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NeoGenomics Realigns Business Segments to Further Growth Efforts


NEW YORK – As part of ongoing restructuring and growth initiatives, NeoGenomics has reorganized its business segments, the company said on Thursday.

On a conference call to discuss the firm's fourth quarter and full-year financial results, CFO Jeffrey Sherman said the reorganization began in Q4 in an effort to reduce the firm's general and administrative spending and enable the execution of its strategic priorities. Another major component of the reorg was the integration of Inivata, which NeoGenomics acquired in May 2021, CEO Chris Smith said. He noted that the restructuring is expected to save about $25 million in yearly operating costs.

Instead of separate clinical services and pharma services segments, the firm now has a clinical services division and an advanced diagnostics division.

The clinical services division's goal is to maximize core revenue growth, focusing on "portfolio optimization and commercial execution," Smith said. It encompasses the firm's core oncology diagnostics business, community-based pathology and oncology sales, patient engagement, and clinical decision support.

The advanced diagnostics division, meantime, is "responsible for evaluating future market trends and developing technologies and products that will help NeoGenomics maintain its leadership position in the oncology market," Smith said. There is a renewed focus within the division on next-generation sequencing, minimal residual disease technology including its Radar test, multiomics, and data capture and commercialization.

It includes the pharma services and informatics segments as well as centralized R&D and the former Inivata business, Smith said. The combined R&D segment will allow the company to "capitalize on the innovation of Inivata while enhancing the new development process for our products," he said.

The firm also has an enterprise operations segment that will support both business units and includes laboratory services, supply chain management, information technology, data services, quality and regulatory services, and facilities management. It is focused on improving laboratory turnaround times, increasing automation, and enhancing the firm's data infrastructure. Smith said the company's stated turnaround time for next-gen sequencing tests has been "a little behind" its competitors but that it continues to improve. Melody Harris, president of enterprise operations, said that the company is moving some of its laboratory business away from its California lab and into its Houston- and Fort Myers, Florida-based labs due to capacity constraints, and is working to standardize its lab processes across all locations.

The company's efforts have started to pay off, as it reported that its Q4 revenues rose 10 percent year over year.

NeoGenomics reported revenues of $138.7 million for the three-month period ended Dec. 31, up from $125.7 million in the same period in 2021 and beating the consensus Wall Street estimate of $130.0 million.

During the quarter, clinical services revenues increased 4 percent to $108.2 million from $104.1 million in the year-ago quarter and clinical test volume rose 2 percent. Average revenue per test grew 2 percent to $389. Pharma services revenues were $30.5 million, up 41 percent from $21.7 million in the same quarter last year. Smith said that the informatics division saw record revenues in the quarter, growing 38 percent year over year.

The company's net loss for the quarter was $22.7 million, or $.18 per share, compared to a net loss of $41.8 million, or $.34 per share, in the same quarter the previous year. Its adjusted EPS for the quarter was a net loss of $.06 per share, better than Wall Street analysts' average estimate of a net loss of $.16 per share.

Revenues for full-year 2022 were $509.7 million, up 5 percent from $484.3 million in 2021 and exceeding analysts' average estimate of $500.6 million. Excluding COVID-19 PCR testing, revenues increased 6 percent year over year. The growth was driven by an increase in average unit price and a more favorable test mix in the clinical services segment, as well as by growth in pharma services, largely due to the timing of project billing, NeoGenomics said in a statement.

Smith said the firm served more than 625,000 patients and had more than 1 million tests ordered during the year.

Clinical services revenue was up 4 percent in 2022 to $418.8 million from $404.2 million in 2021, while pharma services jumped 14 percent to $91.0 million from $80.2 million. Smith noted that the clinical services business saw a continued shift toward higher-value and larger panel tests, and also saw "nice growth" in the core business. He added that NeoGenomics is trying to move its business toward NGS testing, noting that while the company may lose out on test volume by shifting to larger panels, it will gain revenue — a strategy he emphasized during the firm's third quarter earnings conference call.

Smith said that some of the tests the firm was offering weren't making money and that it has been "pruning the bushes" and taking away tests with no long-term value.

He added that NeoGenomics has historically been behind the rest of the market when it comes to NGS but that it is starting to move forward after expanding its sales team and gaining share from accounts the firm had existing relationships with. The Neo Comprehensive test, which will launch in Q1, will give the company a "very competitive offering in the marketplace," particularly in the solid tumor market where NeoGenomics has lagged, he said.

Regarding the Radar test, Smith reiterated that there will be no meaningful revenue from Radar on the clinical side of the business this year. The company is launching the test clinically without coverage from the Centers for Medicare and Medicaid Services after being denied coverage for colorectal cancer screening in 2022 but plans to submit it for breast cancer in the first half of 2023, resubmit it for colorectal cancer in the second half, and submit it for one other undisclosed indication before the end of 2023. Smith said that there will be a lot of focus on third-party payors when Radar launches at the end of Q1.

Radar is currently available from the pharma division, and Smith noted that any meaningful revenue for the test will come from that business. He added that revenues from Radar grew 300 percent in Q4 2022. Vishal Sikri, president of pharma services, said that pharmaceutical companies are looking to use minimal residual disease testing, such as Radar, for multiple cancer types and broader indications that will eventually result in further clinical indications down the line. 

Sikri also noted that the firm has had success in moving its pharma business to earlier stage, retrospective studies and that the shift was a big driver of growth in the fourth quarter.

NeoGenomics' net loss for the year was $144.3 million, or $1.16 per share, compared to a net loss of $8.3 million, or $.07 per share, in 2021. Adjusted EPS for 2022 was a net loss of $.56 per share, beating the consensus Wall Street estimate of a net loss of $.68 per share.

The company ended the year with $263.2 million in cash and cash equivalents and $174.8 million in marketable securities.

For 2023, NeoGenomics is forecasting revenues between $545 million and $555 million and a net loss between $107 million and $116 million. Sherman noted on the conference call that the fourth quarter has traditionally been the company's strongest quarter as patients with high-deductible health plans increase screening visits and pharmaceutical clients tend to ramp up spending. As a result, while the firm expects Q1 2023 revenues to be up between 7 and 9 percent year over year, he said revenues will likely be down sequentially compared to Q4 2022. He also noted that the company does not expect to provide specific quarterly guidance in the future.

In afternoon trading on the Nasdaq, NeoGenomics shares were up 21 percent at $16.16.