should we expect going ahead. Thank you.
Yes.
Yes, so maybe let me start kind of at the tail end of that question, we'll come back to the front end, so we won't give guidance pill.
Until next year. So we really haven't talked about where it will be I think you are modeling with the guardrails that Bill gave I think you are probably.
In good shape, there and look I think when you move over to Ngls. It really is an interesting play youre right. Your volume goes down your revenue goes up but remember that I think that from a sales perspective, we have not been out there optimizing the sales organization. So our focus in next year is to accelerate market growth and market share growth and as we.
Do that I would expect our volume to increase as well so look at it.
You have to run the blend of the two right accompany thats starting to run again and move share, but also a company that's moving our testing to higher value testing, so youre, giving up the lower value test. So again I think when we come out in February I think is what we're doing our call, we'll give guidance and will give be very specific but we haven't disclosed any of that at this point.
Got you I appreciate it.
Ill hop back in the queue.
Thank you very much.
Next question is coming from Mark Massaro of BPI.
Your line is live.
Hey, guys. Thanks for the question and congrats Chris on a nice start at Neogenomics.
I wanted to drill down a little bit on your radar MRV strategy.
Understanding that you will launch CRC in breast in Q1 of 2023 I know in your press release.
You mentioned that <unk> asked for a direct comparison with other MRV tests in use or a full clinical study I guess I hadn't realized that you hadn't submitted a full clinical study previously so do you have a sense for which of those two paths youll do whether direct head to head with Natera and gardens or <unk>.
Assuming a full clinical study and then sort of related to that.
Youre going to be driving some volumes without recognizing Medicare revenue in 2023, how do you think that may impact your overall asps.
Yes, thanks for that I'm going to take the first part and then I'll throw to Vishal, but look I think our view on this look this was a unique thing that we had a significantly more data on breadth than we did on colorectal and the reality of life. If we could have gone back in time to Shawn I Werent here, we would've gone after breast first we went after colorectal we didn't have the date.
So they came and told us, but you've got to remember throughout this year, we've hired a rockstar salesforce and.
And we've trained up and for us.
The thing that you're going to want to launch a product when you have Medicare approvals Crazy look it's not going to be easy don't get me wrong, but we have physicians clamoring to get their hands on this product and so our thought is look we're going to launch the commercial and private pay and we really want to get early adoption and what it will do it will create momentum in the marketplaces, we continue to work behind.
The scenes on things around reimbursement, but our breadth is really where you see a differentiation significantly against the terra with this assay and so thats why we wanted to get it out as far as what we're going to do to get Mol Dx coverage do you want to cover some of that yes, I mean look.
We have both paths available to us whether we do a head to head or whether we do a bigger clinical study we did submit some data.
It wasn't a clinical utility data in colorectal because that was our understanding with our previous discussions with multi extra there wasn't needed alright. So.
Looking to them, where we're on a continuous discussions with them as to what makes the most sense.
Don't want to give guidance, one way or another yet as to which path. We are taking but we are in discussions. We're also looking at with samples are available to us to get it.
Fastest possible back to them so because of that I think we'll provide more guidance on guidance Bobby for Q4.
Earnings, but right now I don't think we're going to provide that guidance, but coming back to the breast side right. The only thing I would add here is that if you look at our breast data that we have we got the terrific. Other geo OXXO the chemo near under survive studies that we've already published on and if you look at in particular, the <unk> study that was published what Youll see is at 25.
Percent of the breast cancer patients in that population where below points, there of 1% and we could detect them with radar that is very unique to our technology. That's out there and I think thats something we have to highlight because the radar technology is known for that and Thats the value proposition, we bring to the market and oncologists no doubt right and Thats why.
We want to get it out there now.
Okay. Thank you very much. Your next question is coming from Nathan Kirito of Stephens incorporated Nathan Your line is live.
Hey, guys. Congratulations on the quarter, maybe just looking at the volume growth improvements you saw in September and October October is there any additional color you can give there either quantitatively or qualitatively in terms of maybe comparing the end of the quarter compared to the beginning and maybe any differences.
Between or improvements in the NGL business versus legacy modalities.
Yes look we don't give month to month I think we gave you that little bit of highlight and I think one of the reasons. We did that is I mean, our lab had to be shut down about five or six days with the hurricane and the C.
Relatively good volume in light of losing so many days in this business.
So I think but we didn't give months and months of Bill do you want to give any more color around.
Just kind of the unit yes.
I don't think we want to provide quantification, but one of the things that Chris mentioned is.
We've seen continuous improvements in our turnaround time.
Over the course of the last several months and as you start to see improvements in customer service then you start to see improvements.
In growth as well and so I think that probably is playing a role.
Got it thanks guys.
Thank you very much. Your next question is coming from David Westenburg of Piper Sandler David Your line is live.
Hey, guys. This is John on for Dave. Thanks for taking my question and congrats on the good quarter. So traditionally neogenomics is relatively low R&D spend sort of company.
Should we think about spending on R&D over the coming maybe five or so years as they are.
More than the opportunities that you see with Nevada.
For instance, or is it more part of our new model. Thank you.
Yes look look I would say when we come out with the guidance.
<unk>.
In our Q4 earnings or next year, I think you'll get much more clarity, but maybe just caveat it a little bit most of our R&D was really D. I would say there is a high percentage of that spend was not on the future innovation. So one of the big pieces is reallocating the resources that we're already spending.
Sometimes I find in R&D, it's not the percentage of revenue you have enough money. It's just what are you spending the money on and I would say that that's really our first step is.
SaaS, you kind of really starts to dig into that that leading that R&D team.
So I would say that's what obviously in about a little bit different it wasn't R&D. It was very much in our engine and so as we go through the integrating the two businesses I think we'll get more clarity on that but I would not we will pace all of our spending so.
So I wouldn't think we're going to move that but I wouldnt say that thats going to be significant but I would wait till we come out from a percentage of revenue, but I would not until we come out and share guidance give you much more detail on that.
Got it okay.
Thank you very much. Your next question is coming from Susan.
<unk> of Morgan Stanley .
Your line is now they say hey, guys, Hey, guys. Good morning, Chris It's good to speak with you again.
Couple of questions for you here.
Just a quick point of clarification on what I think I heard you guys say on radar here.
Did I did I hear which I would say that <unk> clinical utility evidence and my question is really the incumbents in that Mardi, who have reimbursement havent been asked to provide that they have some multiyear studies underway. So is this mainly a function of not being first to market or is it just a shift in standards. We are seeing from <unk> and my second.
<unk>, perhaps you can take a crack at that.
You had noted that your backlog gets skewed a lot towards larger clinical stage work and you wanted to shift it towards quick onboard in preclinical stuff.
Is that now essentially de prioritized and Youll go after sort of profitable work irrespective of whether it's short or long cycle. Thank you.
You wouldn't take on yes, so I'll give it to Vishal I'll have I'll make a comment on backlog at the end, but for <unk>, yes. So first thing on the radar side right I think.
We're seeing more clarification from bold the excess the way it probably I would look at this I think.
I think youre right. It is.
Function of not being first to market.
And the indications that we had originally gone for so I think thats where.
You have to keep that in mind.
There is a predicate device that's already out there and have asked us to basically show a comparison to that predicate device and some of the indications that are already out there so you're seeing a little bit of that when we talk about clinical utility we talk about clinical utility here as to the value of an <unk> test in detecting things earlier compared to standard of care. So that can be through a publication does not like.
What we are used to when a full blown clinical utility perspective, it's more from a publication perspective. So that's what we're working on and you can see that we have some of that already in the breast cancer side with certain indications in breast cancer.
And then to the pharma side right.
Not that we will not take on or we've only taken unprofitable because I think thats very much short term thinking because we know that there are indications or there are situations, where you start with something that is smaller scale non profitable that turns into much larger projects, but it has to be much more strategic and in a longer term view and discussions with pharma.
To be able to do that and I think thats, where we are at as to how do we take a look at all of our for example, our top 25 top 50 pharma customers out there.
Look at where they're going with their drug programs do we have the capabilities internally to be able to meet those requirements as we see them not just for the next quarter, but also for the next two to three years out because guess what pharma is always looking 10 years or 15 years out and Thats something we also have to take a look at I think it's also as I said in the call I'm, putting a lot more discipline.
Into the way that we manage that business. The field for example was paid on bookings not on revenue and.
Bookings change over time, if you think about profitability of projects like <unk>.
There was not a big focus on that and so I would say the big shift has been that we will continue obviously managed bookings and by the way we had a great quarter from a booking perspective, but we will start talking more about the farmers, what's going on from a revenue perspective.
Helpful. Thank you guys.
Thank you very much.
Your next question is coming from Dan Brennan of Cowen John Your line is live.
Great. Thanks for thanks for taking the questions.
Maybe just wondering about the kind of bigger picture view on the core clinical business getting that business back up to say mid single high single digit growth.
Chris just wondering how much of that is kind of in your own control meeting fixing service levels turnaround times things of that sort versus having to deal with.
Increasing competitive landscape or if you would clarify it like that from some of the larger oncology CLIA labs and in the risk that poses to some of your base business.
Yes look I think it's all within our control I think theres two pieces. One is how do we get better at what we do to make sure that customers that have been loyal and been with us for a long time.
We stay sticky, but the other one is look I think we have to have competitive vigilance out. There is the market is definitely much more competitive than it was five years ago and neo was really going through some high growth and was really kind of a niche oncology testing company.
I think it's both right.
Use a sports analogy, we need to run our play, but we need to also stop the other team from running their play and I will say there is a shift of a will to win going on through this organization right now that we have this incredibly competitive diligence that we will go out and we will compete and so I feel really good about both that they are both in our control.
And maybe just kind of one more on that aspect I know there was a question early on NPS, but from what the company's doing internally in the development of your own kind of larger kind of tests.
Do you feel there needs to be.
Later investment in that in terms of to kind of compete or do you feel like you guys are on the right track in terms yes.
Creating these larger more esoteric kind of NPS panels.
Well look I think the first one that one that we will look to try to bring out in the first half of next year. It look I think from a cost perspective were fine on that I would say the second one that really were SaaS. She's spending time, we will have to do some investment, but again I come back to what I said earlier, a lot of Thats reallocation of where we're spending the money and again trying to us rather than trying to do.
20 projects that that only one will pay off we need to narrow that list down to 5% to 10 projects, where one or two will pay off and I think part of that is putting more diligence and governance into our product pipeline process, which we're just beginning to do.
Great. Okay. Thank you.
Thank you very much. Your next question is coming from Mike Matson of Needham <unk> Company, Mike Your line is nice.
Yes. Thanks.
So just in terms of project catalyst I think when you announced it it was supposed to have about $15 million of savings I think thats about equates to about 300 basis points of margin improvement.
Just taking a longer term view of things I mean, the EBITA margins gone from kind of mid teens in 2018 to negative double digits.
This year and I understand we've seen some good trends in the last few quarters it seems to be headed in the right direction, but.
$15 million really going to be enough or are you going to have to come back in.
Some additional restructuring or some type of other programs like project catalyst part two of our parts of the year or something like that to get you back to kind of.
Double digit EBITDA margins.
I know thats going to probably take some tylenol expecting in one year, but.
The $15 million it doesn't seem like enough to get you even close to being EBITDA positive.
Yes look theres a lot of moving parts to kind of in that question look I would say the catalyst the way that we did catalyst is think of it more as the structure of the way, we're going to run value capture going forward and so one of the things we will disclose when we come out in Q4 earnings as we will disclose our commitment of how much value capture catalyst money, we're going to gen.
<unk> every year through these initiatives and saving money. Okay. Some of that is going to take some onetime cost to right size the business and to make sure from a financial perspective going forward. So youre exactly right. We have to do better in lots of areas I think what we did initially we went I would say think of it today is more of a project and tomorrow more of ingrained in.
The culture of the company and the way we recognize so I think.
Our view is we got to get better every single quarter and we can't go back and compete against 2018 sitting here in Q3 of 'twenty two what I want to make sure. We're doing it every single quarter, we're getting better and that we're not sacrificing long term growth by just making a drastic decision in one quarter right. So that's where I go back to this it's about pace and Ken.
I think we can grow this business at a level that investors are incredibly happy with but also make money and it's about how do you do that through the pacings. So it is going to take time, it's a brick on brick process, but I think you will start to see this consistent delivery of operating savings to our investors.
Okay got it thank you.
Thank you very much. Your next question is coming from Derik de Bruin of Bank of America. Derrick Your line is nice.
I think he had asked this question. So I think we're there I think we're at the end of the call.
I just wanted to take a moment and thank everyone for the time that you've taken today to catch up with us.
As we end the call I really do want to recognize the over 2000 neo teammates around the world for their dedication their commitment to building. This world class oncology diagnostic information and decision support company and it really look I would say anytime a company goes through change, it's a challenging environment and one of the things that we've talked about so the team is really lean into that and I will.
The one thing I'm really proud of is that the team was yearning for this right you're earning for this will to win and be back on the front foot and I'm really excited about where the organization is and how quickly.
We're adapting and being agile.
But for that I, just look at what we're excited about where the business is headed we will look forward to giving a lot of detail to you in the Q4, especially around the strategy and the direction and hopefully we will see a lot of you guys out in the marketplace in the coming days, but thanks again for your time today, and your support and be well take care.
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.