Q3 2024 GeneDx Holdings Corp Earnings Call

Speaker Change: Thank you for standing by and welcome to the Gene DX 3rd quarter 2020 for our new conference call.

Speaker Change: At the time all participants are in a vicinity mode.

Speaker Change: And after the speaker's presentation, we will have a question and answer session. Keep in mind that this call is being recorded. If you would like to ask a question, please press star one on your telephone and you will hit an automated message advising your hand is raised.

Speaker Change: I would now like to turn the call over to Sabrina Dunbar. Investor Relations, please go ahead.

Sabrina Dunbar: Thank you, Operator, and thank you to everyone for joining us today. On the call, we have Katherine Stueland, President and Chief Executive Officer in Kevin Feeley, Chief Financial Officer.

Sabrina Dunbar: Earlier today, Gene DeExchreleaved's financial results for the third quarter and is September 30, 2024.

Sabrina Dunbar: Before we begin, please take note of our cautionary statement.

Sabrina Dunbar: We may make forward-looking statements on today's call, including about our business plan, guidance.

Sabrina Dunbar: and Outlook. For looking, statements inherently involve risks and uncertainties and only reflect our view as of today, October 29th, and we are under no obligation to update.

Sabrina Dunbar: When discussing our results we refer to non-gap measures, which excludes certain items from recorded results.

Sabrina Dunbar: Please refer to our third quarter 2024 earnings release inside available at IR.gmbx.com for definitions and reconciliations of non-gat measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements.

Speaker Change: and with that I'll turn the call over to Katherine.

Katherine Stueland: Thanks to Sabrina and thank you all for joining us. The third quarter was an exceptionally strong quarter for ZingDX.

Katherine Stueland: We delivered over $76 million in revenues, expanded gross margins to 64% and achieved our 10th consecutive quarter of cash for a reduction.

Katherine Stueland: Our organizational focus and discipline continue to fuel our growth and we achieve profitability in the third quarter.

Katherine Stueland: This milestone is an important one in the industry. We've demonstrated that you can prioritize patient care and do it while running a successful business.

Katherine Stueland: and as we walk through the door of profitability, we're entering a new phase of growth for G&DX. One of which we hold a sustainable and durable market-leading position in X-O and genome testing, and translate our leadership to serve all patients who can benefit from genomic insights.

Katherine Stueland: On the back of a strong Q3, we're raising our revenues items for the full year 2024 to between $284 million to $290 million.

Katherine Stueland: Well, bullish on our ability to keep expanding our footprint to the pediatric outpatient setting and begin extending our reach into new clinical settings in the years to come. Our work is just getting started.

Katherine Stueland: Today we enjoy 80% of the US Exile Market Share.

Katherine Stueland: Historically, our dominance was anchored in volumes from experts to net expivators, but beginning in 2023, we shifted our commercial focus to pediatric neurologists, who represented the next run of clinicians' crimes for a more comprehensive approach to genetic testing.

Katherine Stueland: Well, these pediatric neurologists have significantly expanded adoption and fueled rows over the last 12 months. There remains an ample multi-year growth opportunity ahead as we remain approximately 12% penetrated amongst these specialists.

Katherine Stueland: As we look at the path in front of us, there are many untapped growth cattle or fiat to be alone.

Katherine Stueland: We see expanded clinical indications for exomogeneal entry into the general pediatrician market and the development of additional patient access channels is opportunity to cultivate new arena for our market leadership.

Katherine Stueland: Well proud to share that as a few three we've officially sequenced over 700,000 clinical axons in genome, completing over 100,000 of those sequences in the last six months alone.

Katherine Stueland: The sixth celebration is a testament to growing utilization of our X-Helman genome testing while creating a flywheel-tock fart business.

Katherine Stueland: With every test we can please, we deepen our understanding of disease gene correlations to inform more definitive diagnoses for more patients. We unlock improved operational efficiency and more costs, and we further differentiate our products from those of our competitors.

Katherine Stueland: This acceleration and volume also demonstrates our ability to scale our data engine and position us to be a key strategic partner for bioforma.

Katherine Stueland: We're leveraging our growing data asset to deliver value to bio-formal companies' biggest small while supporting our own commercial initiative.

Katherine Stueland: As evidenced by our FLC partnership program, which improves access to testing for children at FLC, while delivering valuable insights to Bioparma, looking to inform their drug development efforts with new targets and by patients to enroll in active clinical trials.

Katherine Stueland: In the next year, we're seeing a study and creased in Rapid Hold Juno Volume Quarter of a Quarter, as we set the stage for a broader push in 2025.

Katherine Stueland: We announced an Q2 that we've taken steps to solidify our position in this growing market, with product improvement and a partnership with Ethicora. Recent product releases are already providing an uplist in this segment, and we're proving that our product and technology approaches effective.

Katherine Stueland: Reporting Ethics, we're well on our way to implementing our partnership which will seamlessly integrate GDX, Exxon, and Genome Testing into the workflows as many of the largest health systems across the country.

Katherine Stueland: The expect to begin receiving orders through OR in the first half of 2025 with revenue ramping in the second half of the year.

Katherine Stueland: Our experience in the NICU has demonstrated time and again the power of a genetic diagnosis to change the course of a baby's life.

Katherine Stueland: We also know there's an opportunity to intervene even earlier. We believe in a world where every newborn genome can be sequenced at birth and we're confident in the actual lead this opportunity to revolutionize the traditional approach to newborn screening by adding to no execution things.

Katherine Stueland: Today's traditional New Orleans screening protocol tests for about 60 conditions. But with the addition of genomics sequencing, New Orleans screening can be enhanced to screen for more than 450 actionable conditions.

Katherine Stueland: For some of these families, the actual ability to be as simple as changing their baby's diet, and for others it can mean enrolling in a clinical trial or treating a condition within FDA's therapy.

Speaker Change: We are approaching the Dunbar Newborn Training Opportunity was never before in the team scale. And the short timeframe we've invested in the space, we've sequenced more than 15,000 newborns, which is more than any other lab in the United States.

Speaker Change: We began work with the Guardian's study in nearly two years ago, and the findings that of that research for published last week and the Journal of the American Medical Association, a leading peer-reviewed publication.

Speaker Change: An analysis of Guardian Participants found nearly 4% positivity rate with genomic newborn screening.

Speaker Change: Dramatic, 92% of newborns with true positive results would have been assumed healthy and sent home using today's traditional newborn screening.

Speaker Change: and an absence of proactive genome-expreting for these conditions, we're subjecting families to a multi-year diagnostic, honesty, and funneling a pipeline of sick kids directly into our health system.

Speaker Change: and the meantime, we have an incredible opportunity to serve an ever-growing number of patients in their families who are symptomatic today with our industry-leading, ex-Omin genome testing.

Speaker Change: Our focus in financial discipline combines with the proven clinical utility of our testing, our setting us up for the next phase of sustainable growth, and we're excited about the opportunity to head.

Speaker Change: and with that I'll turn it over to Kevin.

Kevin Feeley: and Good morning everyone. In the third quarter of 2024, our revenues from continuing operations reached $76.6 million. That's a 52% increase from 23, 2023 and 11% squencially from the second quarter of 2024.

Kevin Feeley: Exo Menjino Brevenus grew 77% year over year and 18% sequentially, contributing $60 million this week.

Kevin Feeley: the Grove was driven by both volume and collection performance.

Kevin Feeley: The Justice Growth Profits from Continuing Operations for Q3, 2024, is $49.3 million, which is up to 103% compared to the same quarter last year, and up 16% sequentially from the previous quarter.

Kevin Feeley: That translates to a gross margin of 64% from 48% a year ago and 62% last quarter.

Kevin Feeley: Margin Expansion benefited from all three of better average reimbursement rates, lower cost per test and favorable mixture.

Kevin Feeley: Regardy Volume and Mix, Exo Magino Test accounted for 33% of all testes quarter, up from 23% a year ago and 31% in the previous quarter.

Kevin Feeley: Our team delivered over 19,000 exomogeneal tests this quarter. That's up 46% year over year and 7% sequentially.

Kevin Feeley: We continue to expect an inevitable long-term replacement cycle of the industry's gene test and multi-gene panels into X-Om and Hulgino.

Kevin Feeley: We're in the early innings of penetrating the Alpatian Specialist Market and our voice to layer on the Nicky Service Opportunity in the back half of 2025.

Kevin Feeley: and Long Terms, expect the pediatrician call point to open up. Eventually, ExoMen genome will become standard first line diagnostics, for nearly all her edible disorders, including adult disorders.

Kevin Feeley: On average reimbursement rate, all uplifts have come from our efforts to reduce denial.

Kevin Feeley: and Q3, 2024, the average reimbursement rate per exomogeneal after all denial was approximately $3,100 from $2,800 last quarter and up from approximately $2,600 in the same quarter of last year.

Kevin Feeley: Our work to refine insurance, specific workflows to minimize and minestrate of them procedural denials, that commercial payers is paying off.

Kevin Feeley: The Additionally, Medicaid and I was decreasing as individual state policies evolved to cover exome and genome testing more broadly.

Kevin Feeley: That's around sound of clinical and health economic data, patient advocacy and biomarker bills for having a positive impact on policy and reimbursement decisions at the state level.

Kevin Feeley: Discoer to Connecticut, Florida, Indiana and Texas all expanded were implemented in the Indian policy.

Kevin Feeley: And while the state-by-state approach to expanding coverage is taking hold, we've also seen promising support at the federal level.

Kevin Feeley: Recently, CMS issued quote historic guidance to state Medicaid agencies. Underscoring their obligations provide all medically necessary services under the early Emperorotic Screening, Diagnostic and Treatment Program for EPSDT.

Kevin Feeley: which entitles every Medicaid enrolled child to services that meet their unique medical needs, including diagnostic tools like exome and genome signal.

Speaker Change: On Cogs, our team has optimized the web lab and we see further opportunity in the next several quarters to enhance efficiency throughout what today is fairly manual dry-side process.

Speaker Change: Turning to operating expense, total adjusting operating expense for Q32004 for $46.6 million.

Speaker Change: This team has built the skillset of balancing innovation and growth with financial discipline and stewardship to all that we do to drive leverage.

Speaker Change: and on the bottom line.

Speaker Change: Total Company adjusted net income for Q3 2024 was $1.2 million. Marking the first positive quarter on that basis since inception.

Speaker Change: are net cash burned for the third quarter was $5 million. In 88% of room and year over year and 17% of room is coincidentally.

Speaker Change: the Scorer Marks are 10 consecutive quarters of Casual Improvements.

Speaker Change: I'm the Balenciate.

Speaker Change: our cash-proveland marketable securities and restricted cash-collo, $117.4 million as of September 30, 2024.

Speaker Change: Inclusive approach is approaching $0.6 million for the issuance of 418,653 shares of common stock in connection with as the market sales during the third quarter of 2024.

Speaker Change: Yacht Standing Share Count as of September 30, 2024 stands at 27,433,833 Class A Common Chairs.

Speaker Change: Now looking ahead, we're again raising our revenue guidance for the full year, 244 to between 284 and $290 million. We're also raising our just across margin guidance expecting it to be 62% for the full year.

Speaker Change: Additionally, we're improving our cash-pronged guidance. Now, anticipating using 60 to 65 million dollars in that cash for the full year of 2024, excluding the financial growth.

Speaker Change: and with that I'll turn you back to Katherine. Thank you, Kevin. As we exit the third quarter of profitable business, we're more confident than ever that we have a long runway of growth ahead of us.

Katherine Stueland: We've struck a balance between financial discipline and strategic investment, and we are in the privileged position that what best for patients is also what best for our business.

Katherine Stueland: Well, we continue to cement our leading position in the pediatric and where to these market with substantial room to grow. We've turned our eyes towards the future, a future in which any genetic disorder is diagnosed quickly, prevents disease progression and ensure long and healthy lives for all.

Katherine Stueland: Puals by our dedication to a healthier tomorrow, or committed to ending the diagnosis of the disease today.

Katherine Stueland: We're an honest, imagining a healthier future. We're building it one diagnosis at a time.

Katherine Stueland: and with that, we'll open it up to questions.

Speaker Change: Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. If you would like to remove yourself from the queue, press star one one again. We also ask that you please wait for your name and company to be announced before you proceed with your question.

Speaker Change: And our first question for the day will be coming from Dan, Brendan, of TVHound when your line is open.

Dan Brendan: Great thanks for the air question congrats on a strong quarter. Maybe the first one, just on the guidance, pretty healthy raised.

Dan Brendan: Can you just give us a sense on how we think about the fourth quarter obviously you're pointing to around 80 million, but when you think about the volume price for ex-films and genomes, maybe can you just give us some flavour there and that is like your fourth quarter guide now compared to kind of normal seasonality.

Speaker Change: Yeah, hi, Jacob morning. Look, we're really pleased with the progress of the business, continued momentum heading into fourth quarter. We previously talked that Q4 is typically seasonally strongest. That said, the early part of the fourth quarter here was impacted and some by the weather down in the southeast, the hurricanes and tornadoes.

Speaker Change: So wanted to leave some room.

Speaker Change: To see how long until we see a snap back there at the same time as we've talked throughout the year, wanting to leave some room in the guide if we were to make some unilateral decisions with respect to the non-exo and non-genome portion of the portfolio, namely hereditary cancer and some other non-exo test.

Speaker Change: with the expect that the fourth quarter will be seasonally stronger, but left some room in the guide there for some of those toggle.

Speaker Change: Can you give us, I mean, obviously the prepare remarks spoke to the early nature of where you sit today, despite the really strong growth, you've got a lot of upsided across a lot of different planes. The volume growth really good in the quarter and you are going to tough comp and the comp gets harder in the fourth quarter, so give us a little flavor, I'm trying to, you know, maybe between the outpatient and the impatient.

Speaker Change: Maybe New Accounts versus existing accounts, any color on kind of what's driving that really strong vibe, go to excellent in genome.

Speaker Change: We're still saying I commend you to mount a rose with New Accounts and with same source deals in that outpatient setting.

Speaker Change: which again is predominantly our X-Tone business. But I would say we did search as Steve because there's some product improvements in last quarter. We have seen some nice...

Speaker Change: Groves on the make-you side of things as well as we turn our sides towards really ensuring that we can translate.

Speaker Change: the same leadership that we have in Actone to genome in the next few settings.

Speaker Change: We've ramped up our commercial efforts there. We've talked about the future with ORA. We're continuing to improve beyond.

Speaker Change: Campbell Collection, so we released a TEEPSLOB for that NICU setting. We'll have faster turnaround times. We will have repeat expansions. All of which will help really continue to support our growth in that NICU setting as we head into to 2025. So I think we're really pleased to see kind of the diversification beyond the LPCN Act of setting and starting to see some movement in that NICU setting, which I think just sets up for really strong outlook on.

Speaker Change: 255 votes in both settings.

Speaker Change: and if I could see one last one and the CMS program you talked about in the prepared remarks.

Speaker Change: Historic Guidance, as you call it, I'm State Medicaid plans. Can you just elaborate a bit? Does this essentially force Medicaid plans to adopt testing? Kind of wing, can you start accruing more broadly across our states that aren't covering it today? So just give us a sense on that program and a potential impact.

Speaker Change: Yeah, I wouldn't go that far in Dan with it. There's no real forced mechanism there. It's more of a reinforcement of what is existing guidance by CMS to individual state programs.

Speaker Change: for a unique program for early childhood diseases and disorders for states to cover where there's unique and special needs and we think much of our testing fits into that mold of unique and special needs.

Speaker Change: Um...

Speaker Change: But I wouldn't overstay to say that there's an enforcement regiment in place there.

Speaker Change: Got it. Okay, I'll get back in the queue. Thank you.

Speaker Change: Thank you, one moment for the next one.

Speaker Change: And our next question will be coming from William Benello of Craig Helm, Capital Group, your line is open.

William Benello: Hey, good morning, guys. Thanks for taking the question. Just a couple quick things. Can you talk a little bit about some of the actual initiatives that you have in place to drive increased penetration with the pediatric neurologists? What do you do to get more of them using the testing? And where do you think penetration can go over time and then I have one final up?

Speaker Change: Perfect. You know, I think there's a number of things that are impacting utilization in the pediatric or all of these settings and I guess at a high level there's our own efforts.

Speaker Change: But they are, I think, joined by guidelines from the American Appalachian Society that really amplify the need for act-owned testing for any child who has a seizure.

Speaker Change: and then I think it's further amplified by continued reimbursement in that setting. Not to mention the fact that there are many companies.

Speaker Change: on the bio-farmar side of things who are all out there educating pediatric neurologists in order to

Speaker Change: to really fuel their clinical trials and their pipeline for FDA-proof therapy. So there's really this incredible ecosystem play that is happening in order to benefit these children, so there's not only a diagnosis.

Speaker Change: But there's something that is clinically actionable on the other side of that diagnosis by way of study or an FDA preseropy.

Speaker Change: The work that we're doing on the sales and the whole fair side of things is we're going in, we're showing them data that really ensures that they understand the importance of getting a precise.

Speaker Change: [inaudible] She's a doctor.

Speaker Change: What is happening from a genetic standpoint in order to be eligible for this clinical trial characteristic therapies? And so it's very similar to the phenomenon that you see on the cancer side of things and that you have seen on the cancer side of things for many years.

Speaker Change: Um...

Speaker Change: We have a lot of education still to do just about how much more within reach our testing is. Historically it took a long time. It was expensive and it was confusing when you got an answer, but thanks to the technology improvements and scale that we've been able to build into our business.

Speaker Change: O'Turner-On-Times are now in the three-week cranes versus even a four-week range.

Speaker Change: Reimbursedment is really strong in that setting so it takes Christ off of the table for our most of these patients.

Speaker Change: Florida 5 has no out of pocket.

Speaker Change: and then because we're continuing to resolve variants of unknown significance for upgrading and downgrading them.

Speaker Change: These results are actually more inclusive and less confusing. So there's a number of things that we're doing to really educate the astronaut neurologist.

Speaker Change: about why the cities genetic testing versus other modalities that are inconclusive and can be derived costs and health care systems and why we are easier to work with.

Speaker Change: Whoops, that's really helpful and we're just on that where do you think penetration could maybe go?

Speaker Change: So as we said earlier, we're at about 12% we're aiming to make sure that every pediatric neurologist who has a child with a seizure is getting a genetic test.

Speaker Change: So as we've talked about the total addressable market and the outpatient setting, being about $2 billion, that doesn't contemplate really an expansion of testing beyond ICD-10 codes, which is what we're really driving towards. We want to make sure that any trials who has...

Speaker Change: Several of these symptoms, whether it is persistent seizures.

Speaker Change: Imit Smith milestones, it's usually a combination of multiple different types of symptoms that are showing up. The genetic testing thing is only a possible prevent progression of disease. So we think that every pediatric neurologist should be utilizing this testing for these children who are showing up as a first line of treatment. And again, AES guidelines support that. And so we'll continue to work alongside AES patient advocacy groups to wonderful partners and to have the best-getting providers as well.

Speaker Change: to make sure that everyone has access to this happening.

Speaker Change: Okay, that's great. And then just the second question I had was just on the Nicky penetration and sort of how we think about the ramp there. Are there accounts that are essentially, you know, preparing to turn on, you know, rapid, you know, testing once you are live and launched with epic or do we think of that as more kind of the starting date. And then there's a, you know, a bit of a delay is, is accounts, you know, prepare to launch.

Speaker Change: is both so.

Speaker Change: We are currently selling and actively driving volumes and institutional pay today. So we are able to start playing on business.

Speaker Change: and realizing the benefits for their patients today and for our business today. So that is happening. Again, this is a reminder for everyone. This is an enterprise.

Speaker Change: Aproch, so we're going in our Chief Medical Officer, our Enterprise Dail Team will go in and tell a system line approach to embedding testing.

Speaker Change: with that adult, we believe that Epic Oro will be an important catalyst next year. We'll begin actually accepting orders through that in the first half of the year.

Speaker Change: and we expect that we'll start to see the impact of that in the second half of the year. So we're continuing to do what I would call blocking and tackling in some of these health systems with the improvements that we've had.

Speaker Change: Several of these health systems, they're partnering with us in the outpatient setting, so it's a natural extension into that NICU setting.

Speaker Change: But next year, as we think about the potential to really drive more meaningful volumes and revenues, and importantly, more diagnoses faster for more of these families, we think that the EPIC partnership is gonna be an important catalyst for us.

Speaker Change: Thank you very much. Appreciate your taking all those questions.

Speaker Change: Thanks, Bill.

Speaker Change: Thank you. One moment for the next question, please.

Speaker Change: And our next question will be coming from Mark Cesaro of BTIG. Your line is open.

Mark Cesaro: Hey guys, thank you very much for the questions and congrats on the quarter.

Mark Cesaro: I wanted to start on the

Mark Cesaro: the JAMA study and the Guardian readout, pretty impressive stuff. So I guess...

Mark Cesaro: Multipart question here. First, can you remind us who is paying for the study? I see it's a collaboration among academic institutions and

Mark Cesaro: Illumina is involved as well, but I just wanted to double-check how much of this study you guys are paying for, how it relates to cash burn, and then secondly when do you expect to commercially launch your Exome product to newborns?

Mark Cesaro: And then the third one is more on the medical affairs or payer strategy side. How are you thinking about, you know, starting to

Mark Cesaro: potentially work with medical societies.

Mark Cesaro: and getting payers to pay for, you know, newborn screening. I know a number of us are familiar.

Mark Cesaro: with Natera's strategy in microdeletion screening, and it has taken them a little bit of time getting in front of ACOG. So maybe help us determine if ACOG is one of these groups.

Mark Cesaro: But give us a sense for timing, both on commercial launch and on guidelines.

Speaker Change: Thank you.

Speaker Change: Yeah, maybe, Mark, I'll start with that first one. So it's effectively in-kind consideration by each partner in the Guardian study. So that would include GeneDx, Illumina,

Speaker Change: New York State and New York Presbyterian. The lead PI is Wendy Chung. She was formerly with Columbia, now she's with Boston Children's Hospital.

Speaker Change: with Wendy and her team contributing principal investigation type of work, Illumina providing reagents, GDX providing the actual sequencing and interpretation.

Speaker Change: And so our labor and know-how effort there, each contributing what we do best at, frankly, with then no cost to the families involved in this.

Speaker Change: In terms of timing and pair strategy, one I want to reemphasize some of the comments that we made that the absence of this testing is indeed funneling children through this multi-year six to eight year diagnostic odyssey.

Speaker Change: And that's a big problem that we have to continue to solve today, but I think with that as a backdrop, it's

Speaker Change: I think it really further cements how important it is that we continue to accelerate the opportunity in the newborn screening setting. It's gonna take a lot of work. We talk about the Guardian study as being.

Speaker Change: proof of principle. Wendy has done a masterful job in showing that she can generate

Speaker Change: the attention and interest in prospective parents. So more than 70% of parents enroll in this study.

Speaker Change: But the key question, of course, is going to be who's going to pay for it. And we think that that's going to take us several years to really continue to make sure that

Speaker Change: Policymakers appreciate it that we can figure out exactly what that pull through strategy is going to be

Speaker Change: I tend to be optimistic about our ability to solve the business problems of it. I think if you.

Speaker Change: There was just the International Conference on Newborn Screening here in New York a couple weeks ago. And all of the researchers, I think, are coalesced around.

Speaker Change: great evidence, particularly given the fact that this is the largest study that's been done in the U.S. There's great evidence on clinical actionability. Four percent is what we're seeing.

Speaker Change: But the business problems that we have to solve, that's what we're really good at at GeneDx.

Speaker Change: And so...

Speaker Change: We're going to take our commercial team, our medical affairs team, we're going to continue to figure out the health economic argument.

Speaker Change: that really goes beyond the clinical utility that we're seeing in the Guardian study.

Speaker Change: So I think our view on it remains, it will be in the five plus year timeframe before it really starts to take off in a meaningful way.

Speaker Change: We are spending time on it today to make sure that we can be the ones who work with the entire ecosystem, including biopharma companies who have...

Speaker Change: a really important interest, several biopharma companies.

Speaker Change: and patient advocates are the reasons that we have expanded from 200 conditions that we're screening for to 450. So we'll work in collaboration with all of them to figure out the commercial strategy and the payer strategy for that as well.

Speaker Change: Okay that is really helpful and then one for you Kevin I know you talked about your ASPs on exome and genome hit $3,100 in the quarter

Speaker Change: That's up $500 year-over-year.

Speaker Change: I don't think you have, but...

Speaker Change: Do you think you've hit a wall there, or at least have you reached a limit on the 3100?

Speaker Change: Just give us a sense. I know that when you get paid in full, I think you're a little bit higher than that. So I'm just trying to get a sense as we are.

Speaker Change: tweaking our models for 2025 and perhaps beyond, how should we think about the upper limit of realizing ASPs on exome genome?

Speaker Change: Yeah, maybe one way I'd contextualize Mark is we're still at a point where our payment rate is in the mid-50s and certainly believe

Speaker Change: a mature product in our space over time, one that we believe

Speaker Change: fills a large unmet medical need and really makes an impact on care.

Speaker Change: ought to have a much higher payment rate than that, at least 70 to 80 percent, so still a long way to go.

Speaker Change: to ensure we're getting paid consistently.

Speaker Change: at normalized rate there. So we consider the $3,100 here a new forum, which we'll challenge ourselves to continue to reduce denials. In large part, many of them still remain administrative and procedural.

Speaker Change: I'm really pleased with the progress the team has made. About a year ago we invested a lot of resources in terms of people and technology and it's paying off. So certainly optimistic that we can continue improvements there.

Speaker Change: Awesome. And then last one for me, it's for you, Katherine. You know, you talk about longer term, you want to provide exome and genome tests to adults. Is there sort of a guardian study for adults in the works? Can you just give us a sense for what you're doing in terms of

Speaker Change: getting in front of collaborators to show the evidence of why this test would be helpful in adults.

Katherine Stueland: certainly you know I think one of the the key principles for us over the past several years that has differentiated us from from labs of past is making sure

Katherine Stueland: We can get paid as often as possible for our testing. So we're going to continue to drive a business where there is line of sight between volume and getting paid for it. I think as we think about the adult setting,

Katherine Stueland: There's a few areas that come to mind for us. One is, of course, adult neurodegenerative conditions like Parkinson's and Alzheimer's disease, amongst others.

Katherine Stueland: and really thinking about drug development and those areas and others on the cardiovascular side of things. And again, taking a look at where biopharma companies are investing their capital as well. So we're going to work

Speaker Change: The way that I would say, though, Mark, I think it still remains like an exome-genome test versus a screen.

Speaker Change: In the future, when we get to a place where we are doing newborn screening at birth for all babies.

Speaker Change: I could see us at that point in time, in the future, flip to being able to do a sequence and hold on adults as well. We haven't begun scoping out what that could look like, you know, beyond that being an important vision and North Darbra.

Speaker Change: But I would almost view the adult market as being an extension of the test-by-test symptomatic market versus screening market as we look to be able to continue to open up access to broader patient populations.

Speaker Change: That's all very helpful. Thanks so much.

Speaker Change: Thank you. One moment for the next question.

Speaker Change: And our next question will be coming from Matt Sykes of Goldman Sachs. Your line is open.

Matt Sykes: Hi, good morning. Thanks for taking my questions. Congrats on another good quarter. I guess I just wanted to, more of a modeling question, but maybe just talk a little bit about the impact of prior period collections. I think you did.

Speaker Change: $6.3 million this quarter, down from $7.0 last quarter.

Speaker Change: Just given the the profile of that revenue, I assume it had an outsized impact on profitability. And so just from a modeling perspective, Kevin, I guess, how should we think about moving forward prior period collections, any kind of trends that you could help us out with, and what was the impact of profitability from that revenue coming in year to date?

Kevin Feeley: Yeah, as you pointed out, it's about $6 million of estimated true ups, although I put that in the context of true up spending.

Kevin Feeley: a number of months or actually quarters.

Speaker Change: And the way I would think about it is that the gap calculations themselves tend to look at a historic look back period to estimate collection rates by payer and frankly we've been outperforming past estimates.

Speaker Change: That's that's where we want to be with respect to those true ups and still think we're in a

Speaker Change: a cycle where there's a number of quarters to come where we'll be on that side of the ledger.

Speaker Change: So do view.

Speaker Change: sort of the rev-rack rate of...

Speaker Change: $3,100 that you can derive from our table in the back of the release as a new floor in which we'll build for gap revenue purposes moving forward.

Speaker Change: Okay, thank you. And then one for probably both Katherine and Kevin, just...

Speaker Change: Just given the increase you've seen in all exome and genome revenues, would you consider being more aggressive about...

Speaker Change: either winding down or disposing of some of your non-genome exome testing. I think, Kevin, you mentioned in response to the first question just about hereditary cancer.

Speaker Change: Maybe something you called out, but would this be, you know, how do you consider sort of the revenue versus margin implications? Because they're pretty significant.

Speaker Change: for our modeling and just for the overall company. And if you were to be more aggressive about winding that down, could you sell some of these types of tests like hereditary cancer, or would it just be sort of winding down that business as the exome genome grows?

Speaker Change: or I'll kick it off and then hand it over to Kevin. You know, I think as we look back from a year ago, we've now retired.

Speaker Change: of our test menu. And so we've made really meaningful progress in setting the low or negative gross margin tests.

Speaker Change: And really staying focused on tests that, one, provide the best patient care, two, ensure that there's healthy growth margin.

Speaker Change: and we'll continue to wind down tests. Kevin mentioned in the fourth quarter, you know, continuing to have an eye towards winding down additional tests from that menu.

Speaker Change: So I'm pleased that we've been able to make so much progress, and we do want to get to a place where we have a two-test menu, an exome, and a genome, ultimately running everything off.

Speaker Change: staff genomes for all. So we do want to get to that place over time, but again, making sure that there's a clear reimbursement pathway.

Speaker Change: Yeah, the only thing I'd add to that Matt is

Speaker Change: As Katherine said, retiring about 70% of the test menu in the past year. What remains, maybe putting aside hereditary cancer for a moment, outside of that line, what remains in the non-exome, non-genome test line are all tests that we believe

Speaker Change: are long-term strategically important in that they would expect to convert to exome and genome once additional guidelines are put out. The largest portion of that

Speaker Change: volume line is chromosomal microarray, represents about 20% of all volume.

Speaker Change: That test, we do think, long-term is absolutely a great candidate to convert to exome and genome.

Speaker Change: And so strategically important, and at the same time over the last year, we've made strides to improve the COGS profile of the remaining portfolio. CMA, one example, where it was about 30% negative gross margin a year ago, we've gotten that to

Speaker Change: about breakeven with, we think, a path to further improve upon that. So, a lot of rigor going into what is the remaining test menu, as Katherine alluded to, with a filter to say, is it margin, positive, and accretive?

Speaker Change: and and or a good strategic fit to build the exome genome business over time.

Speaker Change: Thanks, very helpful, appreciate it.

Speaker Change: Thank you. One moment for the next question.

Speaker Change: And our next question will be coming from Brandon Collier of Wells Fargo. Your line is open.

Brandon Collier: Hey, thanks. Good morning. Kevin, congratulations on crossing the profitability line. How should we think about incremental investments over the next 6 to 12 months now that you are profitable? Are there some projects that have maybe been on the shelf that will be priorities at the top of that list? And Kevin, how should we think about OPEC spend moving into 2025 in that context?

Kevin Feeley: Awesome. Thanks, Brandon. You know, I think you're absolutely right about the way that we're thinking about investments. We're going to make, you know, I would say discreet, meaningful investments that ensure that we're balancing continued profitable growth.

Kevin Feeley: while ensuring that we can innovate to continue to lead the way, not just in exome, but in genome. So, yeah, I think what we've seen this year already is our ability to play some of those disparate bets, whether it's Epic Aura, if it's,

Kevin Feeley: Putting Capital Behind Improving Our Genome Products.

Kevin Feeley: which we've discussed all in the work. We already released our buckle swab.

Kevin Feeley: We will have five-day turnaround time, and we will have repeat expansion.

Kevin Feeley: So, it's continuing to make...

Speaker Change: Sabrina Dunbar, Katherine Stueland

Speaker Change: in a really methodical way. I'm happy to say that on the genome improvements, we started to see the results of that by way of volumes coming through. And again, that's institutional pay, so it's really healthy business.

Speaker Change: We're going to continue to strike a really healthy balance in terms of making the product improvement, the customer experience, and the overall commercial growth investment in a really deliberate and methodical way moving forward.

Speaker Change: Yeah, maybe just layer on, you know, this broader team, functional teams have really built the muscle memory to

Speaker Change: look at ROI analysis, cost-benefit analysis, and we're still in a period where we expect payback.

Speaker Change: in something like one to three years rather than three to five or beyond. So all investments will be

Speaker Change: measured with respect to where do we see near-term accelerators in terms of

Speaker Change: revenue growth or gross profit.

Speaker Change: expansion. We see a number of things that we believe we can do to further accelerate the business, so excited to analyze those, but certainly you should expect that.

Speaker Change: were taking the same level of rigor that got us to this point of brand and profitability moving forward. From an OPEC standpoint...

Speaker Change: you know, maybe some incremental aggregate dollars, but still expect a period over the next year where that OPEX as a percent of revenue.

Speaker Change: could slightly decline as revenue and growth profit outpace any incremental additions to OPEX.

Matt Sykes: Ben, that's helpful. And then, Kevin, I think the guide implies gross margins actually stepped down a little bit sequentially in the fourth quarter. Is that just conservatism or is there some mixed impact embedded in there? And it'd be helpful if you could update us on just the gross margin profile by test franchise and where you see the biggest opportunity for improvement. Thank you.

Speaker Change: Yeah, so the at least 62%, I'd say two components of that one.

Speaker Change: It's at least 62%, so 62% or higher. And again, that's for the full year. And so there's some weighted math going on. Effectively, expect margins to stay roughly flat with where they are in Q3 as we head into Q4.

Speaker Change: So the guide implies roughly flat, and we'll try to beat that.

Speaker Change: Very good, thanks.

Speaker Change: And our next question will be coming from Matt Statton of Jeffries. Your line is open.

Speaker Change: Hey, thanks. Miby1 speaking with Gross Marketing. Thanks, Kevin. 3Q saw a more meaningful step up than we saw in the first half from low 60s moving towards.

Matt Statton: mid-60s or about 300 basis points. I think you called out kind of mixed reimbursement, better cost, number of drivers of that. Is there anything that was more meaningful than others or was it kind of equal weighted? And then as we start to think about 25, can you talk about some of the levers for ongoing improvement as we build off the updated 24 guide for the at least 62% on the gross margin side?

Matt Statton: Bye.

Speaker Change: Where we continue to see opportunity moving forward is if you look at our COGS stack, about a third of it resides in what I'll call the dry side processes. So after the sequencer, but before report writing or including report writing.

Speaker Change: still fairly manual steps today, with a lot of effort and resources going in manually. We think those processes are good candidates for further automation.

Speaker Change: And so we're investigating any tools that might help us unlock further cost for test savings and would expect that component to have.

Speaker Change: the bigger proportionate share of expansion gains as we head into 25 and beyond.

Speaker Change: Okay, that's really helpful. And then, nice to see the continued whole exome genome sequencing coverage by the states. In terms of some of the more recent wins, how do we think about the larger states like Texas and September, Florida here, and October on the whole genome side? Can you just remind us on how quickly those coverage decisions can and will impact your business? Thanks.

Speaker Change: and so would really expect more of a 25 impact for those states that we announced, enhanced, or put in policy this year.

Speaker Change: Thank you.

Speaker Change: Thank you, and that does conclude the Q&A session for today, and I would like to go ahead and turn the call over to Katherine for closing remarks. Please go ahead.

Katherine Stueland: Great. Well, thank you all for joining us. We look forward to seeing you at upcoming conferences. Thanks so much. Have a good day.

Speaker Change: This concludes today's conference call. You may all disconnect.

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Speaker Change: Thank you for standing by and welcome to the GeneDx 3rd Quarter 2024 Earnings Conference Call.

Speaker Change: At this time, all participants are in a listen-only mode.

Speaker Change: And after the speaker's presentation, we will have a question and answer session. Keep in mind that this call is being recorded. If you would like to ask a question, please press star 1-1 on your telephone.

Speaker Change: and you will hear an automated message advising your hand is raised. I would now like to turn the call over to Sabrina Dunbar, Investor Relations. Please go ahead.

Sabrina Dunbar: Thank you, Operator, and thank you to everyone for joining us today. On the call, we have Katherine Stueland, President and Chief Executive Officer, and Kevin Feeley, Chief Financial Officer.

Speaker Change: Earlier today, GeneDx released financial results for the third quarter and on September 30, 2024.

Speaker Change: Before we begin, please take note of our cautionary statement.

Speaker Change: We may make forward-looking statements on today's call, including about our business plans, guidance, and future activities.

Speaker Change: and Outlook.

Speaker Change: Forward-looking statements inherently involve risks and uncertainties that only reflect our view as of today, October 29th, and we are under no obligation to update.

Speaker Change: When discussing our results, we refer to non-GAP measures, which exclude certain items from reported results.

Speaker Change: for definitions and reconciliations of non-GAP measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements.

Speaker Change: And with that, I'll turn the call over to Katherine.

Katherine Stueland: Thanks, Sabrina, and thank you all for joining us. The third quarter was an exceptionally strong quarter for GeneDx.

Katherine Stueland: We delivered over $76 million in revenues, expanded growth margins to 64%, and achieved our 10th consecutive quarter of cash burn reduction.

Katherine Stueland: This milestone is an important one in the industry. We've demonstrated that you can prioritize patient care and do it while running a successful business.

Katherine Stueland: And as we walk through the door of profitability, we're entering a new phase of growth for GeneDx, one in which we hold a sustainable and durable market-leading position in exome and genome testing and translate our leadership to serve all patients who can benefit from genomic insights.

Katherine Stueland: On the back of a strong Q3, we're raising our revenue guidance for the full year 2024 to between $284 million to $290 million.

Katherine Stueland: We're bullish on our ability to keep expanding our footprint to the pediatric outpatient setting and begin extending our reach into new clinical settings in the years to come. Our work is just getting started.

Speaker Change: Today, we enjoy 80% of the U.S. Ex-Im market share.

Speaker Change: Historically, our dominance was anchored in volumes from expert genetics providers, but beginning in 2023, we shifted our commercial focus to pediatric neurologists, who represented the next rung of clinicians primed for a more comprehensive approach to genetic testing.

Speaker Change: While these pediatric neurologists have significantly expanded adoption and fueled growth over the last 12 months, there remains an ample multi-year growth opportunity ahead as we remain approximately 12% penetrated amongst these specialists.

Speaker Change: As we look at the path in front of us, there are many untapped growth catalysts yet to be unlocked.

Speaker Change: We see expanded clinical indications for exome and genome, entry into the general pediatrician market, and the development of additional patient access channels as opportunities to cultivate new arenas for our market leadership.

Speaker Change: We're proud to share that as of Q3, we've officially sequenced over 700,000 clinical exomes and genomes, completing over a hundred thousand of those sequences in the last six months alone. This acceleration is a testament to growing utilization of our exome and genome testing while creating a flywheel effect for our business.

Speaker Change: With every test we complete, we deepen our understanding of disease-gene correlations to inform more definitive diagnoses for more patients. We unlock improved operational efficiency and lower costs. And we further differentiate our products from those of our competitors.

Speaker Change: This acceleration in volume also demonstrates our ability to scale our data engine and positions us to be a key strategic partner for biopharma.

Speaker Change: We're leveraging our growing data asset to deliver value to biopharma companies big and small, while supporting our own commercial initiatives.

Speaker Change: as evidenced by our Epilepsy Partnership Program, which improves access to testing for children with epilepsy while delivering valuable insights to biopharma looking to inform their drug development efforts with new targets and find patients to enroll in active clinical trials.

Speaker Change: In the NICU, we're seeing a steady increase in rapid whole genome volume quarter over quarter as we set the stage for a broader push in 2025.

Speaker Change: We announced in Q2 that we've taken steps to solidify our position in this growing market with product improvements and a partnership with Epic Aura. Recent product releases are already providing an uplift in this segment and we're proving that our product and technology approach is effective.

Speaker Change: Regarding Epic, we're well on our way to implementing our partnership, which will seamlessly integrate GeneDx exome and genome testing into the workflows at many of the largest health systems across the country.

Speaker Change: We expect to begin receiving orders through ORA in the first half of 2025, with revenue ramping in the second half of the year.

Speaker Change: Our experience in the NICU has demonstrated time and again the power of a genetic diagnosis to change the course of a baby's life.

Speaker Change: We also know there's an opportunity to intervene even earlier. We believe in a world where every newborn's genome can be sequenced at birth, and we're confident GeneDx will lead this opportunity to revolutionize the traditional approach to newborn screening by adding genomic sequencing.

Speaker Change: For some of these families, actionability can be as simple as changing their baby's diet, and for others it can mean enrolling in a clinical trial or treating the condition with an FDA-approved therapy.

Speaker Change: We are approaching the genomic newborn screening opportunity with never-before-seen scale.

Speaker Change: In the short time frame we've invested in the space, we've sequenced more than 15,000 newborns, which is more than any other lab in the United States.

Speaker Change: We began work with the GUARDIAN study nearly two years ago, and the findings of that research were published last week in the Journal of the American Medical Association, a leading peer-reviewed publication.

Speaker Change: An analysis of Guardian participants found a nearly 4% positivity rate with genomic newborn screening.

Speaker Change: Dramatically 92% of newborns with true positive results would have been assumed healthy and sent home using today's traditional newborn screening.

Speaker Change: In the meantime, we have an incredible opportunity to serve an ever-growing number of patients and their families who are symptomatic today with our industry-leading exome and genome testing.

Speaker Change: Our focus and financial discipline, combined with the proven clinical utility of our testing, are setting us up for the next phase of sustainable growth, and we're excited by the opportunities ahead. And with that, I'll turn it over to Kevin.

Kevin: Thanks, Katherine, and good morning, everyone. In the third quarter of 2024, our revenues from continuing operations reached $76.6 million.

Kevin: That's a 52% increase from Q3 2023 and 11% sequentially from the second quarter of 2024.

Kevin: Exome and genome revenues grew 77% year-over-year and 18% sequentially contributing 60 million dollars this quarter.

Kevin: The growth was driven by both volume and collection performance.

Kevin: Adjusted Gross Profit from Continuing Operations for Q3 2024 was $49.3 million, which is up 103% compared to the same quarter last year, and up 16% sequentially from the previous quarter.

Kevin: That translates to a gross margin of 64% up from 48% a year ago and 62% last quarter. Margin expansion benefited from all three of better average reimbursement rates, lower cost per test, and favorable mix shift.

Kevin: Regarding volume and mix, exome and genome tests accounted for 33% of all tests this quarter, up from 23% a year ago and 31% in the previous quarter.

Kevin: Our team delivered over 19,000 exome and genome tests this quarter. That's up 46% year-over-year and 7% sequentially.

Kevin: We continue to expect an inevitable long-term replacement cycle of the industry's gene tests and multi-gene panels into exomes and whole genomes.

Kevin: We're in the early innings of penetrating the outpatient specialist market and are poised to layer on the NICU service opportunity in the back half of 2025 and long-term expect the pediatrician

Kevin: call point to open up. Eventually, exome and genome will become standard first-line diagnostics for nearly all heritable disorders, including adult disorders.

Kevin: On average reimbursement rates, all uplift have come from our efforts to reduce denial.

Kevin: In Q3 2024, the average reimbursement rate per exome and genome after all denial was approximately $3,100 up from $2,800 last quarter and up from approximately $2,600 in the same quarter of last year.

Kevin: Our work to refine insurance-specific workflows to minimize administrative and procedural denials at commercial payers is paying off.

Kevin: Additionally, Medicaid denials are decreasing as individual state policies evolve to cover exome and genome testing more broadly.

Kevin: That's a round sound of clinical and health economic data, patient advocacy, and biomarker bills for having a positive impact on policy and reimbursement decisions at the state level.

Kevin: This quarter Connecticut, Florida, Indiana, and Texas all expanded or implemented enhanced policy.

Kevin: And while the state-by-state approach to expanding coverage is taking hold, we've also seen promising support at the federal level.

Kevin: Recently, CMS issued, quote, historic guidance, quote, to state Medicaid agencies underscoring their obligation to provide all medically necessary services under the Early and Periodic Screening, Diagnostic, and Treatment Program, or EPSDT.

Kevin: which entitles every Medicaid-enrolled child to services that meet their unique medical needs, including diagnostic tools like exome and genome sequencing.

Speaker Change: On COGS, our team has optimized the wet lab and we see further opportunity in the next several quarters to enhance efficiency throughout what today is fairly manual dry site process.

Speaker Change: Turning to operating expense, total adjusting operating expense for Q3 2024 were 46.6 million dollars.

Speaker Change: This team has built the skill set of balancing innovation and growth with financial discipline and stewardship to all that we do to drive leverage.

Speaker Change: and on the bottom line.

Speaker Change: Total company adjusted net income for Q3 2024 was $1.2 million, marking the first positive quarter on that basis since inception.

Speaker Change: This quarter marks our 10th consecutive quarter of cash flow improvement.

Speaker Change: I'm the balance sheet.

Speaker Change: Our cash, cash equivalents, marketable securities, and restricted cash total $117.4 million as of September 30, 2024, inclusive of proceeds of $14.6 million net of fees for the issuance of 418,653 shares of common stock in connection with at-the-market sales during the third quarter of 2024.

Speaker Change: The outstanding share count as of September 30th, 2024 stands at 27,433,803 Class A common shares.

Speaker Change: Now looking ahead, we're again raising our revenue guidance for the full year of 2024 to between $284 and $290 million. We're also raising our adjusted gross margin guidance, expecting it to be 62% for the full year.

Speaker Change: Additionally we're improving our net cash burn guidance now anticipating using 60 to 65 million dollars of net cash for the full year of 2024 excluding the financing process.

Katherine Stueland: And with that, I'll turn you back to Katherine. Thank you, Kevin.

Katherine Stueland: As we exit the third quarter a profitable business, we're more confident than ever that we have a long runway of growth ahead of us.

Katherine Stueland: While we continue to cement our leading position in the pediatric and rare disease market with substantial room to grow, we've turned our eyes towards the future, a future in which any genetic disorder is diagnosed quickly, prevent disease progression, and ensure long and healthy lives for all.

Katherine Stueland: Fueled by our dedication to a healthier tomorrow, we're committed to ending the diagnostic odyssey today.

Katherine Stueland: We're not just imagining a healthier future, we're building it one diagnosis at a time.

Katherine Stueland: And with that, we'll open it up to questions.

Speaker Change: Thank you. As a reminder, if you would like to ask a question, please press star 1 1 on your telephone. If you would like to remove yourself from the queue, press star 1 1 again. We also ask that you please wait for your name and company to be announced before you proceed with your question.

Speaker Change: And our first question for the day will be coming from Dan Brennan of TD Cal when your line is open.

Dan Brennan: Great, thanks for the question. Congrats on a strong quarter. Maybe the first one just on the guidance, pretty healthy raise.

Dan Brennan: Can you just give us a sense on how we think about the fourth quarter obviously you're pointing to around 80 million But when you think about the volume price for exomes and genomes, maybe can you just give us some flavor there? And how does like your fourth quarter guide now compared to kind of normal seasonality?

Speaker Change: Yeah, hi Jake, good morning. Look, we're really pleased with the progress of the business, continued momentum heading into fourth quarter. We've previously talked that Q4 is typically seasonally strongest. That said, the early part of the fourth quarter here was impacted some by the the weather down in the southeast, the hurricanes and tornadoes.

Speaker Change: So, wanted to leave some room.

Speaker Change: to see how long until we see a snapback there at the same time as we've talked throughout the year, wanting to leave some room in the guide if we were to make some unilateral decisions with respect to the non-exome and non-genome portion of the portfolio, namely hereditary cancer and some other non-exome tests.

Speaker Change: We expect that the fourth quarter will be seasonally stronger, but left some room in the guide there for some of those toggles.

Speaker Change: and and could you give us I mean obviously the prepared remarks spoke to

Speaker Change: you know, the early nature of where you sit today, despite the really strong growth, you've got a lot of upside across a lot of different planes. You know, the volume growth really good in the quarter, New York against a tough comp, and the comp gets harder in the fourth quarter. So just give us a little flavor of kind of, you know, maybe between outpatient and inpatient, maybe new accounts versus existing accounts, any color on kind of what's driving that really strong volume growth to exomes and genomes.

Speaker Change: Yeah, we're still seeing a tremendous amount of growth with new accounts and with same-store sales in that outpatient setting.

Speaker Change: But I would say we did start to see, because of some product improvements last quarter, we have seen some nice.

Speaker Change: growth on the NICU side of things as well as we turn our sights towards really ensuring that we can translate that same leadership that we have in exome to genome in the NICU setting.

Speaker Change: You know, we've ramped up our commercial efforts there. We've talked about the future with Aura. We're continuing to improve beyond.

Speaker Change: sample collection. So, we released a cheek swab for that NICU setting. We'll have faster turnaround times. We will have repeat expansions, all of which will help really continue to support our growth in that NICU setting as we head into 2025. So, I think we're really pleased to see kind of the diversification beyond the outpatient exome setting and starting to see some movement in that NICU setting, which I think just sets us up for a really strong outlook on

Speaker Change: 2025 growth in both settings.

Speaker Change: And if I could speak one last one in the you know the CMS program you talked about in the prepared remarks historic guidance as you called it on state Medicaid plans can you just elaborate a bit does this

Speaker Change #100: Essentially force Medicaid plans to adopt testing kind of when can you start accruing more broadly across those states that aren't Kind of covering it today. So just give us a sense on you know that program and its potential impact

Speaker Change #101: Yeah, I wouldn't go that far, Dan, with it. There's no real forced mechanism there. It's more of a reinforcement of what is existing guidance by CMS to individual state programs.

Speaker Change #101: for a unique program for early childhood diseases and disorders for states to cover where there's unique and special needs. And we think much of our testing fits into that mold of unique and special needs.

Speaker Change #102: Thank you.

Speaker Change #102: But I wouldn't overstate to say that there's an enforcement regimen in place there.

Speaker Change #103: Okay, I'll get back in the queue. Thank you.

Speaker Change #104: Thank you. One moment for the next question.

Speaker Change #105: And our next question will be coming from William Bonello of Craig Hellam Capital Group. Your line is open.

William Bonello: Hey, good morning guys. Thanks for taking the question. Just a couple quick things. Can you talk a little bit about some of the actual initiatives that you have in place to drive increased penetration with the pediatric neurologists? I mean, what do you do to get more of them using the testing, and where do you think penetration can go over time? And then I have, you know, one follow-up.

Speaker Change #107: Perfect. You know, I think there's a number of things that are impacting utilization in the pediatric neurology setting, and I guess at a high level there's our own efforts.

Speaker Change #107: but they are, I think, joined by guidelines from the American Epilepsy Society that really amplify.

Speaker Change #107: the need for exome testing for any child who has a seizure.

Speaker Change #107: And then I think it's further amplified by continued reimbursement in that setting.

Speaker Change #107: not to mention the fact that there are many companies.

Speaker Change #107: on the biopharma side of things, who are all out there educating pediatric neurologists in order to really fuel their clinical trials and their pipeline for FDA-approved therapy. So, there's really this incredible ecosystem play that is happening in order to benefit these children. So, there's not only a diagnosis.

Speaker Change #107: but there's something that is clinically actionable on the other side of that diagnosis by way of a study or an FDA approved therapy.

Speaker Change #107: The work that we're doing on the sales and medical affairs side of things is we're going in, we're showing them data that really ensures that they understand the importance of getting a precise.

Speaker Change #107: genetic diagnosis, so not just doing a brain scan, but really understanding if there is an underlying genetic cause for these seizures in particular. You need to know exactly.

Speaker Change #107: what is happening from a genetic standpoint in order to be eligible for those clinical trials or FDA-approved therapies. And so it's very similar to the phenomenon that you see on the cancer side of things and that you have seen on the cancer side of things for many years.

Speaker Change #108: Sabrina Dunbar, Katherine Stueland

Speaker Change #108: We have a lot of education still to do, just about.

Speaker Change #108: how much more within reach our testing is. Historically, it took a long time. It was expensive and it was confusing once you got an answer. But thanks to the technology improvements and scale that we've been able to build into our business,

Speaker Change #108: or turnaround times are now in the three-week range versus even a four-week range.

Speaker Change #108: Reimbursement is really strong in that setting. So it takes price off the table for most of these patients.

Speaker Change #108: 4 out of 5 have no out-of-pocket.

Speaker Change #108: And then, because we're continuing to resolve variants of unknown significance, we're upgrading and downgrading them.

Speaker Change #108: these results are actually more conclusive and less confusing. So there's a number of things that we're doing to really educate pediatric neurologists about why they should use genetic testing versus other modalities that are inconclusive and continue to drive costs in the healthcare system and why we are easier to work with.

Speaker Change #109: Sabrina Dunbar, Katherine Stueland, Sabrina Dunbar

Speaker Change #110: That's really helpful. And we're just on that. Where do you think penetration could maybe go?

Speaker Change #110: So, as we said earlier, we're at about 12%. We're aiming to make sure that every pediatric neurologist who has a child with a seizure is getting a genetic test.

Speaker Change #110: So, as we've talked about the total addressable market and the outpatient setting being about $2 billion, that doesn't contemplate really an expansion of testing beyond ICD-10 codes, which is what we're really driving towards. We want to make sure that any child who has

Speaker Change #110: several of these symptoms, whether it is persistent seizures,

Speaker Change #110: to make sure that everyone has access to the testing.

Speaker Change #111: Okay, that's great. And then just the second question I had was just on the NICU penetration and sort of how we think about the ramp there. Are there accounts that are essentially, you know, preparing to turn on, you know, rapid whole genome testing once you are live and launched with Epic? Or do we think of that as more kind of the starting date, and then there's a, you know, a bit of a delay as, as accounts, you know, prepare to launch?

Speaker Change #112: It's both.

Speaker Change #113: We are currently selling and actively driving volumes and institutional pay today. So we are able to start bringing on business.

Speaker Change #114: and realizing the benefits for their patients today and for our business today. So that is happening. Again, just as a reminder for everyone, this is an enterprise.

Speaker Change #114: sales approach. So we're going in, our chief medical officer, our enterprise sales team will go in and sell a system-wide approach to embedding testing.

Speaker Change #114: Without a doubt, we believe that Epic Aura will be an important catalyst next year. We'll begin actually accepting orders through that in the first half of the year.

Speaker Change #114: and we expect that we'll start to see the impact of that in the second half of the year. So we're continuing to do what I would call blocking and tackling in some of these health systems with the improvements that we've had.

Speaker Change #114: several of these health systems. They're partnering with us in the outpatient setting so it's a natural extension into that NICU setting.

Speaker Change #114: But next year, as we think about the potential to really drive more meaningful volumes and revenues, and importantly, more diagnoses faster for more of these families, we think that the EPIC partnership is gonna be an important catalyst for us.

Speaker Change #115: Okay, thank you very much. Appreciate your taking all those questions.

Speaker Change #116: Thanks, Bill.

Speaker Change #117: Thank you. One moment for the next question, please.

Speaker Change #118: And our next question will be coming from Mark Cesaro of BTIG. Your line is open.

Mark Cesaro: Hey guys, thank you very much for the questions and congrats on the quarter.

Mark Cesaro: I wanted to start on the

Mark Cesaro: the JAMA study and the Guardian readout, pretty impressive stuff. So I guess...

Mark Cesaro: Multipart question here. First, can you remind us who is paying for the study? I see it's a collaboration among academic institutions and

Mark Cesaro: Illumina is involved as well, but I just wanted to double-check how much of this study you guys are paying for, how it relates to cash burn, and then secondly when do you expect to commercially launch your exome product to newborns?

Mark Cesaro: And then the third one is more on the medical affairs or payer strategy side. How are you thinking about, you know, starting to

Mark Cesaro: potentially work with medical societies.

Mark Cesaro: and getting payers to pay for newborn screening. I know a number of us are familiar with Natera's strategy in microdeletion screening and it has taken them a little bit of time getting in front of ACOG. So maybe help us determine if ACOG is one of these groups, but give us a sense for timing both on commercial launch and on guidelines.

Speaker Change #119: Thank you.

Speaker Change #120: Yeah, maybe Mark I'll start with that first one. So it's it's effectively in kind Consideration by each partner in the Guardian study so that would include GeneDx, Illumina,

Speaker Change #120: New York State and New York Presbyterian. The lead PI is Wendy Chung. She was formerly with Columbia now she's with Boston Children's Hospital.

Speaker Change #120: with Wendy and her team contributing principal investigation type of work, Illumina providing reagents, GDX providing the actual sequencing and interpretation.

Speaker Change #120: And so our labor and know-how effort there, each contributing what we do best at, frankly, with no cost to the families involved in this.

Speaker Change #120: In terms of timing and payer strategy, one I want to reemphasize some of the comments that we made that the absence of this testing is indeed funneling children through this multi-year six to eight year diagnostic odyssey.

Speaker Change #120: And that's a big problem that we have to continue to solve today. But I think with that as a backdrop, it's...

Speaker Change #120: I think it really further cements how important it is that we continue to accelerate the opportunity in the newborn screening setting. It's going to take a lot of work. We talk about the Guardian study as being

Speaker Change #120: proof of principle. Wendy has done a masterful job in showing that she can generate

Speaker Change #120: the attention and interest in prospective parents. So more than 70% of parents enroll in this study.

Speaker Change #120: But the key question, of course, is going to be who's going to pay for it. And we think that that's going to take us several years to really continue to make sure that

Speaker Change #120: Policymakers appreciate it that we can figure out exactly what that pull through strategy is going to be

Speaker Change #120: I tend to be optimistic about our ability to solve the business problems of it. I think if you, there was just the International Conference on Newborn Screening here in New York a couple weeks ago, and all of the researchers, I think, are coalesced around there is

Speaker Change #120: Great evidence, particularly given the fact that this is the largest study that's been done in the U.S. There's great evidence on clinical actionability. Four percent is what we're seeing.

Speaker Change #121: Thank you.

Speaker Change #121: But the business problems that we have to solve, that's what we're really good at at GeneDx.

Speaker Change #121: And so.

Speaker Change #121: We're going to take our commercial team, our medical affairs team, we're going to continue to figure out the health economic argument.

Speaker Change #121: that really goes beyond the clinical utility that we're seeing in the Guardian study.

Speaker Change #121: So I think our view on it remains it will be in the five plus year timeframe before it really starts to take off in a meaningful way.

Speaker Change #121: We are spending time on it today to make sure that we can be the ones who work with the entire ecosystem including biopharma companies who have

Speaker Change #121: a really important interest. Several biopharma companies

Speaker Change #121: and patient advocates are the reasons that we have expanded from 200 conditions that we're screening for to 450. So we'll work in collaboration with all of them to figure out the commercial strategy and the payer strategy for that as well.

Speaker Change #122: Okay, that is really helpful. And then one for you, Kevin. I know you talked about your ASPs on Exome and Genome hit $3,100 in the quarter.

Speaker Change #122: That's up $500 year-over-year.

Speaker Change #123: I don't think you have, but...

Speaker Change #124: Do you think you've hit a wall there, or at least have you reached a limit on the 3100? Just give us a sense. I know that when you get paid in full, I think you're a little bit higher than that. So I'm just trying to get a sense as we are tweaking our models for 2025 and perhaps beyond, how should we think about the upper limit of realizing ASPs on exome genome?

Speaker Change #125: Yeah, maybe one way I'd contextualize Mark is we're still at a point where our payment rate is in the mid-50s and certainly believe

Speaker Change #125: a mature product in our space over time, one that we believe

Speaker Change #125: fills a large medical need and really makes an impact on care.

Speaker Change #125: ought to have a much higher payment rate than that, at least 70 to 80 percent, so still a long way to go.

Speaker Change #125: to ensure we're getting paid consistently at a normalized rate there. So we consider the $3,100 here a new forum, which we'll challenge ourselves to continue to reduce denials. In large part, many of them still remain administrative and procedural.

Speaker Change #125: I'm really pleased with the progress the team has made. About a year ago we invested a lot of resources in terms of people and technology and it's paying off. So certainly optimistic that we can continue improvements there.

Speaker Change #126: Awesome. And then last one for me, it's for you, Katherine. You know, you talk about longer term, you want to provide exome and genome tests to adults. Is there sort of a guardian study for adults in the works? Can you just give us a sense for what you're doing in terms of

Speaker Change #126: getting in front of collaborators to show the evidence of why this test would be helpful in adults.

Speaker Change #127: certainly you know I think one of the the key principles for us over the past several years that has differentiated us from from labs of past is making sure

Speaker Change #128: We can get paid as often as possible for our testing. So we're gonna continue to drive a business where there is line of sight between volume and getting paid for it. I think as we think about the adult setting,

Speaker Change #128: There's a few areas that that come to mind for us One is of course adult neurodegenerative conditions like Parkinson's and Alzheimer's disease amongst others

Speaker Change #128: and really thinking about drug development and those areas, and others on the cardiovascular side of things.

Speaker Change #128: and again taking a look at where biopharma companies are investing their capital as well. So we're going to work

Speaker Change #128: in a really deliberate way to ensure that

Speaker Change #129: The way that I would say though Mark, I think it still remains a like an exome genome test versus a screen

Speaker Change #129: In the future, when we get to a place where we are doing newborn screening at birth for all babies.

Speaker Change #129: I could see us at that point in time, in the future, flip to being able to do a sequence and hold on adults as well. We haven't begun scoping out what that could look like, you know, beyond that being an important vision and North Star for us.

Speaker Change #129: But I would almost view the adult market as being an extension of the test-by-test symptomatic market versus screening market as we look to be able to continue to open up access to broader patient populations.

Speaker Change #130: That's all very helpful. Thanks so much.

Speaker Change #131: Thank you. One moment for the next question.

Speaker Change #132: And our next question will be coming from Matt Sykes of Goldman Sachs. Your line is open.

Matt Sykes: Hi, good morning. Thanks for taking my questions. Congrats on another good quarter. I guess I just wanted to – more of a modeling question, but maybe just talk a little bit about the impact of prior period collections. I think you did $6.3 million this quarter, down from $7 last quarter. But just given the profile of that revenue, I assume it had an outsized impact on profitability. And so just from a modeling perspective, Kevin, I guess, how should we think about moving forward, prior period collections, any kind of trends that you could help us out with, and what was the impact on profitability from that revenue coming in year-to-date?

Speaker Change #133: Yeah, as you pointed out, it's about $6 million of estimate true ups, although I put that in the context of true upspending, a number of months or actually quarters.

Speaker Change #133: And the way I would think about it is that the gap calculations themselves tend to look at a historic look back period to estimate collection rates by payer and frankly we've been outperforming past estimates.

Speaker Change #133: that's where we want to be with respect to those true-ups and still think we're in a cycle where there's a number of quarters to come where we'll be on that side of the ledger.

Speaker Change #133: So do view sort of the REVREC rate of $3,100 that you can derive from our table in the back of the release as a new floor in which we'll build for gap revenue purposes moving forward.

Speaker Change #134: Okay, thank you. And then one for probably both Katherine and Kevin, just...

Speaker Change #135: Just given the increase you've seen in all exome and genome revenues, would you consider being more aggressive about...

Speaker Change #135: either winding down or disposing of some of your non-genome exome testing. I think, Kevin, you mentioned in response to the first question just about hereditary cancer.

Speaker Change #135: Maybe something you called out, but would this be, you know, how do you consider sort of the revenue versus margin implications? Because they're pretty significant.

Speaker Change #135: for our modeling and just for the overall company. And if you were to be more aggressive about winding that down, could you sell some of these types of tests like hereditary cancer, or would it just be sort of winding down that business as the exome genome grows?

Speaker Change #136: or I'll kick it off and then hand it over to Kevin you know I think as we look back from a year ago we've now retired

Speaker Change #136: of our test menu. And so we've made really meaningful progress in setting the low or negative gross margin tests.

Speaker Change #136: And really staying focused on tests that, one, provide the best patient care, two, ensure that there's healthy growth margin,

Speaker Change #136: and will continue to wind down tests. Kevin mentioned in the fourth quarter, you know, continuing to have an eye towards winding down additional tests from that menu.

Speaker Change #136: So, I'm pleased that we've been able to make so much progress, and we do want to get to a place where we have a two-test menu, an exome, and a genome, ultimately running everything off.

Speaker Change #136: staff genome for all. So we do want to get to that place over time, but again making sure that

Speaker Change #136: There's a clear reimbursement pathway.

Speaker Change #137: Yeah, the only thing I'd add to that, Matt, is, as Katherine said, retiring about 70% of the test menu in the past year. What remains, maybe putting aside hereditary cancer for a moment, outside of that line, what remains in the non-exome, non-genome test line are all tests that we believe, you know, that we're going to be able to test. So, I think, you know,

Speaker Change #137: are long-term strategically important in that they would expect to convert to exome and genome once additional guidelines are put out. The largest portion of that

Speaker Change #137: volume line is chromosomal microarray, represents about 20% of all volume.

Speaker Change #137: That test we do think long-term is absolutely a great candidate to convert to exome and genome.

Speaker Change #137: And so strategically important and at the same time over the last year we've made strides to improve the COGS profile of the remaining portfolio.

Speaker Change #137: CMA one example where was about 30% negative gross margin a year ago we've gotten that to

Speaker Change #137: about breakeven with, we think, a path to further improve upon that. So a lot of rigor going into what is the remaining test menu, as Katherine alluded to, with a filter to say is it margin positive and accretive?

Speaker Change #137: and and or a good strategic fit to build the exome genome business over time.

Speaker Change #138: Thanks, very helpful, appreciate it.

Speaker Change #139: Thank you. One moment for the next question.

Speaker Change #140: And our next question will be coming from Brandon Colliard of Wells Fargo. Your line is open.

Speaker Change #141: Awesome. Thanks, Brandon. You know, I think you're absolutely right about the way that we're thinking about investments. We're going to make

Speaker Change #142: I would say discreet, meaningful investments that ensure that we're balancing continued profitable growth.

Speaker Change #142: while ensuring that we can innovate to continue to lead the way, not just in exome, but in genome. So, yeah, I think what we've seen this year already is our ability to play some of those disparate bets, whether it's Epic Aura, if it's,

Speaker Change #142: putting capital behind improving our genome product.

Speaker Change #142: which we've discussed all in the works. We already released our buckle swab.

Speaker Change #142: We will have five-day turnaround time and we will have repeat expansion.

Speaker Change #142: So, it's continuing to make...

Speaker Change #142: and disparate investments like that.

Speaker Change #142: that will track the ROI of each one of those to make sure that they are paying off. We're going to make sure that we do it in a really methodical way. I'm happy to say that on the genome improvements, we started to see the results of that by way of volumes coming through. And again, that's institutional pay, so it's really healthy business. So we're going to continue to strike a healthy balance in terms of making the product improvement, the customer experience.

Speaker Change #142: and the overall commercial growth investment in a really deliberate and methodical way moving forward.

Speaker Change #143: Yeah, maybe just layer on, you know, this broader team, functional teams have really built the muscle memory to...

Speaker Change #143: look at ROI analysis, cost benefit analysis, and we're still in a period where we expect payback.

Speaker Change #143: in something like one to three years rather than three to five or beyond. So all investments will be measured with respect to where do we see near-term accelerators in terms of revenue growth or gross profit.

Speaker Change #143: expansion. We see a number of things that we believe we can do to further accelerate the business, so excited to analyze those, but certainly you should expect that.

Speaker Change #143: we're taking the same level of rigor that got us to this point of brand and profitability moving forward. From an OpEx standpoint.

Speaker Change #143: You know, maybe some incremental aggregate dollars, but still expect a period over the next year where that OPEX as a percent of revenue could slightly decline as revenue and growth profit outpace any incremental additions to OPEX.

Speaker Change #144: Yeah, that's helpful. And then, Kevin, I think the guide implies gross margins actually stepped down a little bit sequentially in the fourth quarter. Is that just conservatism or is there some mixed impact embedded in there? And it'd be helpful if you could update us on just the gross margin profile by test franchise and where you see the biggest opportunity for improvement. Thank you.

Speaker Change #145: Yeah, so the at least 62 percent, I'd say two components of that one, it's at least 62 percent, so 62 percent or higher, and again that's for the full year.

Speaker Change #146: And so there's some weighted math going on. Effectively expect margins to stay roughly flat with where they are in Q3 as we head into Q4. So the guide implies roughly flat and we'll try to beat that.

Speaker Change #147: Very good, thanks.

Speaker Change #148: Thank you. One moment for the next question.

Speaker Change #149: And our next question will be coming from Matt Statton of Jeffries. Your line is open.

Matt Statton: Hey, thanks. Maybe one sticking with gross margins, Kevin. 3Q saw a more meaningful step up than we saw in the first half from low 60s moving towards mid 60s or about 300 basis points. I think you called out kind of mixed reimbursement, better cost, number of drivers of that. Is there anything that was more meaningful than others or was it kind of equal weighted? And then as we start to think about 25, can you talk about some of the levers for ongoing improvement as we build off the updated 24 guide for the at least 62% on the gross margin side?

Matt Statton: but

Speaker Change #150: Where we continue to see opportunity moving forward is if you look at our COGS stack, about a third of it resides in what I'll call the dry side processes. So after the sequencer, but before report writing or including report writing, still fairly manual steps today with a lot of effort and resources going in manually. We think those processes are good candidates for further automation.

Speaker Change #150: And so, we're investigating any tools that might help us unlock further cost for test savings and would expect that component to have.

Speaker Change #150: the bigger proportionate share of expansion gains as we head into 25 and beyond.

Speaker Change #151: Okay, that's really helpful. And then nice to see the continued whole exome genome sequencing coverage by the states. In terms of some of the more recent wins, how do we think about the larger states like Texas and September, Florida here in October on the whole genome side? Can you just remind us on how quickly those coverage decisions can and will impact your business? Thanks.

Speaker Change #152: Yeah, a typical lag of one to two quarters is not unreasonable.

Speaker Change #153: and so would really expect more of a 25 impact for those states that we we announced to enhance or put in policy this year.

Speaker Change #154: Thank you.

Speaker Change #155: Thank you, and that does conclude the Q&A session for today, and I would like to go ahead and turn the call over to Katherine for closing remarks. Please go ahead.

Katherine Stueland: Great. Well, thank you all for joining us. We look forward to seeing you at upcoming conferences. Thanks so much. Have a good day.