NEW YORK – NeoGenomics sees 2022 as a rebuilding year while it searches for a new CEO, develops broader NGS panels, and implements initiatives to improve its laboratory processes, Executive Chair Lynn Tetrault said on a conference call Wednesday.
The Fort Myers, Florida-based genetics testing and information services firm reported a 1 percent year-over-year rise in its first quarter revenues.
In February, NeoGenomics had reported that its Q4 revenues for 2021 remained flat year over year. At the end of March, the firm withdrew its full-year 2022 financial guidance and its CEO and board member Mark Mallon left the firm.
On the conference call Wednesday to discuss the financial results, NeoGenomics management presented some of its plans to recover from recent disappointing results.
"We recognize that there is significant work to be done, but we are confident that in time we will return to the growth and operating efficiency that drove our success for many years," Tetrault said, adding, "While we are disappointed in our Q1 results, we are taking immediate actions to improve our performance."
The firm's CFO Bill Bonello outlined factors impacting the company's revenue growth and margins, highlighting its clinical test volumes as one of the main contributors.
While its clinical division test volumes grew year over year in February and March, they have not returned to pre-pandemic levels, he said.
Volumes of tests completed by the firm in January to detect the Omicron variant decreased by 7 percent from December 2021 and was flat year over year.
However, factors other than pandemic-driven demand fluctuation also affected its test volumes overall.
"First, our test mix is weighted to legacy modalities and disease-specific NGS offerings, while the market is moving towards larger, more comprehensive panels, [and] second, operational challenges have made it difficult to add new business at our historical rates," Bonello said.
"The world is moving towards next-generation cancer tests faster than [NeoGenomics] anticipated," Craig-Hallum analyst Alexander Nowak wrote in a note to investors Wednesday, adding that companies offering a bucket of next-generation cancer tests such as Caris Life Sciences, Tempus, Guardant Health, and Roche's Foundation Medicine "are likely making inroads faster into community centers."
Though late in 2021 the company "significantly increased the size of [its] laboratory workforce in preparation for a return to pre-COVID growth rates," those testing volumes have not rebounded to the extent expected, Bonello said.
As a result, NeoGenomics has scaled back its laboratory hiring plans to better align with near-term volume trends, and it is upgrading its NGS product offering and laboratory operations, Bonello added.
He noted that NeoGenomics is addressing a decrease in lab efficiency over the past year stemming from the increased complexity of its product offerings and laboratory processes in response to customer requests for customization.
"We are already taking action to reduce this complexity," he said, "[including] eliminating low margin services, [and] streamlining our NGS processes to drive reductions in labor, supply, and bioinformatics costs, while simultaneously improving turnaround time, and implementing [artificial intelligence] to increase lab tech productivity."
Overall, initiatives to improve lab efficiency and increase pricing could "contribute at least $15 million of annualized gross profit once we fully implement them," Bonello said.
Though NeoGenomics continues to withhold revenue and EPS guidance until it hires a new CEO, Bonello provided a perspective on the company's near-term outlook.
"We view 2022 as a rebuilding year where our primary focus is to improve our current product offerings, drive operational efficiency, generate clinical evidence in support of RaDaR [its liquid biopsy test for minimal residual disease and recurrence], and lay the foundation to support sustainable, profitable growth in 2023 and beyond," he said.
The company expects that some of the new initiatives outlined during the conference call will help it achieve those near-term objectives, Bonello added.
It has already "identified several operational and informatics improvements," Shashikant Kulkarni, the firm's recently appointed executive VP for research and development and CSO, said on the conference call. "These initiatives are expected to reduce our turnaround time and lower our cost of testing and could be completed over the next six months. I see multiple areas of improvement within our processes that I would consider low-hanging fruit."
He noted that NeoGenomics has launched its NeoType DNA and RNA Assay, a next-generation sequencing-based panel designed to detect genomic alterations in NSCLC that can guide targeted therapy decisions or identify clinical trial opportunities for patients. It is working with Eli Lilly to provide no-cost genomic testing to patients with NSCLC and is developing a broad NGS-based pan-cancer panel.
David Sholehvar, the firm's recently appointed clinical services division president, noted that "there are some near-term actions we can take to improve commercial productivity, operational efficiency, and our overall service to customers."
He sees the potential for near-term commercial benefits by expanding NeoGenomics' sales staff focused on the oncology channel and by introducing new tools to manage the sales process and pipeline more effectively. "In addition, we are establishing cross-functional process excellence teams to streamline our approaches in the lab and develop tools in a few key areas to increase productivity and expand margins," Sholehvar added.