NeoGenomics (NASDAQ:NEO) Q1 2021 Earnings Call

0:00 Good morning, ladies and gentlemen, and welcome to the Neogenomics First Quarter 2021 Earnings Call. At this time, all participants have been placed on the listen-only mode. The floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Doug Van Oort. Sir, the floor is yours.

0:21 Well, thank you, Holly, and good morning, everyone. I'd like to welcome everyone to Neogenomics First Quarter 2021 Conference Call. We have a lot of exciting news to share today, but first let me introduce my fellow team members on the call. Joining me this morning from our Fort Myers headquarters are Mark Mallon, our new Chief Executive Officer, Catherine McKenzie, our Chief Financial Officer, George Cardoza, President of our Pharma Services Division, Bill Bonello, President of our Informatics Division, Doug Brown, our Chief Strategy and Corporate Development Officer, and Charlie Edson, our Manager of Investor Relations. Also joining us this morning via phone from the United Kingdom is Innovata CEO, Dr.

1:10 Clive Morris. Before we begin our prepared remarks, Charlie will read the standard language about forward-looking statements.

1:19 This conference call may contain forward-looking statements which represent our current expectations and beliefs about our operation, performance, financial condition and growth opportunities. Any statements made on this call that are not statements of historical fact are forward-looking statements. These statements, by their nature, involve substantial risks and uncertainties, certain of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual outcomes and results could differ materially from those indicated in the forward-looking statement. Any forward-looking statement speaks only as of today, and we undertake no obligation to update any such statements to reflect events or circumstances after today. As a reminder, this call is being webcast live and recorded, and we'll be referencing a slide presentation in conjunction with our remarks.

2:09 Because there is a short delay between the live telephone audio and the presentation being shown on the webcast, for the best experience, please use either the webcast for both the audio and video content, or if you dialed in by telephone, download the slides from our website and advance them yourselves. To access the webcast, Please visit the events section in the investor relations section of our website, and a replay of the event will be available following the call. Before turning the call back to Doug, I want to let everyone know that we will be making a copy of our prepared remarks for this morning's call available on the investor relations section of our website shortly after the call is completed. We also want to let everyone know that we are going to limit the number of questions to two per person in order to give more people a chance to ask questions within the one hour that has been allotted for this call.

2:58 Well, thank you, Charlie. Today's call represents two very important milestones in our company's history, the acquisition of Innovata and Mark Mallon's first conference call as the new CEO of Neogenomics. Mark started a few weeks ago, and the company has transitioned to Mark's capable leadership. We'll begin our call by discussing our acquisition of Innovata. I will review our strategic rationale for acquiring Innovata, and Clive Morris, Innovata's CEO, will follow with a more in-depth commentary. Doug Brown will then share details on both the acquisition and the strategic financing we announced this morning as well.

3:43 Katherine will then provide an overview of our quarter one financial results and share some expectations about the impact of the Innovata acquisition. We will then transition to Mark Mallon to wrap up our formal remarks. Mark is excited to share some observations about his first few weeks leading Neogenomics and his vision for the future of our company. We will then have time for questions and answers. We are very excited about today's announcement. The acquisition of Innovata represents an important strategic move as we continue to position the company to achieve our vision to become the world's leading oncology testing and information company. Channel leadership combined with technology aggregation can be a powerful dynamic.

4:34 The combination of Innovata's best-in-class technology and Neogenomics' unrivaled scale and access into the community oncology channel fortifies our already strong competitive position in oncology diagnostics and allows us to accelerate our growth trajectory. Bolstering Our comprehensive test menu with the addition of Innovata's leading liquid biopsy technology for detecting circulating tumor DNA will allow Neogenomics to provide testing solutions to our physicians and their patients for diagnosis, prognosis, therapy selection, and now also for post-intervention detection of residual disease and for recurrence monitoring.

5:22 We also have greater opportunity to partner with our pharma clients as they develop therapies targeted to patients with residual disease and upon earlier detection of disease recurrence. We have spent the greater part of a year with the team at Innovata as their commercial and strategic partner and as an investor serving on their board. Now we are accelerating the exercise of our call option to combine our two organizations and bring more resources We believe that much of the success of neogenomics is due to our culture and our focus on patients. Innovata shares this focus, and we have been impressed with the quality and cultural fit of the Innovata team.

6:10 Our common purpose is to save cancer patients' lives. We're convinced that we can accelerate the adoption of important diagnostic technologies for patients, as part of the same organization. Together, we provide physicians and pharma partners with an unparalleled spectrum of diagnostic tools to answer the broadest set of questions to diagnose and treat cancer patients and to develop new therapies. Our clinical division's broad offering of approximately 750 tests has resonated most with community physicians where greater than 80% of cancer patients are treated. Our pharma division's unique and extensive test and technology offering has clearly resonated in the market as we have now worked with numerous clients, including each of the top 25 largest biopharma companies in the world.

7:05 Clearly, our ability to serve our customers is strengthened with the addition of Innovata's liquid biopsy technology and positions us for continued broad testing leadership in oncology diagnostics. Liquid biopsy is an emerging diagnostic technology that over time has the potential to change how patients around the world are diagnosed and treated for their cancer. Acquiring Innovata positions us for leadership in this exciting new area of oncology diagnostics as it continues to develop. Community oncologists and pathologists are just beginning to use liquid biopsies in their practices, and we expect utilization to grow significantly with emerging standards in the practice of medicine.

7:53 Perhaps most exciting as an application of Innovata's CT DNA technology is the detection of minimal residual disease and monitoring for recurrence. We are particularly excited about the opportunity to develop and commercialize Innovata's highly sensitive product, branded Radar, to address this important patient need in a market which some estimate to be in excess of $15 billion in the U.S. alone. As shown on slide four, and as many of you know, we have built our company through both organic and inorganic growth and have a history of successful execution and integration of our acquisitions.

8:39 To achieve a leadership position in the market over the last several years, we acquired two important competitors in Clariant and Genoptics. adding very important scale to our business. Leveraging our scale in the clinical oncology market, we then successfully built out synergistic and complementary pharma services and informatics businesses. These three business units each have double-digit growth profiles and the combination has created a flywheel for our company's future organic growth. We believe Innovata, soon to be our fourth business unit, Thank you for joining us. Thank you for joining us.

10:17 Most importantly, we increasingly have the potential to revolutionize oncology care to benefit millions of patients as they manage through their cancer journey. With that, I would like to introduce Innovata CEO Clive Morris, who can walk through the Innovata story. Clive has an impressive background with expertise in oncology and as a practicing physician. in R&D and medical affairs within the global pharma industry, and his years spent at Innovata leading the developmental success of the company.

10:56 Thank you, Doug. Good morning, everyone. It's a pleasure to represent Innovata on the call today, and I'd echo Doug's commentary on the cultural fit between Innovata and Neogenomics. We're all very excited about the combination. Our proprietary liquid biopsy platform was spun out from the University of Cambridge in the UK, and we have so far developed two leading assays. The company has been well supported by leading life science investors in the UK and in the US, and today we have a talented team of about 90 people across an R&D facility in Cambridge, UK, and a Cap Clear laboratory in Research Triangle Park, North Carolina. We believe that By combining our leading technology with a well-capitalized and established oncology commercial engine like Neogenomics, we'll accelerate our mission to deliver our highly sensitive liquid biopsy products to the millions of cancer patients in both the U.S.

11:55 and around the world who need them. As an overview of the B&O platform, please turn to slide five in the presentation. As Doug mentioned, we've developed A liquid biopsy technology platform that is optimized to achieve the best-in-class sensitivity levels across multiple applications. We've developed two commercial stage assays, Envision First Lung and Radar, and we'll also bring new and complementary R&D regulatory and reimbursement capabilities to Neogenomics. Envision First Lung is a 37-gene liquid biopsy next-generation sequencing panel developed for patients with advanced non-small cell lung cancer.

12:42 The test has been commercialized in the U.S. with Neogenomics since mid of last year, and the uptake is growing steadily as community oncologists grow more comfortable with liquid biopsy testing. Importantly, the feedback from oncologists on the quality of the test, service levels, and the turnaround time of seven calendar days from blood draw to results have all been positive. The test is reimbursed by Medicare at $3,500 per test and with commercial insurance coverage, the test has reimbursement coverage for approximately 200 million lives in the US. Our second commercial assay is RADAR. This is a tumor-informed assay for residual disease and recurrence testing and has pan-cancer applicability.

13:31 The test was clear validated in our North Carolina facility in December of 2020 and the test received a breakthrough device designation from the FDA earlier this year. Radar has been optimized to maximize sensitivity and on slide six, you can see why this is so important. The levels of circulating tumor DNA in early stage cancer are very low. and in the post-surgical MRD setting, they're even lower. Sensitivity is therefore crucial to success in this setting and Radar has been specifically designed to provide this. We track 48 known genetic variants from the patient's cancer to achieve this, but an equally important driver of our exquisite sensitivity compared to competitor platforms is our core Envision technology and proprietary bioinformatics pipeline.

14:23 We believe the combination of these factors drives great performance and that these advantages will shine through in our clinical study performance. Slide seven shows data from some recently published and presented studies for RADAR versus two assays from well-known leaders in the minimal residual disease testing landscape. RADAR's market leading sensitivity down to 0.001% variant allele frequency allows the assay to pick up evidence of a cancer recurrence very early. The data on the slide is in lung and breast cancer, but we expect to be able to apply the technology equally into other solid tumors as well. While the published clinical data and high levels of sensitivity for radar are compelling, perhaps the most exciting aspect about radar and MRD testing in general is the paradigm shifting impact it can have for patients along their cancer journey.

15:18 Slide eight shows a typical clinical journey for a solid tumor patient and the potential use cases for tests like RADAR for MRD testing. In the adjuvant post-surgery setting, RADAR can potentially be used to help select patients for adjuvant therapy based on the presence of residual circulating tumor DNA in the blood, indicating that the patient has not been cured by their surgery. In the future, the test may also be able to help optimize the dosing or duration of therapy. Radar testing can also be used to monitor for disease recurrence for cancer patients that are in remission. As shown on the earlier slide, molecular level MRD testing with a test as sensitive as radar has the ability to detect disease recurrence well before it would be identified by the current standards of care, such as imaging.

16:10 By catching the recurrence of cancer earlier, we believe that action may be taken earlier, potentially improving the clinical outcomes for patients. Overall, we believe we're in the very early stages of a massive market being developed for MRD testing. On slide nine, you can see that in the United States alone, there are more than a million new cancer patients being diagnosed every year, and these may benefit from MRD testing. Even using conservative assumptions around MRD test utilization and pricing, we believe this translates into an estimated market opportunity of $15 billion or more. and given over 80% of the cancer market is in the community setting, we expect that the majority of this market will develop when Neogenomics has a leading market share.

17:01 While the clinical market is in its very early stages of development, Biopharma is highly interested in the application for MRD today. MRD testing postoperatively has the potential to revolutionize the way early stage oncology adjuvant clinical trials are conducted. and the ability to quickly determine responses to therapy in clinical trials is appealing to patients and biopharma alike. Clearly the potential for MRD is immense and we have a detailed plan to become a major player in these markets. On slide 10, we outlined some of the key milestones for Radar. We are already collaborating with Pharma following our CapClear lab validation completed in December. And we recently unveiled strong data in breast cancer and head and neck cancer at April's AACR conference and we anticipate additional clinical data at ASCO in early June.

17:51 We believe we'll be in a position to submit data through the Multi-X pathway for reimbursement around the turn of the year, which should allow us to commercialize in the clinical market in mid 2022, assuming six months review process. I will now turn it over to Doug Brown, who will provide a summary of the deal terms of the acquisition, as well as details of the strategic financing that was announced this morning.

18:15 Thank you, Clive. Good morning. On slide 11, we are pleased to formally share with you the terms of the Inovata acquisition. Terms we agreed to with Inovata as part of our commercial partnership agreement we negotiated over a year ago during the first few weeks of the pandemic. As part of that agreement formed with Inovata last year, we announced we would be making a $25 million minority investment in the company that we would commercialize Envision First Lung, the liquid biopsy in the U.S., and we announced that we'd negotiated a fixed-price call option to purchase the remaining equity of Innovata. But until today, we had not shared the acquisition price of $390 million for our remaining interest. Valuations for highly advanced and proprietary liquid biopsy platforms like Innovata's have increased substantially since we struck our deal in May of 2020, and we feel very fortunate with our timing and our ability to deliver what now appears to be a value-based technology acquisition for our shareholders.

19:09 The date for the expiration of our purchase option was set for December 31st, 2021. Over the past 12 months, we have continued to gain confidence in the power and sensitivity of the Innovata liquid biopsy technology. We have also developed tremendous confidence in the talented team at Innovata. As a result, we are exercising our option to purchase Innovata eight months ahead of plan. We are confident that this important strategic move is the right one, and in conjunction with today's acquisition announcement, we are pleased to also announce a private financing of $200 million. We view this financing as a strategic capital raise, which is represented by a syndicate of over a dozen targeted investors, including existing Innovata shareholders, existing Neo Jones shareholders, and importantly, new specialist investors with a focus on oncology. We are pleased to have attracted these leading investors who support the combination of channel and technology leadership.

20:03 Pro forma for today's transaction, our balance sheet is quite strong. We have greater than $550 million of cash on hand, providing ample flexibility to accelerate funding of technology development in Nevada while we pursue further strategic opportunities. I will now turn the call over to Catherine McKenzie to discuss some of the other details of our quarter one financial results.

20:24 Thank you, Doug. Despite the impact of the ongoing pandemic, total revenue in Q1 grew 9% year-over-year to $116 million. Importantly, our core oncology revenues increased 7% year-over-year, driven by strong growth in NGS, pharma services, and informatics. COVID-19 PCR testing contributed less than $2 million of revenue during the quarter, down from $9 million in Q4 and $17 million in Q3. We noted a significant decrease in demand for our COVID-19 overflow testing capacity and therefore made the decision to wind down our COVID-19 testing capabilities. As a reminder, we brought up COVID testing to help address the shortage of U.S.

21:09 capacity and expected the service to be short-term in nature and not part of our overall strategy as a leader in oncology testing. As we discussed on our February earnings call, Our core clinical cancer volumes were noticeably impacted by the COVID-19 incidents in January and February. However, our core volume showed meaningful signs of recovery in March, as record daily clinical volumes translated to 19% growth versus March 2020. Despite the challenging start to the quarter, we delivered 4% volume growth over Q1 2020. Importantly, this strength continued into April with record daily volumes, and we are very encouraged that we will remain on a steady recovery as vaccine rollouts continue and COVID-19 incidence rates decline.

21:56 Finally, we were pleased to see that clinical division revenue per test was $364 compared to $363 for the full year of 2020. While we are encouraged, it is also worth noting that we are not all the way back to a full recovery. We continue to see a contrast in volume growth for our business from areas of the country that are less restricted versus those with more restrictions. And we believe this bodes well for us as restrictions loosen nationwide over the course of 2021. Pharma services grew 46% year-over-year, continuing its rapid growth trajectory. As a reminder, last year's acquisition of the oncology assets of HLI closed on January 10, 2020, so this growth is essentially all organic. Not only did revenue conversion improve for this business in Q1, but demand continues to be very strong.

22:49 We signed $31 million in new bookings during the quarter, exiting the quarter with a record $218 million in backlog. We continue to grow our robust portfolio of biopharma customers and believe that Pharma Services is better positioned than ever before and poised for additional rapid growth ahead. We have also rapidly integrated the Trapello Health Organization into our informatics division. We are already leveraging our commercial capabilities to reach more customers, while we leverage our IT capabilities to further strengthen an already leading decision support tool for oncologists. More to come on Trapello in the second half of the year. Our growth margins were challenged in Q1, particularly in January and February, due to less efficiency on lower volumes. We have been challenged by the volatility in volume over the last year, including during the first quarter.

23:42 However, we continue to believe that our decisions to invest in our infrastructure are positioning us well to take share as volume returns. Q1 growth margins were also impacted significantly by our decision to wind down our COVID-19 overflow laboratory, which resulted in a $5.3 million charge related to unused COVID-19 testing inventory. Clinical growth margin in Q1 was 36.2% when including COVID-19 exit charges and 41.7% excluding these charges. As we return to more consistent growth rates and a normalized economic environment, we expect to yield growth margins in line with historical rates with continued long-term margin expansion opportunity over time.

24:27 In Q1, we grew pharma services revenues by 46% year-over-year, or $6 million, with COGS only increasing by 15% or $1.7 million over that same period. Pharma services growth margins improved from 17.7% in Q1 of 2020 to 34.9% in Q1 2021. Operating expenses increased $5 million year over year to $57 million and includes investment in and support for informatics, payroll and payroll-related costs, acquisition costs, and a write-off for COVID-19 PCR testing laboratory equipment. Adjusted EBITDA of 4 million and Q1 reflects lower gross margin on clinical volume volatility as previously discussed, as well as continued investment in key initiatives, including our people, infrastructure and strategic growth areas such as informatics, excluding our recently announced acquisitions We expect our organic EBITDA contribution to increase in each of the succeeding three quarters of 2021.

25:35 Turning to the balance sheet, we exited quarter one with $803 million in cash in marketable securities, which excludes an additional $11 million in restricted cash designated for construction of our new state-of-the-art laboratory and global headquarters in Fort Myers, Florida. Subsequent to the end of the quarter, we utilized $35 million in cash for the acquisition of Trapello Health, which closed in April. Following the acquisition of Innovata and incorporating the funds raised from the strategic financing announced today, we expect our cash balance to be in excess of $550 million. We believe this puts us in a strong position to continue to invest in these recently announced acquisitions and internal strategic priorities, as well as pursue inorganic growth opportunities.

26:22 Given the positive trends in our business and the vaccine progress being made across the country, We are prepared to introduce full-year 2021 guidance. We expect consolidated revenue to be in the range of $490 million to $510 million. Presuming no further market dislocations from the COVID-19 pandemic, our top-line growth for full-year 2021 will be driven by Pharma Services' annual growth in excess of 35% and by what we anticipate to be a very strong back half of the year for the entire business. We project that our back half revenue run rate could be in excess of $525 million. Pro forma for the Innovata and Trapello acquisitions, full year adjusted EBITDA for 2021 is expected to be in the range of $10 million to $15 million.

27:10 We anticipate approximately $30 million in 2021 operating losses to fund the development of radar, accelerate submission of radar for reimbursement, and to further support the development and rollout of the Trapella Clinical Decision Support Tool and related offerings. We are very excited about both of our recently announced acquisitions and the innovation they will provide to clinicians, pharma partners, and most importantly, patients. However, for 2021, we do not expect the material amount of revenue from these transactions. Particularly for MRD, while the markets are evolving rapidly, we are still in the early stages and Radar is not expected to become a material portion of Neogenomics revenue until 2023 and 2024.

27:55 These acquisitions are changing the near-term profitability profile at Neogenomics. However, we believe that investing in the future of oncology is the right strategic move. I will now turn the call back over to Dr. Norris.

28:08 Well, thank you, Catherine. We certainly have a lot to be excited about at our company and within Nevada. The recent acquisition of Trapello Health and the addition of Mark Mallon as our CEO. Mark Mallon is a very talented executive with a wealth of experience and a broad skill set. We interviewed an exhaustive list of capable leaders, and we feel fortunate that we were able to recruit someone of Mark's caliber. I'd like now to formally introduce Mark to many of you for the very first time. Thanks, Doug.

28:47 and thank you to the entire NEO team for the warm and enthusiastic welcome. I joined NEO because I was inspired by its mission to make a major difference in the lives of cancer patients and because I was impressed by the incredible talent and passion of its values within people. I clearly saw the opportunity for NEO to become the leading cancer testing and information company in the world. Two weeks into the role, I can say my expectations have already been exceeded. I've had a chance to visit our major labs in Florida and California, and I can see why NEO is known for excellence in quality and customer service. We have fantastic teams urgently working on behalf of patients. I've been able to review the plans of all three divisions, and I see opportunities to accelerate growth in each of these businesses.

29:32 I spent a day with our R&D team and was excited by the science I saw both in terms of future assays and the opportunities to improve our quality and efficiency through automation. I'm already engaging with key stakeholders, especially our customers and our investors, to make sure I'm clear on their expectations for NEO going forward. The focus of my first 90 days will continue to be to learn about this great company and the opportunities ahead, and to ensure the organization is focused on the key drivers of growth. In the clinical division, I'll be especially focused on our incredible portfolio of NGS assays, including our liquid biopsy tests. This portion of the business is already growing more than 30% annually, and I think there are opportunities to accelerate growth further. I also believe there are multiple opportunities to simplify and automate our processes while we ensure the successful launch of our new laboratory in Fort Myers.

30:21 In the Fast-Growing Commerce Services Division, we've only just started opening up the business beyond the U.S. We have an excellent, newly-staffed global sales team and outstanding labs in Europe and Asia ready to meet the high demand of our customers for testing in these growth markets. In informatics, we'll be laser focused on making Trapello the decision support platform for oncologists, ensuring we have the right capabilities in this platform and a rapid rollout starting with our existing customers. Finally, I am very excited about the announcement today to acquire Innovata. Innovata will remain a separate business unit with Clive Morris as the president reporting directly to me. I'll be working with Clive and his entire Innovata team to ensure we meet or exceed our timelines for gaining Moldy X approval and launching Radar into our first opportunity areas. I believe Radar represents an opportunity to build a leading franchise for Neo in the MRD market. There's no time to lose.

31:13 Cancer patients and physicians who care for them continue to desperately need faster, better diagnostic results and insights. I'm confident that Neo, in meeting these needs, will become the leading global cancer testing and information company. Charlie, back to you.

31:29 At this point, we would like to open up the call for questions. Incidentally, if you are listening to this conference call via webcast only and would like to submit a question, please feel free to email us at charlie.edson at neogenomics.com during the Q&A session, and we will address your questions at the end if the subject matter hasn't already been addressed by our call-in list. As mentioned at the beginning of this call, we would like to ask each person to limit their number of questions to two so that we may hear from everyone and still keep within the one hour allotted for this call. Operator, you may now open up the call for questions. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality.

32:20 Please hold while we poll for questions. Your first question for today is coming from Puneet Souda. Please announce your affiliations and pose your question.

32:36 Yeah. Hi. Thanks. Puneet here from . So, Mark, first of all, congrats and great to have you on board, and Doug will miss working with you for sure. Maybe my first, you know, first question is actually on MRD, clearly an important acquisition for the company. wanted to get your view in terms of where the market is. This is definitely an early entrance for new genomics into a market. Traditionally, you have taken a more measured approach in which you are entering when the market is getting closer to the community setting. Maybe just talk to us about what are you seeing in the community setting where you're serving A number of oncologists ended the expectation for sort of penetration there with the radar and with these other assays, including Envision Lung.

33:31 and if you could also provide a view into what would you do with the Neolab assay? Is that going to be part of the overall liquid franchise? And then lastly, on MRD, if you can also provide in terms of what are the, you know, types of clinical trials, both in adjuvant and neoadjuvant settings that you are working on and what sort of data we should expect here? Any indications that you can provide there would be helpful.

33:59 Okay, Puneet, thank you very much for the question. We'll try to answer those and ask a few of our teammates to weigh in. First of all, we do have two liquid biopsies we currently have in the marketplace. One is the Nevada InVision First lung assay, and the other is the NeoLab assay, and both are gaining traction in the marketplace as we enter the community setting. But in terms of the MRD market penetration, Mark, why don't we turn that over to you?

34:33 So, great question. I think there's a couple of reasons that it makes sense for us to move now. So, first of all, we, you know, in the community setting, you know, of course, I think we have to be realistic. This will be a gradual uptake. But we're already seeing an increasing adoption of liquid biopsy, and we're leading the way, and we are building the capabilities to be able to do that. And so we think as we bring MRD on board in 22 and beyond, we'll be in a really great position to be part of that acceleration and get in early. I think a second important point has been the growth of our pharma services business. This is a tremendous asset for pharmaceutical companies, and that is going to be something that also will accelerate the advancement of the MRD category. And as you've just heard, we are already working with the top 25 pharmaceutical companies.

35:20 And I think combining Nevada's capabilities with our capabilities will allow us to penetrate that market really, really quickly. And I think the last thing I want to highlight is Torello and what that can mean for us when we put that together with our, you know, leading position in the clinical and with radar. You know, one of the things that I think is going to be critical getting community oncologists is support for making decisions on using the increasing number of tools. And the whole point and what's so exciting about Trello is that tool is exactly designed just to do that, is to help oncologists make the right choices as they're dealing with now an increasing array of solutions. So I think we've got sort of all the pieces coming together to make this a success, and we're already strong in oncology. Now, still, we have to be realistic.

36:07 There'll be a gradual growth in this, but we want to get on the ground floor, and I think we're ready to do it for those key reasons. And I think there was a question, Doug, about the market potential. Is that maybe something for Clive to talk about?

36:20 Yeah, Clive, if you would please address the question that Benita asked about clinical trials and how you see MRD in the pharma space.

36:32 Yeah, no, thank you. And thanks for the question, Benita. As we mentioned, through the assay underwent its capillary validation and concluded that in December of last year. So now we're clearly moving from the analytical side into the clinical trials. We presented some early data from head and neck and breast cancer at the AACR virtual meeting recently. One of those was an archival cohort and one was an ongoing prospective study. And we will have data and updates to our lung cancer cohort, the LUCID study, that we initially presented preliminary data on last year. We'll be updating that with more complete data at the ASCO virtual meeting in early June. Having completed the validation work, you know, as I say, we're now getting into increasing numbers of prospective studies as well as further retrospective studies to use, you know, historical data sets where they exist.

37:24 And they're across a number of different settings. So we have a number of academic collaborations and also the biopharma partnerships as well. and these span multiple different tumor types. And so, you know, I think you can expect to see sort of, you know, in the future, you know, additional biopharma relationships being announced as well as data coming out from a suite of, you know, the initial data will be from retrospective data sets, of course, but then increasingly as the prospective studies set up and then run through and report data to see those coming through. And so, you know, expect to see those multiple different tumor types from across different collaborative type of arrangements.

38:02 Got it. That's very helpful. And if I could just briefly touch with Mark, you know, as you look at, I know it's a little bit early still, but as you look at the organization, where are some of the, you know, most interesting opportunities? Obviously, you highlighted some in NGS and MRD. with the acquisition here. Where do you see opportunity in coming from some of the pharma background? How do you see, you know, from your vantage point, how do you see this market shaping up? And also, if I could ask on, you know, there was an update on Dr. Weiss's departure this morning and just wanted to get a sense on what's the plan there in terms of, you know, pursuing, you know, pursuing for the next CSO.

38:51 and getting someone into the seat. Thank you.

38:55 So, Benita, I will say, for me, the biggest opportunity was one I highlighted initially, which is I think we've got a great set of NGS and liquid biopsy assays that have had success and are already growing faster than 30%, but I think we can do more. And the key is actually applying some of the lessons from pharma and from actually the Oncotex, where we're going to be starting to add new services to support the uptake of these products, whether it's simply something like a mobile phlebotomy for the liquid biopsy or reimbursement support. These are a number of capabilities that are new to NIO, and we, you know, I think we can accelerate those. I think you've got to have increased sort of focus in marketing. You've got to have an increased focus on data generation. An example, again, NIO is already moving in that direction.

39:41 We're going to be adding a small sales force, basically focused on precision management to specifically focus on next-generation sequence products and liquid biopsy. And so those types of tactics that Pharma has mastered that, you know, I'm going to be working with the team. They've already started working on this, but I think we can accelerate that further. And this will apply in other parts of the business. And happy to look forward to talking more about that, the other opportunities I mentioned earlier. Maybe Doug should talk about Dr. Weiss.

40:09 Yeah, thanks, Vinit, for the question about Dr. Weiss. You know, we're Grateful to have had Dr. Weiss as our chief medical officer and as part of our company. He became part of Neogenomics through the Clariant acquisition a number of years ago and has served as our chief medical officer. And Dr. Weiss, for those of you who didn't see, we announced this morning, has resigned to pursue other interests. I would like to make a point here. We have in our company about 120 MDs and PhDs. all focused in oncology. So we have a very deep bench strength. We have very capable medical directors and leaders in our company. Now with the addition of Innovata, we're bringing in a whole new type of technology and R&D leadership in addition to the leadership in R&D and in medical that we had here already.

41:06 So we're very excited about the team that we have. We're very excited about the new people that are joining Neogenomics from the Innovata acquisition, and we're very excited about our team going forward.

41:23 Okay, great. Thank you. Your next question is coming from David Wessenberg. Please announce your affiliations and pose your question.

41:36 Hi, this is David Westenberg from Guggenheim Securities. I'll ask my two up front. First, slide 10 is great. Can you maybe walk us through this a little bit more in terms of you're going right to the FDA. You do want to get this FDA approved and confirm that. Would you pursue a CLIA strategy? And when you say expected to be a significant component of revenue, You know, can you give us a flavor in terms of, or maybe even a little bit of a guide rails on what exactly significant revenue means? So if you can help us just maybe fill in the blank. Again, it's a great slide in slide 10, but just those timeframes are helpful.

42:21 And then also in terms of, I didn't hear close date. Maybe I'm crazy. I keyword searched close in terms of if this is closed now or if it's expected to close in the future. Second question is on Innovata and potential presentations to ASCO and ARC. Can you give us any data or any kind of flavor on presentations you might have? And then in terms of the pharma business, what would you incorporate of Innovata's products into that pharmacy business? And I'm stopping there. There's obviously a lot of analysts on the call that need to ask questions.

42:58 All right, David. Well, thank you for those questions. I'll take the easy one. The closed date for Innovata should be around mid-June. We've got to go through the typical regulatory approvals. In terms of FDA milestones and timeframes, I'll turn that over to Clive and ask him to address that question.

43:22 Thanks, Dirk. No, happy to. No, good question, David. Think of this as a parallel track type of activity. So the assay is cap-clear validated now, generating data. And as the slide says, we can then think of that through a moldy X submission and then start commercializing that effectively as a lab-developed test, an LVT, for the U.S. market. And as the slide says, anticipate that reimbursement next year and moving through the commercialization phases. However, the assay has been built to full design history and design control, et cetera, to enable an FDA path. And as we mentioned, we do have an FDA breakthrough device designation already. So that's something we will look at in parallel and then bring that through.

44:08 Some skills for that are probably longer through and depends on clinical trials, of course, for leading that through the FDA. And so, you know, it would be a sort of a, you know, given you're familiar with the path taken by companies like Financial Medicine, by Gardens and others, then it's a similar approach to the overall two paths.

44:25 Thank you, Clive. And then, David, for your question about revenue, Catherine will address that.

44:33 So, David, the Revenue is still very early for Innovata. There are some far more opportunities that exist today, albeit it's still very minimal compared to Neogenomics total revenue, and the clinical is very much in the early stages. For 2021, we're expecting less than $5 million in revenue, primarily driven by InVision First Lung. As we're going through the timeline that Clive just mentioned, we're looking at the overall market opportunity as well as the timeline that it will likely take for that really clinical oncology adoption. And that's what we're saying is going to come later on 2023, 2024. I would expect double digits in 2023, if not higher. And then really we're looking at how that can grow over time. Definitely as we get into 2024, I think that there's significant opportunity for that to grow on an accelerated pace as MRV really gets through more of the development and acceptance into the core oncology market and community setting.

45:32 Great, and David, I think Clive mentioned that there are ongoing retrospective and prospective trials for radar across multiple tumor types, and you should expect to see more presentations and publications as we go forward through the development of the radar product. Clive, I wonder if you could also comment on David's question relative to pharma collaborations.

46:02 Yeah, so a number of, you know, collaborations ongoing. And as I say, they span a number of different areas. So, of course, there are opportunities with Envision First as more of a patient selection type of opportunity. And then for Radar, you know, we really see two different areas. You know, certainly patient selection for adjuvant clinical trials. You know, we think that's a huge opportunity. You know, those familiar with the space know very large, very long, very expensive trials because many of the patients in those trials are cured. and any treatment effects are diluted out by those patients who don't benefit. And, of course, applying a test like radar enables you to select patients who have known disease so your trials can be smaller, more rapid, and you get the full benefit of your treatment effect. So that's, you know, a really good opportunity. And then similarly for early detection of response, so using this as a, if you like, a surrogate marker of response to therapeutics, you can get an early read on efficacy.

46:55 So we're seeing traction for both of those types of studies. and, of course, longer-term, you know, there's potential for, you know, could, you know, DNA, ctDNA sort of detection of recurrence, for example, become a surrogate endpoint in its own right, but that's clearly a longer-term aspect. So we're pursuing all of these with quite a range of different pharma partners across a range of different tumor types.

47:18 Good. Thank you, Chris. Thank you. Your next question is coming from Alex Nowak. Please announce your affiliations and pose your question.

47:31 Great. Good morning, everyone. This is Alex from Craig Howell. You mentioned cancer screening rates are improving throughout the quarter. So going from March into April and now May, where is cancer testing going in real time as states reopen? And I guess what are you building into the guidance as far as the recovery

47:47 goes? Yeah. Thanks for the question, Alex. So what we... All throughout Q1, with clearly depressed volumes in January and February, not only from COVID, but also from weather impact in February, we saw a significant increase in March and April. We wanted to see the continued increase past March, which was very encouraging. And again into May, I know we're only a couple days in, but that trend's continuing. So building into the guidance of continued rebound in those clinical volumes, as well as continued Revenue recognition on the pharma backlog and continued growth there. So we do expect that it's going to strengthen throughout the year, albeit I don't expect the accelerations to be as strong as it was from February to March, but we're seeing really good indicators as the economy is opening and COVID-19 rates are going down that we're returning to a more normalized growth rate.

48:43 That's great. And then maybe expand on the decision support tool. I know you want to speak on it later this year, but can you just help frame the picture on what do you see in that tool? How is it going to be used in practice with oncology? And is it fair to say that that tool is going to help increase the stickiness of NEO's business and ultimately the number of tests ordered per requisition?

49:04 Yeah, Alex, we have integrated and are integrating now the Trofello Health acquisition as part of our informatics division. And Bill Bonello is here, and he'll address your question.

49:17 Hey, thanks a lot for the question, Alex. We are very excited about the Trapello opportunity. So what Trapello has built is a precision oncology knowledge system and a clinical decision support system that helps support oncologists Thank you very much. Combing of up-to-date clinical studies as well as incorporating a variety of different oncology guidelines.

50:08 And so based on that information, which Propello has curated, they then make a series of recommendations to the oncologist or at least guide them towards what is evidence-supported. We will be incorporating that tool into what we do at Neogenomics. We will make it available to our practicing physicians when they tap into our online orders. But we will also keep the tool available as a freestanding lab agnostic tool so that oncologists and pathologists can use this even when they're not ordering from Neogenomics.

50:55 Thank you very much. and the laboratory facilitate the prior authorization process. And so when they go into the clinical decision support tool, they can see which particular tests at which particular laboratories are most likely to be approved by the payer and know that all of the supporting information to get prior authorization will be provided automatically through the Trapello system. So we think this actually has an opportunity to sort of revolutionize the way that prior authorization and utilization management works for both testing and therapy in the market. And yes, I absolutely think it will drive stickiness for neogenomics as well.

52:02 That's great. It seems like a great deal.

52:04 Appreciate it. Thanks, everyone.

52:06 Thank you. Thank you, Alex. Thanks, Alex. Your next question is coming from Brian Weinstein. Please announce your affiliations and pose your question.

52:20 Hey, good morning, guys. Brian Weinstein from Blair. Thanks for taking the questions. I guess just a high-level one here to start with, and that is really around the use of comprehensive genomic profiling for therapy selection is still not in place widely. There's a lot of people going after that, obviously, and a lot of companies are doing well, but when we look at patients, they're still not, for the most part, getting Comprehensive Genomic Profiling, and with MRD, we're talking, you know, less so. So, I'm curious about what efforts you guys are planning to take to help advance broader awareness and use of these technologies, which, you know, now you have a much bigger vested interest in.

53:00 Well, Brian, thank you for the question. You know, first of all, we are, with our pretty large sales team, we're constantly trying helping to educate the community, both pathologists and oncologists, about the benefits of comprehensive genomic profiling. And that's something that we do. We offer solutions to our physician clients as they think about new ways to treat patients with this emerging revolution that we're in in terms of precision oncology. I would say that The explanation that Bill just gave about Trapello is also important because Trapello is a tool that will help physicians understand what is the best test to order and the most medically appropriate test to order.

53:57 So that's a very important component of this whole move to genomic profiling on a more comprehensive basis. And we think that that will also help us as we begin to commercialize the MRD product in the future.

54:13 Can I just add one point onto that? I think those are two key, let's say, barriers to uptake or accelerators, depending on how you look at it, right? So there's the education and supporting decision-making, and then there's also the addressing sort of the reimbursability and access. And I think NIO already has capabilities to support both of those. Tappelo will add to that. The other third piece is we do have to continue to build the data and support behind use of things like comprehensive genomic profiling and, of course, the MRD. And that's where I think, obviously, the work Innovata is going to do. And by having potentially the best-in-class assay, we're going to be aggressively, and there already are, positioning clinical work to expand the data to support that.

54:58 and I think importantly it's the partnerships with Pharma where the real sweet spot is going to be and working with them together to generate the data that is going to support and give physicians more and more confidence to use this diagnostic because they're going to see that this is what you do to get to patients earlier with the right therapy. And I think that having the best in class assay with Neo's really growing incredibly strong physician with Pharma is going to allow us to play a big role in shaping that next wave of data generation in partnership with the pharma industry.

55:31 Great. Thank you for those answers. And then just a quick one for Catherine. Did you say what the net impact was from Innovata and Trapella on EBITDA this year? If you did, I missed it, and I'd appreciate it if you could just let us know what that is.

55:45 We're estimating it to be about $30 million for both of them together.

55:50 Together. Okay. Great. Thank you, guys. Your next question is coming from Mark Massaro. Please announce your affiliations and pose your question.

56:05 Hi, thanks. This is Mark from BTIG, I guess. Lots of news this morning. Mark, congrats on joining Neogenomics. I guess, you know, you spent over 20 years in various leadership positions, wearing a lot of hats at AstraZeneca. As you know, of course, AZs. One of the leading adopters of MRD testing in clinical trials work, so I guess, can you speak to any experience you might have had in MRD at AZ? And do you think you can leverage this experience to potentially work with AstraZeneca, recognizing that some other large companies like Natera and Archer are already working with AZ? I'll stop there.

56:49 Right. So thanks for that question. My involvement with AZ and oncology, In the very early days of MRD, I didn't have a chance to work a lot on that during my time there. But what I did have a chance to do, particularly leading the international organization and also working in global marketing, is really think hard about how you bring new diagnostics to the market to enable a launch of new therapeutics and to actually change the practice of care. If you think about it, I was responsible for everything sort of outside of Japan and North America and the EU when we were starting the early stages of launching Trogresso in the part of that. And we had to basically build out diagnostic networks country by country to enable really the adoption of those new therapeutics.

57:35 And I think if you look at the track record of AZ in those markets, really due to the great teams that we had on the ground, and their commitment to supporting diagnostics, we really made a lot of progress. And I think that there's going to be a similar real need is that partnership with Pharma and really excellent local on-the-ground diagnostic labs, which in the U.S. is NEO, to bring that technology forward. So, you know, there's many things to go in it. We can talk to some of the other factors, but that to me is one of the keys that made me so excited about NEO in putting together this MRD program. because the key really is that sort of interface with a great lab with physicians supported by the right sort of resources behind it.

58:17 Great. And my last question, obviously, you know, congrats on the Innovata acquisition team. Seems like a reasonable, certainly reasonable valuation. Maybe for Doug Brown or others, can you speak to other strategic intents When you look at the M&A landscape at large, obviously you guys have been acquisitive. Can you just talk about the funnel and maybe comment about the valuation dynamics in the industry today? Thanks, Mark.

58:49 It's Doug Brown here. And we're excited about Innovata, but we're not done. But we're going to integrate this for a little bit here. But things on our mind continue to be pharma and informatics. And I do think the valuations are challenging. And so we really got lucky with striking this deal in May of last year. And so we continue to balance sort of our prudence and value and how we think about the M&A market with, you know, the valuations that are out there. So we're very pleased with what we announced today, but we're going to continue to look at opportunities in M&A. Great. Thank you. Your next question is coming from Tejas Sivan. Please announce your affiliations and pose your questions.

59:31 Hey, guys. Good morning. This is Tejas from Morgan Stanley. I have a few questions in Nevada for Clive, perhaps. Can you just walk us through your sort of, you know, big picture philosophy on tumor-informed versus tumor-agnostic approaches to MRD? Obviously, you're pursuing a tumor-informed approach that comes with sort of, you know, perhaps... Thank you very much. maybe even more coming to market in the next six months or so.

1:00:22 How do you think about accelerating those timelines? I know the PR mentioned the specialized NGS Salesforce. So perhaps if you can share some color on the sizing and the hiring cadence there, that will be helpful.

1:00:39 Great. So, Clive, would you please take the first part of Tejas' question around tumor-informed versus tumor-agnostic?

1:00:48 Certainly, Doug. Thanks for the question, Thomas. You know, in short, you know, when you think about what people are doing with tumor-informed or when people create the standard assays with multiomics or others, you're really trying to overcome the really big dilution of DNA in the blood. So the levels of circulating tumor DNA are very low. As we've looked at this, we believe that combining, as I say, the technology and also the approaches we have with radar gets us to exceptional levels of sensitivity and I think levels that have not been published or presented by any of us, to my awareness. You are right. Theoretically, there is more complexity for the upfront test with having to do the whole exome sequencing, building the assay. Thank you very much. It is actually then a rapid turnaround time because you only, you know, it's then the same as any standard liquid biopsy. So our view is that's a one-week turnaround test once the assay is created. So for recurrence monitoring, it's very compelling on turnaround time.

1:02:04 You know, I think ultimately it'll be, you know, informed by the data. So we're now building those clinical data sets we showed on one of the slides, you know, the data, albeit from cross-trial comparisons with two competitors that are out there. But, you know, as we look at this, we believe that tumor-informed strategy and the approach we have with radar, the technology is, you know, we think is very compelling. We'll see how that develops over time.

1:02:29 Great. Thanks, Clive. And, Mark, would you like to comment on the commercialization and where we stand there?

1:02:35 Yes. So, Teodos, what I can say, first of all, we are not going to leave any stone unturned in terms of making sure we maximize this opportunity. We will make sure that we're able to be competitive from a commercial standpoint, medical fair standpoint, and generating the data and the publications to support it. And we're not ready to say what that number of sales reps. And I think actually we can get over focused on sort of the actual number of sales reps because I think what Nina was going to be able to bring, which are sort of three prongs to the, you know, rapid launch of these. So, first of all, we do have our base group of more than 100 sort of commercially focused roles and people. salespeople, but also the customer service type support that has allowed Neo to be the leading company in the community oncology marketplace.

1:03:23 And that platform is in place. Basically, every customer that would be a customer potentially for MRD is already ordering products regularly and even on a weekly basis from Neo. And we've got a fantastic commercial team driving that. I think we will have specialty resources internally. We're bringing that aboard initially. to support the Envision assets. And we'll do the work over the next few months to figure out what the right size of that is when we bring in the MRD. But then I also think with Nevada announcing their partnership in breast cancer is the third key aspect that we're going to be able to, again, go faster. And again, put this in a little bit of a different category of only just sort of looking what are, you know, the sales representatives we might have.

1:04:09 And that is leveraging people that already have a great position in a particular tumor type. You know, it can take, I think, one of the things that slows uptake is having to sort of get new people into offices and building relations, building confidence in supporting the product. And I think NEO has had a track record of really doing a great job in partnerships. And so, I think we'll be looking to leverage that, too, as a model for going forward. So, we'll have a three-pronged approach. We're going to make sure we don't shortchange it. I'm confident we can be successful.

1:04:40 Got it. Super helpful. And a quick follow-up, Mark, while I have you. You know, in the past, I mean, Doug has mentioned sort of NGS informatics and pharma essentially now being about a third of neogenomics revenue. Just philosophically, how do you see that mix evolving and over what timeframe? Like what's a good target number for, say, 2025 for that mix in your mind? and one quick cleanup question for Catherine as well. Catherine, can you help us quantify the Vela-related headwind that you saw in February? Just trying to get a better sense of underlying revenue trends and exit momentum here heading into the back half of the year.

1:05:21 So I usually feel pretty confident in my forecasting ability, but I'm 13 days in. I'm not ready to give a split of the business on 2025. What I do feel confident is The growth rates we have for all three businesses, I think we can do better. And so, for sure, it's going to be a bigger share on both pharma and informatics. It'll be a bigger share. But the other thing I'm going to be really focusing on is what is the share of next-gen sequencing and liquid biopsy of our clinical business? And that is a lever that I really want to focus on driving further. So, you put those three pieces together, which I see as sort of the real new business, I think it could be a very substantial portion by 2025. Let's give me a little bit more time to, you know, work with the team to frame that up.

1:06:07 But, yeah, no question it's going to be bigger. There's three pieces of the new business, and I think we can actually accelerate growth in all of those components. Sorry if I didn't give you a specific answer. That's how I'm thinking about it. No problem, Mark. Understandable.

1:06:24 And then from the weather impact, we actually have one of the biggest supply chain disruptions I think we've ever had. and it was really unfortunate that we've already had COVID volatility to the end then add the weather on top of it. We actually had several thousand samples that were held up for a good bit of time in February. It had a couple million dollar impact February. We did see a lot of that volume come back in March, but that did impact our overall operations and how we worked through it and our overall margins both for January, February as well as March as we were working through that backlog is very challenging. But excluding that, we still saw the organic increase in March and in April. So we feel good that the volume we saw in March was not only the February samples coming in, but was also a return to that more organic growth.

1:07:17 Super helpful. Thanks, Catherine. Great, Kay Houston. I think we are going to have to wrap up this Q&A period now. We've gone a little longer than we typically do. So As we end the call, I'd like to recognize approximately 1,740 NeoGenomics team members around the world for their dedication and commitment to building a world-class oncology diagnostics and information company. And on behalf of the whole team that's here with me today, I want to thank you for your time joining us this morning. And for those of you listening that are investors or are considering an investment in neogenomics, we thank you for your interest in our company.

1:08:06 Thank you. Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.