Q4 2022 Fulgent Genetics Inc Earnings Call

Speaker 1: We.

Speaker 1: I.

Speaker 1: The.

Speaker 2: Hello, and welcome to the Fulton Genetics Q4 and Fiscal Year 2022 Earnings Conference Call-In Webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Speaker 2: It's now my pleasure to turn the call over to Melanie Solomon, investor relations. Please go ahead.

Speaker 3: Thanks, Kevin. Good afternoon and welcome to the Folding Genetics fourth quarter and full year 2022 financial results conference call. On the call are Ming Hsieh, chief executive officer of Folding, Paul Kim, chief financial officer of Folding, and Brandon Pertheus, chief commercial officer of Folding. The company's press release discussing the financial results is available on the investor relations section.

Speaker 3: based on current views and assumptions which may prove to be incorrect. As a result, matters discussed in any forward-looking statements are subject to risks, uncertainties, and changes in circumstances that may cause actual results to differ from those described in the forward-looking statement.

Speaker 3: The company assumes no obligation to update any of the four looking statements that they make today to reflect actual results or changes in expectations. Litioners should not rely on any four looking statements in this prediction to future events and should listen to management's remarks today with the understanding that actual events, including the company's actual future results, may be materially different.

Speaker 3: and what is described and or implied by these forward-looking statements. Please review the more detailed discussions related to these forward-looking statements, including the discussions of some of the risk factors that may cause results to differ from those described in these forward-looking statements, contained in the company's filings with the Securities and Exchange Commission, including the previously filed 10K for the year ended.

Speaker 3: December 31, 2021, and subsequently filed reports which are available on the company's investor relations website. Management's prepared remarks, including discussions of earnings and earnings per share, contain financial measures not prepared in accordance with accounting principles generally accepted in the United States or GAAP. Management has presented these non-GAAP financial measures because it believes they may be useful to the company's investors.

Speaker 3: to investors for various reasons, but they should not be viewed as a substitute for or superior to the company's financial results prepared in accordance with GAAP.

Speaker 3: Please see the Company's press release discussing its financial results for the fourth quarter and full year of 2022 for more information, including the description of how the Company calculates non-GAAP income and earnings per share and a reconciliation of these financial measures to income and earnings per share, the most directly comparable GAAP financial measures. With that, I'd now like to turn the call over to me.

Speaker 4: Thank you very much, Emily. Good afternoon, and thank you for joining our call today.

Speaker 4: I will start with some comments on the quarter and the year. Then Brandon will review our product and go to market updates from the fourth quarter.

Speaker 4: And Paul will conclude with the financials and our 2023 outlook before taking your questions.

Speaker 4: Looking at the fourth quarter, we see that our revenue guidance reflecting 97% growth in our core business compared to 2021.

Speaker 4: We have integrated our recent acquisitions and are seeing those benefits in our annual results.

Speaker 4: For 2022, our product businesses will across all diagnostic segments. Precision Technologies.

Speaker 4: our pro-businesses will cross all diagnostic segments. Precision Diagnosis and Atomic Pathology

Speaker 4: and pharma services. With the momentum in oncology and reproductive service.

Speaker 4: With the informed diagnostic business, both of our capabilities in anatomic pathology.

Speaker 4: Informed Diagnostic Businesses, both of our capabilities in anatomic pathology and adding Let us apply the name of the

Speaker 4: we will see pressure on our bottom line in the near term, which Paul will address. However, in long term,

Speaker 4: We believe this acquisition will make a good strategy for us. We continue to be the leader in precision technology.

Speaker 4: due to our NGS platform capabilities. An example of our successful COVID-19 testing program.

Speaker 4: between 2020 and 2022 led by our $40 million CDC NGS to you personally Bayley I Squ Julie Weyer and

Speaker 4: BogenDB was 19.3 million RT-PCR code-knifing test.

Speaker 4: generally over 1.7 billion dollars in revenue for 4G. With the pandemic largely behind us.

Speaker 4: or not an industry additional COVID-19 in 2023.

Speaker 4: We are proud of what we skilled our business so quickly and contribute so minimally to the testing efforts to fight the pandemic.

Speaker 4: We're seeing a similar opportunity to scale our platform to drive the growing demand by our customers.

Speaker 4: for our beacon carry screening test. Today we announce the expansion.

Speaker 4: And we wait for our visualization team to report and we can send any

Speaker 4: We'll talk more about it. And we are anticipating an associated annual growth of more than 300% in the region itself as we grow this portion of our business.

Speaker 4: We believe this activity will further secure our leadership position in NGS.

Speaker 4: and it is important factor in our annual guidance provided today.

Speaker 4: For 2023, a revenue guidance of $240 million.

Speaker 4: Assuming 32% growth in our core business. Driven by continued growth across all areas of our diagnostic business.

Speaker 4: including expansion and oncological carry screening through BKM 787.

Speaker 4: and answer today through our internal efforts and those of our lab partners.

Speaker 4: We are leveraging our proprietary NGS platform to broad applications.

Speaker 4: Fueled by our ongoing R&D effort, we have a long runway of opportunity in the core business and scene spans of

Speaker 4: as a continued dependable source of revenue and a growth for coaching in the years ahead.

Speaker 4: In the fourth quarter, we announced the acquisition of a foraging pharma. We believe this acquisition has the potential to gradually transform foraging from a genetic diagnostic service business into a fully integrated precision medicine company focused on college.

Speaker 4: We're joined by our team of talented individuals integrating our company to address the continuum of care that begins with diagnosis and patient care and monitoring.

Speaker 4: Sojourn Pharma has developed a novel nano-encapsulation and the target therapy platform technology designed to improve therapeutic window and the pharmacokinetic profile for both new and existing cancer drugs. Our lead...

Speaker 4: Dr. Kennedy, FID07, has achieved proof of concept for the treatment of numerous cancers, including head and neck, ampoule, pancreatic, lung, and the breast. We continue to encourage early data from these programs and are working on clinical path forward, including additional clinical travel.

Speaker 4: toward approval. We have full control of our manufacture process and can be very efficient.

Speaker 4: Given the current, we have fully invented the GMP.

Speaker 4: manual materials production plan. Our training with experts and scientists are now integrated into our organization.

Speaker 4: We have submitted updated clinical phase 1B data to ESCO for presentation at the 2023 Annual Meeting in June .

Speaker 4: We look forward to share additional progress on the pharma business as we move throughout the year.

Speaker 4: We end 2022 with a-

Speaker 4: strong cash position affording us a flexibility to pursue additional strategic opportunities as we write.

Speaker 4: Earlier this year, we were pleased to expand our board of directors with the addition of Vice Chairperson realize that trust and lucky hopelessness do not attack your board.

Speaker 4: Regi presents a device skillset and a global perspective that we believe will be invaluable to our work.

Speaker 4: We're interested in you chapter in Precision Medicine with our current acquisition.

Speaker 4: Her expertise as a leader and an officer in various senior roles and with clinical and regulatory functions, particularly from her 13 years at Medtronic, will add important insights into our business as we advance our mission to build a quality platform.

Speaker 4: that provides a comprehensive solution and the service across the cancer care continuum.

Speaker 4: from early detection, diagnosis, monitoring, drug discovery, and development. Over the years, we have expanded the strengths of our board adding additional expertise in diagnostics, therapeutic drug development, and commercialization. Now I'd like to thank our employees and shareholders.

Speaker 4: for your support, that was a transitional and transform the year for coaching. I would like

Speaker 4: forward, I look forward to the years ahead and the momentum we are creating within our combined business.

Speaker 4: I'll turn over the call over Brandon, our chief commercial officer, to talk about our diagonal positions results during the fourth quarter.

Speaker 5: With COVID-19 mostly behind us, as well as our integration efforts for our acquisitions, we are able to intensely focus our efforts on our base business. We exceeded our expectations for the fourth quarter, driven by an outperformance in our reproductive health business line and our pharma services division.

Speaker 5: At a high level, our core revenue was $55 million in the fourth quarter compared to $28 million in the same period the prior year and $56 million in the third quarter of 2022. Starting with our Beacon expanded carrier screening product, for some time we knew we had a successful product and service. Stacked up against competitive products in the field, Beacon frequently excels as it relates to detection rates, our ability to discern pseudo-genes, reliable copy number calls with our proprietary C&V exon algorithm.

Speaker 5: plus other features. Our optimized workflow for variants with pseudo gene interference has been validated and externally published as a method for analysis of genes with pseudo gene interference and or sequence homology issues allowing for improved testing accuracy.

Speaker 5: This method also optimizes the turnaround time and reduces the need for unnecessary confirmatory testing to identify point mutations, copy number variance, and gene conversion events, and genes with pseudogene interference that other labs may not be able to detect. Using this pipeline, we can quickly distinguish.

Speaker 5: calls and or produce incorrect copy number calls due to misalignment of reads.

Speaker 5: Our bioinformatics algorithms compare read depth between homologous regions to identify sequence misalignment.

Speaker 5: In terms of the panel content, we have been offering one of the largest terracene panels in the market, customizable up to approximately 430 jeans.

Speaker 5: Included in our panel are all of the American College of Medical Genetics and Genomics ACMG Pier 3 genes, which ACMG published in their last practice guideline for carrier screening, recommending that all pregnant patients and those planning a pregnancy be offered this set of genes as an equitable, pan-ethnic screening approach.

Speaker 5: Our Beacon Panel includes all of these, with most major competitors typically only covering between less than 60% to 90%.

Speaker 5: Historically, we were not able to fully leverage our beacon product without managed care contracts. However, now armed with in-network coverage, we are seeing tremendous momentum.

Speaker 5: Our monthly carrier screening volume is setting company records only second to what we saw with COVID-19 testing. In addition to our direct sales, we have also partnered with other large national labs to outsource some of their carrier screening tests to Full-Gen. And finally, we announced this afternoon we have launched the new Beacon 787.

Speaker 5: This further expands our capabilities and provides the most comprehensive tests available today. Turning to pharma services, another area with big momentum. While we do not discuss our client names due to confidentiality and competitive reasons, we are proud to say that we now work with six of the top 10 pharma companies in the United States.

Speaker 5: In addition, we are working with three of the largest global CROs to perform NGS testing. With the acquisition of informed diagnostics and CSI, we were able to further broaden our offerings to our pharma clients by adding tests such as IAC, FISH, Clozateometry, etc. Recently, our pharma services launched a supremacists project on women and women with cancer and

Speaker 5: a powerful solution for spatial phenotyping using multiplex immunofluorescence. The speed and accuracy of advanced digital imaging technology, combined with the precision of multiplex immunofluorescence, allows you to quickly assess phenotypes in a variety of cell types.

Speaker 5: This technology, along with our experience scientific team, allows you to more custom solutions for our clients and their drug programs. We anticipate continuing momentum in this space as we build new partnerships, drive deeper relationships with existing partners, and continue to launch new services. While slightly tangent, it's been very challenging.

Speaker 5: to farming services, but in a similar scope of work, we have partnered with a large DTC testing company to sequence thousands of human genomes.

Speaker 5: We believe our quality, test menu, turnaround time, and cost structure make us an attractive solution for B2B relationships as well as our core pharma services clients.

Speaker 5: We are pleased to report that Folding Oncology, regionally launched in the second quarter of 2022, has become one of the fastest growing segments of our business.

Speaker 5: Our oncology portfolio, launched under the brand name Lumira, includes our marquee products Lumira Expanded NGS for Solid Tumors Lumira Comprehensive Lumatology Profile

Speaker 5: A full menu of pathology and molecular assays and a suite of NGS germline tests.

Speaker 5: This full-service approach gives Folgent a unique one-stop shop provider position in the space of precision diagnostics. To further differentiate our offering, we will be expanding the Lumira menu in a few weeks to include a comprehensive heme NGS profile. Lumira heme NGS will be positioned as a disruptive 670 gene profile.

Speaker 5: coverage determination and a CMS reimbursement rate of approximately $2850. Our new heme profile will further position Fulsion Oncology as a leader in its dynamic space, giving us a competitive advantage over the many single assay or single technology providers in precision diagnostics.

Speaker 5: We anticipate continuing to expand our oncology portfolio throughout 2023, and Folgent Oncology aims to be the undisputed leader in oncology, specialty testing, and precision diagnostics in the US.

Speaker 5: A quick update on the sales team, the overall headcount remains mostly unchanged. However, we have done intense training so that our national sales team is better able to handle multiple product lines and to look for opportunities to cross-sell. This is showing early signs of success as we have seen legacy Folgent sales reps be able to close anatomic pathology sales for example.

Speaker 5: We remain open to expanding the sales team over time and are always looking for key additions to our team as talent presents. One area that may expand a bit more rapidly is reproductive health. We have a small team there, however, we are seeing huge momentum in the space. In addition, we have ongoing R&D to launch new products and services for reproductive health.

Speaker 5: Depending on the near-term momentum and the timing of our product launches, there is a possibility we could do an expansion in the summer. Coming out of the pandemic, we believe we find ourselves in a very strong position.

Speaker 5: As we continue to see consolidation and even some demise of companies in our space, our position continues to get stronger. Still armed with a healthy amount of cash, we continue to look for both opportunities for organic growth as well as M&A. We are excited to enter 2023 with the wind in our sails, and we look forward to another great year.

Speaker 5: I will now turn the call over to Paul Kim, our Chief Financial Officer. Paul? Paul Kim

Speaker 5: Thanks, Brandon. Full year revenue totaled $619 million compared to $993 million in 2021, exceeding our overall guidance of $611 million. Gap income was over $143 million at $4.63 per share. revenue in the fourth quarter totaled $68 million compared to $252 million.

Speaker 5: in the fourth quarter of 2021, exceeding our overall fourth quarter guidance by approximately $60 million. We are no longer reporting billable costs as we believe that revenue is a better measure of how the business is progressing rather than volume.

Speaker 5: Breaking down revenue a bit further, roughly $13 million came from COVID-19 testing in Q4, compared to our guidance of $8 million. Revenue from our core business totaled $55 million, which exceeded our guidance of $52 million and grew 97% year over year. Growth margin was 19.2%, down 56 percentage points.

Speaker 5: year over year and down 24 percentage points sequentially. The reduction in gross margin was again due to test mix, including higher costs associated with our core genetic testing portfolio, including pathology testing, and also due to inventory reserves and our accelerated equipment depreciation related to COVID-19. Now turning to operating expenses. Total gap operating expenses for 49.5 million.

Speaker 5: for the fourth quarter up from $45.7 million in the third quarter of 2022. non-GAAP operating expenses totaled $38.7 million up from $37 million in the third quarter of 2022. non-GAAP operating margin decreased 45 percentage points sequentially to a negative 34 percent. While the expense structure of our legacy BULJAN business remains lean, we have incurred a number of increments.

Speaker 5: At the same time, we're pleased with our ability to still generate positive cash flow during this transformative time for business.

Speaker 5: Adjusted EVDA for the fourth quarter was a negative $15.1 million compared to a positive $158.8 million in the fourth quarter of 2021. On a non-GAAP basis and excluding equity-based compensation expense, intangible asset amortization, restructuring costs, and acquisition costs related to Folgent Pharma, the loss for the quarter was $14.2 million, or 48 cents per share.

Speaker 5: on a 29.6 million weighted average shares outstanding. Now, turning to the balance sheet, we ended the fourth quarter with approximately 872 million in cash, cash equivalents and marketable securities, including investments pending settlement. We generated 33.2 million of cash from operations during the quarter, despite the significant investment we made in our vendors for the quarter.

Speaker 5: I would also like to highlight that we were active with our share repurchase program in the fourth quarter. We repurchase over 815,000 shares of our common stock at an average cost of. 35.65 under the stock repurchase program announced in March.

Speaker 5: As of December 31, 2022, a total of approximately $175.7 million remained available for future purchases of our common stock under the repurchase program. Now moving on to our outlook for 2023, we will now be guiding total revenue for the company without COVID testing revenues. In other words, the guidance that we have provided, the $240 million, as well as the guidance for the first quarter, is solely for core revenues.

Speaker 5: We expect total revenues to be approximately $240 million in 2023, representing core growth of 32% year over year. Given the tough comps this year for revenue, we want to provide more information on what we have been calling core revenue, or the rest of the diagnostics business since COVID.

Speaker 5: We expect growth this year in all areas of our core business, including precision diagnostics, anatomic pathology, and pharma services. We will reference these three areas of our business going forward as we talk about our revenue trends. Precision diagnostics include...

Speaker 5: All of our clinical NGS revenue oncology, reproductive services, rare disease, neurogenetics, B2B relationships with labs and our business in China. Current strengths in the segment point to reproductive services and oncology of Brandon and in both the SCOPS. Given certain lab arrangements.

Speaker 5: there may be variability from quarter over quarter. Anatomic pathology includes the business we have integrated from informed diagnostics, which had strong growth in 2022, so we expect to continue in 2023, particularly in urologic and dermatopathology, including digital pathology.

Pharma services include sequencing as a service, which we sell to our pharmaceutical business partners and it's dependent on the relationship, so it may be lumpy from quarter to quarter. We've been building on this business and expect consistent growth.

The expected 2023 revenues from these three areas are estimated as follows. A $114 million from precision diagnostics, a $13 million from anatomic pathology, and the remaining $13 million from pharmaceutical services. Given the nature of these businesses and our guidance provided today, we're comfortable with the growth projection we have given.

Looking at margins going forward, given the non-COVID and the acquired revenue profile of the company, we will see gross margins coming down. This is due to the absence of revenues from COVID-19 testing, as well as a larger contribution from anatomic pathology revenues, which are lower margin than our corporate average.

We expect to see lower operating margins in the quarters ahead as we integrate and further invest resources in our recent acquisitions. Long-term, our foundational technology platform supports a strong margin profile, and we will continue to manage our spending with discretion to drive operating leverage. For the fall year 2023, utilizing an estimated 28% tax rate in a sure count of 31 million.

We expect non-gap loss of approximately $1.25 per share for our shareholders, excluding stock-based compensation and monetization of intangible assets, restructuring costs, as well as other one-time charges.

Last quarter when we acquired the pharma business, we said we would report on this business separately. Revenue from this business is not anticipated in our 2023 guidance and we expect associated cash burn for this business of approximately $15 to $17 million this year, which is included in our EPS guidance provided today.

Overall, we have strengthened our core business and bolstered our portfolio through strategic acquisition and we see good momentum ahead. Thank you for joining our call today. Operator, now you may open it up for questions.

Certainly. If you'd like to be placed into question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to move your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset.

before pressing star one. One moment please while we poll for questions. Our first question is coming from Dan Leonard from Credit Suisse, your line is now live. Hi, this is Lili Anh for Dan Leonard. Thank you for taking my questions. I think first question on the guidance. I think previously we were talking about a 200 million baseline revenue for Core Fortune. So just wondering what is the difference, like what are the growth drivers on the 23 guidance?

our guidance is $240 million for the year. Now, one of the things that actually surprised us during the fourth quarter is the stickiness of our core revenues, and that's giving us additional confidence in our ability to achieve a $240 million.

And the other thing that happened during the quarter, and we stripped out completely, is COVID revenues. We think that there will be some COVID revenues that we get in 2023. But for the purposes of this earnings call and the strategic focus of our company, we stripped that out. A little bit more color from a numbers perspective on our core revenues. Thank you.

You know, we anticipate Q1, as we stated in the press release, to be approximately $56 million for the core revenues. And regardless of, you know, like seasonality that we might have for the parts of our business, we see the momentum, you know, behind our core revenues, you know, increasing throughout the course of the year. But I'll turn it over to Brandon, who can talk, you know, more about, you know, the areas that, you know, we're excited about.

that gives us confidence within the 240. Yeah, certainly. Thanks, Paul. Thanks for the question. We're seeing a strength across all business lines as we've now broken them out a bit to give some more granularity. But in particular, we're seeing strong growth in reproductive health as well as our fold-in oncology. Now, granted, fold-in oncology is coming off a base of essentially zero. It's a new product launch for us that happened in 2022.

But the reproductive health space we've been in for some time, however, we didn't have the contracts we needed to really penetrate that market. So we are seeing tremendous momentum in reproductive health. There's been some market dynamics that have opened up some tremendous opportunities for Folgent, but both of those areas are showing tremendous momentum. So I think we have a lot of confidence in the guidance for 2023 and I look forward to delivering on it as the year progresses.

That's why we have Paul. Sorry, go ahead. Yeah, adding the comments from both Paul and Brandon, I do see the long-term investment from Fortune's R&D team into the artificial intelligence and data mining technique. I do see the benefit for us to provide the leadership in the NGS space.

and continue to feel the technology we should provide our revenue growth. Got it. That's super helpful. Brandon, I think just one follow-up on the contacts. Do you have any updates on the contract roll-up? I think in the last call, you expect everything to be done by end of 2022.

Is that still on track or can you give us any color on that? It's not entirely done. We made tremendous progress there, but it was an incredible amount of contracts we had to work through. It will still be some time before 100% of those are rolled up. That said, the momentum we're seeing in the business is closely tied to the progress we've made around the contract. As Ming mentioned, we're expecting, I can say, to say explosive growth in 2023 as it relates to carer streaming. That would not be possible. It's not for the leverage we now have.

At the same time, we also heard from the industry that there is some uptake in denials from some of the commercial insurers on the reimbursement. So wondering if you have any color on that or do you see that trends happening or do you expect any pressures in 2023?

Well, you know, I want to make it clear that, you know, we offer expanded carousel screening panels or carousel screen panels that range from one gene all way up to the new large panel of 787. And we allow our client to customize anywhere in between. However, we do see a trend.

towards more larger panels as we want to look across pan-ethnic populations for rare diseases where the couples may be a carrier. Certainly, there are some payers that consider expanded carrier screening as investigational, experimental, or unproven, but we think that's very temporary. Certainly, clinicians have embraced expanded carrier screening. It is, for the most part, standard of care in a reproductive setting. The payers, perhaps, are a bit behind as it relates to some of the coverage, but it's a minimal amount of payers out there that have not empowered, rather than help providers, to make Madam task DR,

capital allocation priorities. Now, what we saw in the quarter you acquired, you repurchased the number of shares and obviously we had the recent Folk and Farmer acquisition. Going forward, what do you think the balance is between looking for more tucking acquisitions or more focused on share repurchases?

allocation priorities. Now we saw in the quarter you acquired, you repurchased a number of shares and obviously we had the recent Folgent Pharma acquisition. Going forward, what do you think the balance is between looking for more tuck-in acquisitions or more focused on share repurchases? Appreciate some color there.

Yeah, I will take the answer from the CEO's position. And definitely Paul will add in his color from the CEO's position. I do see the 4G still have a lot of capabilities in terms of addressing this boring space in terms of NGS and the technologies. I do see the 4G still has a lot of capabilities in terms of NGS and the technologies in terms of NGS and the technologies in terms of NGS and the technologies in terms of NGS.

we see a lot of opportunities arising during the last year. So all our options are open. We continue to evaluate the companies which is adding our capabilities in terms of technology or broaden our offerings.

But in addition, we're also looking for the, in this space, we see the consolidation. But meanwhile, we also continue using our funds or capabilities to internally develop the technology which will filter our long-term growth.

the test we announced today, which is the largest of the gym panels for the carrying screen space. From previous questions, certain companies would not feel capable to exist in this space.

So that we feel that even with this largest gym panel, we can offer the efficiency and we can offer the more quality test and to address the market demand. So our funding will be allocated to continue internal R&D to both of our capabilities. We're looking for the data space and looking for the consolidation.

but a vision of how can address some of the share repurchase program. I think your question is excellent because at the end of the day, our unallocated cash position on a relative basis is strong as ever. We've been very aggressive during stock buyback. We've acquired a number of businesses. We feel so comfortable with our

business capability and the prospects to the future, we still have a sizable cash balance. I think that you've seen that even with the losses for the quarter, excluding investing in financing activities, we still generate cash during the quarter. The other thing as we talked about revenues and the color around revenues, and yes, we're guiding towards losses for the entire year.

And part of that is because of the reduced growth in the operating margins. But underneath that, if you take a look at the dynamics for the fourth quarter, which included a number of charges that were COVID related, and then it's also included by anatomic pathology, which typically has a lower margin profile. But when we take a look at the micro dynamics of what we believe will happen in 2023, aside from the confidence that we have with the core revenues, we do anticipate an uptick in growth as well as operating margins. In other words, we do anticipate an uptick in growth

you saw the low gross margins in the fourth quarter of 2022. In the first quarter of 2023, the gross margins can be as high as, seven, eight or nine points off, what you've seen in the fourth quarter. And that kind of increase in the gross margins, we anticipate it to increase throughout the course of the year. And then, similar thing for the operating expenses, you saw a number of charges and things that were currently related to the fourth quarter on an absolute dollar basis. You should see lower operating expenses in each of the quarters and what you saw in the fourth quarter.

I have a question on there. Talking about OPEX moving lower, I believe Brandon mentioned we might see some S&M adds to the commercial team over the summer. Could you maybe discuss some of the dynamics there and what we can expect in terms of dollar impact?

Yeah, yeah, so I'll kind of like frame it and I'll turn it over to Brandon. The thing that you saw in the fourth quarter, which we kind of began prior to that, was the wind down of COVID. So there were a number of alignments that we made, reductions, right, that was related to COVID. And then that pivot has started over a quarter ago as to how we look at 2023. We're

So, you know, aggressive hiring and what we can do to further bolster our entire commercial organization has been built into the 2023 plan. So now I'll turn it over to Brandon, you know, who can talk about, you know, where he, you know, sees his focus in expanding the team and spending for us to achieve these targets. Yeah, certainly. I echo what Paul said. Yeah, I mentioned in my section that we may expand this summer. That's purely driven by the opportunities we're seeing. What Paul did was presented Great.

a fantastic opportunity to grow our reproductive health space by one of the larger competitors exiting the marketplace. We scaled up our operations incredibly fast, as we did with COVID-19, to take on this new volume. And we're hitting our turnaround time, we're hitting our quality matrix, clients are happy. We started this late last year, so we're a couple months into it so far.

the reimbursement and the ASPs we're seeing, we're very happy with, and there's still a lot of opportunity out there. So we think we're very well positioned to win in this space. Thus, hiring the right salespeople to help us capitalize that is a good investment for the company. Perfect. Really appreciate that. And then just last one for me would be, so far, how have you seen Volgen Pharma come into the fold? Just curious in the integration status there. It sounds like there's a lot of exciting pieces working in that business and would appreciate more color. Thanks again.

Yeah, thank you for the question. The integration is in process. We are converted the employees to the fodgens and we are still building up a more robust GMP manufacturer capability. So literally we are making all the polymers GMP in-house.

So that is the one with the very important components for the five-mer and manufacturer project. We also started to line up another contract manufacturer to provide the polymer and the drug mixing, filtering and the liqueurization. So that project is also in place.

which will make another few thousand of the drugs for clinical trial. So in general, the integration is pretty successful. In addition, we are getting additional clinical data from the Space 1B trial. The data has been submitted to the ASCO for presentation in June later this year.

Due to the ESCO requirement, we could not release data before they release the data. So that's why the data would be presented at the ESCO. This is a continuation effort. We provide the ESCO data in 2021. Now, two days later, we provide an additional update. So by then, you will see the additional data, which you feel good about.

Due to the ASCO's requirement, we could not release data before day-release of data. That's why the data would be presented as ASCO. This is a continuation effort. We provide the ASCO data in 2021. Not two days later, we provide an additional update. So then by then, you will see the additional data, which you will be aware of good about. Great. Thanks again. I'll hop back in the queue.

Thank you. Thank you. Next question is coming from Tyler Anderson from Piper Samaritan. Sorry about that. This is Tyler Anderson from David. I'm representing David Westenberg at Piper Samaritan. Thank you for taking my question. I was wondering what are the expected margin outlooks for the new business segments that you're breaking out? And what levers are you going to be pulling to improve them? And specifically, how is the farm spending looking throughout the rest of the year? And do you see any opportunities to further expand your menu? And if so, do you think you're going to be taking any inorganic or an organic approach to that? Okay, so I'll kind of see it up. There were a lot of different questions that were built on there, but I

as well as the pharma services, it remains highly attractive for the company. I think for the anatomical pathology, that market traditionally has a lower margin profile. And although we're doing everything possible to gain efficiency for that marketplace. And we are,

utilizing the systems that we have, it is going to take time. It's not something that is going to happen overnight. That was not our expectation. Our anticipation is that the margin profile for that business, although it's low, will slowly begin to look more favorable throughout the course of time. But come the precision as well as the pharma services. continues

both the margin profile for those businesses or attractances to begin with. But I'll turn it over to Brandon who can talk about the margin profile in those markets. So I don't have a lot to add there. Maybe I'll just move on to your second question, which was menu expansion. I'm not aware of any company that launches many tests as Folgen has in the last several years. I mean, we clearly have an ability to rapidly launch tests and commercialize them at scale. We're continuing to do so. We talked about a few on the phone call today. We launched our largest ever carers screening panel today.

We talked about launching our new team NGS profile, which we actually have MoldVX approval for with a really attractive reimbursement rate. We're going to continue to launch new products in essentially all the areas of our business, precision medicine, as well as pharma services. Also, we talked about launching today, new pharma services that we can better serve our clients. So we certainly see as part of our mission to continue to expand our testing portfolio via more of a one-stop shop for all of our clients.

And our R&D and our technology really allows us to do this with modest investment in R&D. So I think the short answer is yes, you can expect continued menu expansion. And then the third question you asked is about organic versus inorganic growth. What we're seeing in the back half of last year and early into this quarter is fantastic organic growth. We are capitalizing on market opportunities with product and technology we had available at Folgent and we are seeing fantastic organic growth.

growth in the company. That said, we continue to look at M&A as an option and this leadership team consistently evaluates companies and assets. So I think as Paul mentioned on the call, the growth is likely to come from a mixture of organic and inorganic, but all of the above is certainly in play and we think we have that optionality for 2023 and beyond.

That said, we continue to look at M&A as an option. This leadership team consistently evaluates companies and assets. So I think as Paul mentioned on the call, the growth is likely to come from a mixture of organic and inorganic, but all of the above is certainly in play and we think we have that optionality for 2023 and beyond. Thank you for taking my questions.

Thank you. We are really trying to have our question and suggestion. Ladies and gentlemen, that does conclude today's telecompressor webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today. Thank you.