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NeoGenomics Turnaround Takes Hold as Firm Begins Clinical Push for Radar MRD Test


NEW YORK – NeoGenomics said Monday that its recent efforts to optimize its operations and maximize revenue from a broad portfolio of molecular diagnostics and pathology services is paying off as it prepares to stake a claim in new markets like minimal residual disease (MRD) testing.

In mid-March, the company launched its Radar liquid biopsy assays for clinical MRD testing in breast, lung, head and neck, and colorectal cancer. NeoGenomics doesn't expect to see significant revenue from this new business arm till at least the end of this year, but the anticipated lag isn't dragging the firm down, according to CEO Chris Smith, who discussed the company's broader strategy during a call on Monday discussing its first quarter earnings.

NeoGenomics reported that its Q1 revenues grew 17 percent year over year to $137.2 million from $117.2 million, beating the consensus Wall Street estimate of $126.4 million.

The Fort Myers, Florida-based company's Q1 clinical services revenues rose 16 percent to $114.9 million from $98.8 million in the same quarter last year. Meanwhile, its pharma services revenues grew 22 percent to $22.4 million from $18.4 million.

NeoGenomics also revised its full-year 2023 revenue guidance upward to a projected range of $555 million to $565 million from a previous range of $545 million to $555 million. It also said it expects a net loss of $108 million to $116 million.

As a result, at least one investment bank, BTIG, upgraded the company's stock to Buy from Neutral, with analyst Mark Massaro noting that the company's "operational turnaround appears to have legs" and that he has been "impressed and positively surprised by the change in underlying growth" that has occurred since Smith and his new management team took over last year.

In early Tuesday trading on the Nasdaq the company's stock was up nearly 13 percent to $17.36.

During the earnings call, Smith attributed the quarterly growth not to any one sector but to what he said were strong volumes across the firm's business and continued increases in revenue per test — the eighth consecutive quarter of such growth.

According to Smith, NeoGenomics is seeing "operating and revenue cycle initiatives" that the firm implemented after his appointment now "taking hold."

Next-generation sequencing revenue growth "continues to be strong, a result of our product offering and ongoing sales force expansion and optimization, which has allowed us to reach oncologists and pathologists more effectively," he said.

Meanwhile, the company set a record in Q1 for testing volume, but also managed to improve turnaround times by 17 percent, Smith noted.

"I would say really every modality grew above where we had been growing that business over the last 18 months," Smith said. "The obvious thing everybody wants to focus on is [comprehensive] NGS because it's out there and being talked about, but, for example, [hematology] is a business that's not supposedly growing, but I will tell you our business grew significantly because we're the market share leader."

Smith also said that the company is making good on plans to "prune the bushes," discontinuing tests with no long-term value to help concentrate its resources.

NeoGenomics also reached a major milestone during Q1 with the March launch of its first comprehensive NGS solid tumor test in an attempt to catch up to a market that the company was admittedly late to.

The firm didn't break out individual tests' contributions to overall clinical revenue, but Smith said the company is "well on track" to meet its expectations for the new test from a forecast perspective. Whether that adoption reflects capturing unclaimed market share or taking it from competitors isn't yet clear.

In the meantime, NeoGenomics is hoping that its move into MRD will begin to bear fruit by the end of the coming year after some early stumbles.

The Radar assay has been available over the last year for use in clinical research studies and pharmaceutical collaborations. Now it's fully available to US clinicians to detect small amounts of cancer fragments with what the company claims is up to tenfold greater sensitivity than other tests on the market, which is expected to enable clinicians to identify cancer recurrence earlier, Smith said.

He added that the company has completed its submission of the test to Medicare contractor Palmetto GBA's MolDX test assessment program for breast cancer and is on track to submit two additional indications by year-end.

Although the company failed in its first MolDX submission for colorectal cancer last year, Smith said that breast cancer is an area where Radar shines in comparison to its competitors because less tumor DNA is shed into the blood than in other malignancies. He noted that early clinical uptake of Radar has in fact been in the area of breast cancer, but that the company is seeing interest and exploring opportunities in other cancers where sensitivity matters.

That said, MRD is emerging as a competitive market. Even before clinically launching Radar, NeoGenomics was hit by a patent infringement lawsuit from Natera concerning MRD-related IP.

A recent move by Quest to acquire emerging MRD firm Haystack Oncology has bolstered excitement even more for a market that Smith said could be worth $20 billion but is currently less than 1 percent penetrated.

Smith waved aside the question of competitive struggles with a larger player like Quest now involved. "Quest was a big competitor already that offered a heck of a lot of tests in oncology, and so we're competing against them every day," he said.

"I think competition is great. That being said, Haystack is not even commercial yet, so there's a long way to go before MRD is in the bag with Quest," Smith added. "We're sticking to our plan … versus worrying about them right now."

In Q1, NeoGenomics shaved its net loss to $30.8 million, or $.25 per share, from $49.4 million, or $.40 per share, a year ago. On an adjusted basis, the firm calculated a loss per share of $.09, beating the consensus Wall Street estimate of $.15.

The firm's Q1 R&D costs dropped 4 percent to $7.4 million from $7.7 million a year ago. Its SG&A expenses were down nearly 6 percent at $77.8 million compared to $82.5 million. The firm also took an approximately $4.7 million restructuring charge during the quarter.

NeoGenomics finished the quarter with $275.6 million in cash and cash equivalents and $142.3 million in marketable securities.

In early morning trade on the Nasdaq, NeoGenomics' shares were up about 19 percent at $18.36.