NEW YORK – With the addition of CEO Chris Smith in August, NeoGenomics has refocused its priorities and is working on strategies to bounce back from underperformance earlier in the year.
Some of those strategies include improving laboratory optimization and productivity, enhancing revenue cycle management, and refining its launch plans for the RaDaR minimal residual disease test early next year.
NeoGenomics on Tuesday reported a 6 percent year-over-year increase in its third quarter revenues, with Smith saying on a conference call to discuss the firm's results that the company has seen "consistent sequential improvement in all key categories throughout the year."
For the three months ended Sept. 30, total revenues reached $128.8 million, up from $121.3 million in Q3 2021 and above the consensus analysts' estimate of $121.5 million.
Clinical services revenues grew 4 percent to $106.2 million from $102.2 million a year ago, while pharma services revenues rose 18 percent to $22.6 million from $19.1 million. Smith said on the call that, while pharma services revenues increased, the business is "still not performing at the profit level we expect," and that the company is pursuing initiatives to drive profitability and innovation.
NeoGenomics is also repositioning its pharma services business after previously focusing "too heavily on bookings at the expense of being selective about the types of projects that we perform," Smith said. The change is "more about discipline than it is about capabilities," he said. The new goal is to focus investment on the "chosen few projects that have high potential to drive significant improvement in patient care" and "not try to be all things to all people," he said. NeoGenomics will "sacrifice some near-term revenue growth" in exchange for improving the business mix and enhancing partnerships with pharma partners.
He expects the segment to be an "important engine for ongoing innovation for the entire company" and noted that the firm is also building a product road map to increase its presence in the precision oncology space. Vishal Sikri, president and chief commercial officer of Inivata, added that the growth will occur more on molecular modalities, such as whole-exome and transcriptome technology, because that's where many pharma requests are coming from.
In NeoGenomics' clinical operations, clinical test volume fell 1 percent year over year. The average revenue per test grew 5 percent to $392 from $375, driven by the strategic focus on higher-value tests and improved reimbursement and collection methods, Smith said. He noted that the firm has performed more than 800,000 tests so far in 2022 and saw an uptick in test volume at the end of Q3 continuing into October, despite impacts from Hurricane Ian. Smith added that there was "better growth" in high-margin modalities, such as next-generation sequencing.
Smith said the company saw strong double-digit growth in molecular and NGS testing during the quarter. He also emphasized the transition from single-gene testing to broader panels, noting that as more customers move to multi-gene panels, test volumes will likely decline but revenues will increase. However, he said that in the next year the company will focus on accelerating its market share growth in NGS testing and as it does that, NeoGenomics expects volumes to increase.
On the lab optimization side, Smith said the firm has deployed deep neural network technology to automate cytogenetics analysis, which has led to efficiency gains of more than 40 percent, as well as automated platforms for FISH and molecular testing to improve lab throughput. The company is also developing a digital pathology solution for next-generation sequencing to improve turnaround time and specimen flow, he said. The firm has already seen improvements in turnaround time and cost per test throughout the quarter, Smith said.
NeoGenomics has also implemented an "enhanced" revenue cycle management program to improve its reimbursement and billing practices, which Smith called a focus area in Q4 and a "top priority in 2023." The firm is "not getting paid for all the work that we're doing," he said.
As for its pipeline, Smith said the company is currently validating a 500-gene NGS panel that will include both RNA and DNA and will report microsatellite instability, tumor mutational burden, and copy number variants. The test is expected to have a "significantly better" turnaround time than current panels and to launch in the first half of 2023, he said. Shashikant Kulkarni, the firm's president of lab operations and CSO, said that the company is also looking into developing other whole- genome and whole-exome sequencing tests and whole-transcriptome assays, as well as other options for liquid biopsy tests.
In Q3 2022, the firm totaled $7.3 million in R&D spending, down slightly from $7.4 million in the prior-year quarter. Sales, marketing, general, and administrative costs for the quarter were $81.1 million, up 2 percent from $79.5 million in Q3 2021. Smith said on the conference call that most of the firm's R&D spending has not been on future innovations and that the company is now "reallocating resources that we're already spending."
CFO Bill Bonello added that reducing general and administrative costs is a "major focus" for the company.
After its $390 million acquisition of Inivata last year, NeoGenomics has been preparing to launch the RaDaR minimal residual disease test for multiple indications. Last month, the company announced that Medicare's MolDX program requested additional clinical evidence for the test's colorectal cancer indication before providing coverage, which Smith said on the call led NeoGenomics to initiate a "multi-prong approach" in launching the test. While the company is working with MolDX and beginning additional data collection for the colorectal cancer indication, the firm is also planning to accelerate the launch of the test commercially for its breast cancer indication.
The company already has published peer-reviewed data for the use of the test with breast cancer, some of which was presented at the American Society of Clinical Oncology's annual meeting earlier this year, and the assay is expected to launch in Q1 2023, Smith said.
The plan is to continue to gather clinical data as well as early adopter experience and generate evidence for both reimbursement and adoption, he said. The firm will aim to secure payment from commercial insurers and private-pay patients while it collaborates with Medicare and other payors to gain coverage, Smith added. This launch strategy is intended to "create momentum in the marketplace as we continue to work behind the scenes on things around reimbursement," he said.
Inivata's Sikri added that the company is expanding on other indications for the test in head and neck cancer and bladder cancer, which it already has publications on, and is looking to "get those out as fast as we can." He said that there has also been interest from pharmaceutical companies in other uses of the test, such as for pancreatic and ovarian cancer. The ASCO presentation on breast cancer data led to increased interest in the test from pharmaceutical partners, he said.
Smith noted that the company does not anticipate meaningful revenue from RaDaR until 2024.
"While we still have substantial opportunity ahead of us, I believe that the foundation for improvement is being set in place," Smith said in a statement. "Our focus for the remainder of the year is to leverage our leadership position in oncology testing and transform the business to build sustainable, long-term profitable growth."
NeoGenomics posted a net loss of $36.9 million, or $.30 per share, during Q3 2022 compared to a loss of $20.3 million, or $.17 per share, a year ago. Its adjusted loss per share for Q3 2022 was $.14, slightly above the consensus Wall Street estimate of a loss of $.21 per share.
NeoGenomics finished Q3 with $266.1 million in cash and cash equivalents and $177.4 million in marketable securities.
After former CEO Mark Mallon left the company in March, NeoGenomics withdrew its 2022 revenue guidance, but CFO Bonello said on the conference call that the firm expects revenues to be flat to up modestly on a sequential basis in Q4 and up modestly year over year for both Q4 and full-year 2022. He added that the company still views 2022 as a "rebuilding year" with the primary focus on improving the current product offering, driving operational efficiency, generating clinical evidence in support of the RaDaR test, and laying a foundation for long-term sustainable growth. NeoGenomics intends to reinstate yearly guidance when it reports its Q4 and full-year 2022 results early next year, he said.
In a separate announcement, NeoGenomics said it has appointed David Perez to sit on its board of directors. Perez was previously CEO of Terumo BCT, a blood-banking, transfusion medicine, and cell-based therapy company.
In afternoon trading on the Nasdaq Tuesday, the firm's stock price was up 30 percent to $9.21.