GeneDx Q3 2023 Earnings Call Transcript

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Provided by Quartr
October 30, 2023

There are 8 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the GeneDx Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. You will then hear an automated message advising that your hand is raised.

Operator

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sabrina Dunbar at GNDX. Please go ahead.

Speaker 1

Thank you, operator, and thank you to everyone for joining us today. On the call, we have Catherine Stuland, President and Chief Executive Officer and Kevin Feeley, Chief Financial Officer. Earlier today, GeneDx released financial results for the Q3 ended September 30, 2023. Before we begin, please take note of our cautionary statement. We may make forward looking statements on today's call, including about our business plans, guidance and outlook.

Speaker 1

Forward looking statements inherently involve risks and uncertainties and only reflect our view as of today, October 30, and we are under no obligation to update. When discussing our results, we refer to non GAAP measures, which exclude certain items from reported results. Please refer to our Q3 2023 earnings release and slides available at ir.gndx.com for definitions and reconciliations of non GAAP measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward looking statements. And with that, I'll turn the call over to Catherine.

Speaker 2

Thanks, Sabrina. We have a lot of news to cover on our call today, so I'm going to jump right in. Our 3rd quarter results were strong with $53,000,000 in revenue, Gross margins of nearly 50% and a 52% year over year reduction in cash burn. We also saw the highest mix of exomes as a percentage of total volume coming in at nearly 30% in September. Our industry leading exome and genome drove almost 2 thirds of our revenue this quarter, and we continue to grow the market and offer clinical insights to more and more patients.

Speaker 2

And at the same time, we are materially reducing our The fundamentals of our business have never been stronger. We have organized our entire team around 3 major efforts: 1, increasing exome and genome volumes 2, reducing claim denial rates to increase revenue per test and 3, driving down our cash burn. Our exome focused strategy is taking hold. Our goal is to transform the market from single gene tests, Multi gene panels and microarrays to exomes and genome. And with exome representing 63% of our revenue in September, we're well on our way.

Speaker 2

This quarter, we saw a 12% increase in the number of clinicians ordering exos in the outpatient setting, with the fastest growing clinician count Coming from neurology, representing 18% quarter over quarter growth. Pediatric neurologists continue to make up the largest portion of Our new ordering clinicians. But building markets takes time. This year, we had our sights on an aggressive growth trajectory in the second half of the year, centered around a faster conversion of single and multi gene tests to our Exome business. With $50,000,000 in core revenue in Q3, we expect Continued growth in Q4 and full year revenue now in the range of $187,000,000 to $192,000,000 We have just moved through the final stages of shutting down the former Semaphore business.

Speaker 2

That took longer than we anticipated, but is officially complete. Excluding those final shutdown costs and one time severance costs, our cash burn in Q3 From continuing operations was approximately $25,000,000 That is today's steady state burn rate from which we plan to improve moving forward. Today, we announced that we've effectuated a cost reduction plan of approximately $40,000,000 from the Q3 base, which includes vendor spend as well as a reduction in force. We are prioritizing efforts that support exome and genome growth and increases in paid claims. We'll continue to invest in these and the teams responsible for these efforts as we're seeing that they are making tangible progress.

Speaker 2

Thanks to the addition of some key leaders across commercial, operations, finance and product and technology. Some of the Efforts that have been deprioritized include R and D and other longer term strategies that will earn our right to invest in once we get closer to profitability. Today, we also announced that we have entered into a debt facility of $75,000,000 with Perceptive Advisors, and we're grateful to them for believing in our team and the strength of our business in the near and long term. This fortifies our balance sheet and with the reduction of burn that we have just effectuated, provides balance sheet flexibility in 2025. Balancing our investment and growth, while removing cash burn from the business is no easy task.

Speaker 2

But with the plan we've assembled, I'm confident we are making the right choices to ensure we grow our leadership position in the most cost effective way possible. I know we're not alone in navigating these waters. Other companies are facing similar challenges, but I'm Proud of how our team has come together in close partnership with our Board on a clear eyed view of the market we're living in, a meticulously focused strategy that prioritizes growth of our exome and genome offerings and course correcting as we move forward. You have our commitment that we'll continue to do so in order to drive shareholder value. I want to extend an immense thank you to our teammates and leaders Credible team who continued to stay committed in our mission despite the winding path we've been navigating.

Speaker 2

No path Profitability is easy nor straightforward, particularly when introducing a new technology to improve healthcare. But with the generous support and patience of our shareholders, we're all grateful for the opportunity to make a meaningful impact on patients and are committed to delivering value for those shareholders that continue to interest us to realize that vision. Kevin?

Speaker 3

So I'll repeat what Catherine said. It was a strong quarter. Total revenues were $53,300,000 for the Q3 of 2023. Revenues from continuing operations were $50,400,000 compared to $47,200,000 in the Q3 of 2022 and $45,200,000 in the Q2 of 2023. Excluding a one time appeal benefit in the Q3 of 2022, Revenues increased 14% for this Q3.

Speaker 3

Whole exome and genome volume this quarter was over 13,000 tests, which represents a 71% increase year over year and 11% increase compared to the Q2 of this year. We generated $34,000,000 this quarter from exome and genome testing, a 42% increase year over year and 18% compared to the Q2 of this year. Adjusting for the same one time appeal benefit in the Q3 of 2022, Revenues specific to Exome and Genome increased 61% year over year. In the Q3 of 2023, Adjusted gross margin from continuing operations was 48%, up from 37% in the 2nd quarter. The margin expansion is coming from 3 places.

Speaker 3

The first is test mix. To level set, our adjusted gross margin for Exome remains over 60%. Exome and Genome represented 23% of all tests in the 3rd quarter with a high of 28% in the month of September. Total gross margins will continue to benefit as Exome picks up more share of our overall test production volume, replacing lower margin and in some cases negative margin products. The second is on cost per test.

Speaker 3

We now have 2 lower costs per test Illumina X Plus machines live, and we will aim to replace the remainder of our AP's Legacy NovaSeq fleet at the right time over the next several quarters. We also have recently received our first PacBio Revio machine. Beyond our long read sequencing collaboration, the team here is excited about the potential use of this technology to lower costs by replacing older orthogonal confirmation platforms. Additionally, we've now completed the consolidation of disparate library preparation platforms to a lower cost solution offered by Twist Biosciences. And while we are pleased with where Exim costs are today, a number of initiatives are already underway or planned to further improve the cost base.

Speaker 3

Automation and AI across review analysis, report writing and certain genetic counseling steps offer real near and long term cost The third was from average reimbursement rates. The fully loaded average reimbursement rate On the exome and genome portfolio was over $2,500 in the 3rd quarter, slightly up from over $2,400 last quarter. The Exome portfolio operates at over 60% gross margin today, despite a high denial rate that we know has opportunity to be improved upon. As Catherine mentioned, new leaders have been brought into the company to lead billing, market access, sales, product and technology and finance related teams to bring enhanced experience and new perspectives specific to these efforts. The majority of our denials we continue to believe are Let's now move down to operating expense.

Speaker 3

Total adjusted operating expense was $49,400,000 for the Q3 of 2023, down from $91,800,000 in the Q3 of 2022 and $60,100,000 in the Q2 of 2023. That's a reduction of 46% year over year and 18% from last quarter. We've once again delivered reduced costs as we further separate from the legacy Semacore business and search for efficiency. For awareness, this quarter includes a $1,800,000 one time benefit. This baseline will further reduce over the next couple of quarters with the cost rationalization plan affected earlier today.

Speaker 3

On the bottom line, total company adjusted net loss The Q3 of 2023 narrowed to $21,100,000 compared to an adjusted net loss of $69,800,000 in the Q3 of $20.22 $38,600,000 in the Q2 of this year, improvements of 70% 45%, respectively. Our 3rd quarter cash burn of $42,000,000 included nearly $17,000,000 in final semaphore payables and one time costs and otherwise would have been approximately $25,000,000 for the quarter. Our total cash, cash equivalents, marketable securities and restricted cash We're $115,000,000 as of September 30, 2023. And today, we announced that we have entered into a new 5 year Senior secured credit facility with Perceptive Advisors. This agreement provides for up to $75,000,000 in capacity, consisting of an initial tranche of $50,000,000 which was drawn on October 27, 2023 and an optional second tranche of 25,000,000 which is committed through December 2024, subject to certain criteria.

Speaker 3

Interest is payable at A rate of SOFR plus 7.5 percent. And under the terms of the agreement, Perceptive will be issued warrants to purchase 800,000 Class A shares of the company's stock at closing with an exercise price equal to the 10 day VWAP. That price is $3.17 a share. Upon borrowing of the subsequent tranche, Perceptive would be issued warrants to purchase an additional 400,000 Class A shares. Personally, I want to thank the Perceptis team for the hard work involved in the transaction.

Speaker 3

We are excited to have yet another strong thought partner in the mix. Giving rise to the net proceeds of the initial tranche, our pro form a cash on hand at September 30, 2023 is $163,700,000 Now turning to guidance. We expect to end 2023 with full year revenue from continuing operations in a range between $187,000,000 to $192,000,000 We're narrowing the expected cash burn guidance for the second half of twenty twenty three to a range $75,000,000 to $79,000,000 inclusive of servicing obligations of the exited business activities. As a reminder, in December 2023, the next scheduled installment payment of $5,000,000 will be made with respect to the legacy semaphore payer settlement. And as we have expressed, the outlook to term profitable in 2025 remains unchanged.

Speaker 3

So while we're not providing specific long term guidance beyond 2023 at this point, I did want to speak to how we view that path to profitability by the end of 2025. There are 3 primary drivers. The first is rationalizing the operating expense base. Our current Adjusted operating expense is roughly $50,000,000 a quarter or a run rate of $200,000,000 annually. We're taking out an additional $40,000,000 in specifically identified costs to get down towards $160,000,000 over the next several quarters.

Speaker 3

We firmly believe these cost reductions will not impact our ability to drive Exelm growth. The second is by expanding gross margin. We just reported Q3 adjusted gross margin of 48%. Remember, our blended Exome gross margins are greater than 60% today. So as Exome tests continue to make up more of our revenue, our total margin moves towards that 60 plus percent.

Speaker 3

We also believe Ekso margins can expand beyond their current level given COGS reductions and reimbursement work. The third is revenue growth. We just reported Q3 revenue of $50,400,000 for continuing operations or $202,000,000 run rate. Our future revenue growth is all exome and genome, and exome just grew 62% year over year this past quarter. If one were to assume even a much lower exome growth rate in the zone of 20% over the next 2 years, that generates a very reasonable breakeven level, given the cost structure I just mentioned.

Speaker 3

That said, we certainly aim to achieve stronger Exome revenue growth than that. So with the cost saving initiatives announced today, margins continuing to trend towards our current Exo margin and revenue growth tracking to even moderate levels, We see a clear path to breakeven by the end of 2025. And finally, in terms of cash, Our cash burn for continuing operations was approximately $25,000,000 this quarter. And on a go forward basis, you should expect adjusted net loss and cash use to more closely conform to each other, except for the payer settlement, severance and fairly minimal CapEx. I'd also point you to the liability section of our balance sheet, which will show huge structural improvement as we've now put substantially all legacy 704 operating payables behind us.

Speaker 3

We therefore anticipate the new debt financing proceeds will primarily serve as balance sheet protection as we shift towards sustainable profit. I'll now turn the call back to Catherine for any closing remarks.

Speaker 2

Our commitment to turning to profitability in 2025 is our unquestionable focus. As we've commented today, that is possible with growth, efficiency and cash management, and our plan supports these three drivers. In managing the business to this goal, we are well positioned to lead the market to diagnosing all inheritable diseases with our exome and genome backbone and ultimately realize our vision of using genomic and clinical data to inform disease diagnosis, treatment selection and to accelerate drug discovery and development. For now, by focusing our business on exome and genome, we will drive value creation for our shareholders, while continuing to serve more and more patients. Now, we'll turn it back to the operator for Q and A.

Operator

Thank you. Please stand by and we'll compile the Q and A roster. Our first question comes from the line of Dan Brennan from Cowen. Your line is open.

Speaker 4

Hey, this is Joe on for Dan. It seems like the exome volume growth story and the mix shift is really playing out with 70% exome growth in the quarter and 20 percent mix in September. So what do you see changing in the Q4 that's bringing down the implied Q4 guide?

Speaker 3

Yes. Joe, look, I think the way we view it is We did add some new team members to the commercial field force and that's in large part what is driving the growth in the Exome We're really happy with how the quarter played out. We've seen some pretty substantial growth in both Q2 and Q3. And so the guide is really reflective of what we see line of sight October is coming in strong. We're pleased with the data thus far.

Speaker 3

We do typically see a Q4 uplift in terms of ordering patterns and ASPs. We would expect that, and so have every confidence that we can hit the high end of That range, but the previous guidance range that we provided, particularly at the higher ends of that, we just fell short in the 1st couple of quarters of this year. Really happy with how the second half of the year is progressing here. So the guide really just reflective of how the earlier part of the year played out.

Speaker 4

Got it. And then on ASPs, it looks like they came down about 15% in Q3 on a blended basis. Do you see pricing generally stabilizing into 2024? Or do you expect these kind of like 10% to 15% -ish year over year quarters to continue?

Speaker 3

I think we view Q3 as a baseline from which to improve on. If you just focus in on exome, we did see improvements in Q3 versus The second quarter, with an average of just north of $2,500 versus the 2nd quarter in the $2,400 range after all denials. We'd expect a similar progression in the 4th quarter with a slight uptick in the 4th quarter. And as we mentioned in our remarks, we've got teams nearly across the entirety of the company focused on improving front end process Just to bring down the denial rate and would expect that over the next several quarters, you'd see incremental ASPs improvements in exome. On the other product lines, we've identified some near term opportunities in particular with chromosomal microarray and hereditary cancer.

Speaker 3

Frankly, those are 2 product lines that had not received as much focus in the past couple of years as they maybe should have. So the team working on improving denial rates on those two product lines in particular. Outside of exome and CMA, Hereditary Cancer, you might expect blended ASPs on the other panels to stay flat on a go forward basis.

Speaker 2

The only thing I would add to that, and I think the way that Kevin framed it in terms of finding opportunities Beyond the exome since we saw a nice increase in exome. We are going to be retiring about 350 tests in early 2024. So again, continuing to really focus the business on The tests that differentiate us that are best for patient care and that can have a positive impact on the P and L as well.

Speaker 4

Got it. And then just last on the $40,000,000 incremental cost outs, where are these coming from? And just kind of if you talk about where we'll see this in the P and L would be great.

Speaker 3

Yes, about half is coming from employee reductions. We took some actions midway through the Q3 and then today Impacted another subset of employees with a fairly sizable reduction in force throughout the day today. The groups impacted there primarily research and development, some product and technology and then other support functions as Frankly, as we've gotten further away from separating Semaphore, the overall support necessary for the go forward business Is titrating down. And so we're reacting as quickly as possible to rightsize the cost base as we move further and further away from that shutdown. And those shutdown activities are now complete.

Speaker 3

As it relates to the remainder of the spend there, we've taken a Really earning our way to longer term pursuits around research and development. And so reductions with respect to projects that would have longer term payoff, I think 2026 and beyond. And so feel confident that everything necessary to grow the top line to expand gross margins still remains intact and it's those longer term pursuit With respect to R and D that have been trimmed down.

Speaker 4

Got it. Thanks for taking the questions.

Operator

Thank you. One moment for our next question. And our next question will come from the line of Mark Massaro from BTIG. Your line is open.

Speaker 5

Hey guys, thank you for taking the questions. I know you addressed that most of the $40,000,000 annualized cost reduction It's coming from R and D and support functions. But were there any reductions to the sales force or MSL crew? I think Based on my notes, I think you are planning to onboard 10 new reps in the second half of this year and finish somewhere in the 60 5 to 70 range. Can you just maybe update us on the size of the commercial organization?

Speaker 2

Yes. The commercial organization is going to Continue to be an area of investment for us. So, so for the most part, I would say that the Removal that we try to do very surgically ensures that we are not eliminating any rules that will slow down growth or will impact the integrity of the product. So we feel really confident that the Quality will remain high and ensure that we can continue to be the market leader and that we can continue to drive meaningful growth So, no impact on sales force, no impact on MSLs. Those two teams and the commercial functions supporting them are critically important and have been doing a fantastic job this year as evidenced by the results of the quarter.

Speaker 2

The sales force, we've got, I think, about 62 of those roles So close to being at capacity, we always expect that there's going to be a handful of roles that are open from time to time. And then we do have our team of MSLs that are fully staffed. They were just gathered in Gaithersburg last We got the chance to talk with them. So, they are continuing, I would say, as we look towards the future commercial strategy to really hone in on working collaboratively as a team, looking at overall account profitability and keeping focused on ensuring that we can continue to drive, exome and genome moving forward,

Speaker 6

and those MSLs are critically important to our ability

Speaker 2

to do that. Okay. Thank you. It's important to our ability to do that.

Speaker 5

Okay. Thank you for that. So I'm still not understanding why you lowered The full year guidance, I mean, I understand that you needed 60% of your revenue to come in, in the back half of this year. We were modeling below your guidance, but still the implied Q4 is still very significantly below the Q4 consensus revenue estimate. So maybe can you just walk us through what has changed?

Speaker 5

I mean, I understand that you have been onboarding new reps. I assume maybe their initial traction in Q3 wasn't as high as you expected. But What else is going on in terms of pricing, in terms of work with payers? I would assume that some of your Prior guide would have required more work from payers. So can you just broadly give us an update on traction with commercial pay, Maybe the timing of some of the new plan coverage and maybe some of the one time payments that you might have expected in your prior outlook?

Speaker 3

Yes. I think, Mark, it's a little less around payers and pricing. In fact, we We're fairly optimistic that we're the data in the last 2 months and including through today through October From a reimbursement and denial perspective is improving and is starting to show, payoff from The efforts we've put in place around revenue cycle. If you go back to the original guide, it anticipated that In particular, at the tail end of the Q2 and beyond, we would start to see a fairly sizable ramp in a conversion From chromosomal microarray into exome. We had previously talked about bringing on some of those CMA tests as stepping stones or seeds for future exome.

Speaker 3

And as the commercial team has been out executing, we've added the MSL teams to engage in conversations. I think we what we've seen is that we should expect a more moderate conversion ramp from CMA into exome than a massive bolus of conversion or inflection point. Really anchored on a few things. 1, physician longstanding physician behavior. We're just encountering docs, who've been practicing genetics for the same way for quite a long period of time.

Speaker 3

And we have education to do with respect to misperceptions in the marketplace with respect to these tests that they take months and not weeks. We've got our rapid exome product down to a verbal report in 3 days. And so old perceptions around turnaround times, old perceptions around pricing and The noise that might be in a report with respect to variance of unknown significance are all things that we're seeing entrenched behaviors and Mindset among physicians and we've seen a flattening of that conversion ramp versus previous expectations, see as the primary driver. That said, the Exome portfolio has grown rapidly, and we'd expect pretty similar growth rates Going forward, so the go forward guide for the Q4, we just posted a plus $5,000,000 revenue quarter from Q2 to Q3 and we'd expect something similar in the Q4, as we're starting to see a normalization of what we can expect in terms of that CMA to Exome conversion.

Speaker 5

Okay. That is helpful. So it looks like the midpoint of your guide Would imply about 10% or 11% revenue growth for the full year. Recognizing that you are picking up a higher mix from exomes, Is it reasonable as we think about our models for 2024 that greater than 10% should be Readily achievable, but any other granularity or commentary about the levers of growth in 2024 would be helpful.

Speaker 3

Yes. I mean, so we're not providing full year 'twenty four guidance. We'll do that in early January, but Tried to outline for you in my prepared remarks and there is a page in our earnings materials as a deck we posted to our website, Really to sketch out what we believe is an illustration of the path to profitability and believe firmly we can get there To breakeven and beyond, even if you assumed year over year revenue growth of around 20%. And if you think about the go forward base, all of our growth is really going to come from the Exome portfolio, which just grew well in excess of that mark. And so really believe that you should expect similar exome growth year over year moving forward.

Speaker 3

If you recall, this year was impacted earlier from some price concessions we offered to the marketplace at the end of next year. So that played with the year over year growth rate some. That's all worked through the system and believe at this point, you should expect on Exome only Sequential ASP improvements moving forward. So might expect a greater growth rate year over year from 23 to 20 than what we posted this year.

Speaker 5

Okay. That's helpful. And if I can sneak one last one, the adjusted gross margin from continuing ops 48%, that was strong and well above our modeling. Do you think that's perhaps A level that you can build off from here? Or were there any one timers in Q3?

Speaker 3

Yes. We do think it's A new level or base to work off of. There were no meaningful one time items in that number either in terms of ASP's revenue or COGS. To your point, we are seeing some efficiency initiatives Take hold and provide results ahead of schedule. I tried to call out a few in my opening remarks.

Speaker 3

But yes, we've outperformed in the cost per test, in particular cost per test around exome, and think that those Efficiency gains are here to stay.

Speaker 5

Okay. That's it for me. Thank you.

Operator

Thank you. One moment for our next question. And our next question will come from the line of Brandon Couillard from Jefferies. Your line is open.

Speaker 7

Thanks. This is Matt on for Brandon. Maybe sticking with gross margin there. I appreciate all the color, Kevin. In terms of the 3 buckets you spiked out for the Sequential improvement in gross margin, should we think about each one of those kind of having a similar contribution or is there one in there that kind of was an outsized driver to The improvement here we saw in 3Q.

Speaker 3

It's really that I would say take them in the relative order that I outlined with cost per test leading the way there. And those are coming from a number of areas, both in the wet and dry side of the laboratory, some are process related, some are technology related. The new machinery from alumina is Paying off as expected. I think what gives us the most comfort and conviction moving forward is We've got a large roadmap going forward of additional efficiency items that are near term line of sight and can be relied on. And so we're only just getting started in driving down cost per test of exome.

Speaker 3

That one probably leads away and you can take them in the ranked order in which

Speaker 7

That's helpful. And then appreciate all the color on the cost sets. Just wanted to ask, so $40,000,000 of further cost outs reiterated your profitability target for 2025, so not pulling it forward on those or anything. I mean, are we supposed to think about that When that profitability question comes, it could be more meaningful given the additional $40,000,000 that's coming out today or just trying to get hands around using the profitability target, not pulling it forward, but taking another $40,000,000 out of the cost structure. Thanks.

Speaker 3

Yes, I think the marker of 2025 acknowledges that The revenue base came in, a bit lower than expected for this full year. The $40,000,000 really meant to ensure we make The commitment we made, which was to turn this company profitable by the end of 2025, we're more convicted today in our ability to do that. Frankly, we found more efficiencies as part of a recent review than We thought we might on the outside outset of that analysis. I think any upside To be able to pull profitability into 2024 would come from outsized revenue growth, which of course we're aiming to achieve, but wanted to be careful not to overpromise.

Speaker 7

And then I guess last one maybe for Catherine. You guys have made a lot of changes on the commercial side, working in new territories, new outreach programs, things like that. Maybe just talk a little bit about what the

Speaker 2

So just Added Melanie Ducat, who joined in September to lead the overall Commercial strategy, she's working off of a strong foundation that we have in place, I think to take us to Kind of the 2.0 version of where we want to go in terms of commercial efficiency. So really what we expect is, I would say that the cross functional teams that are focusing on growth and on account profitability to be really working more efficiently together. So I would say, she has done a tremendous job when she was at her prior company, Really shifting the focus from volume to keeping the team focused on Volume on revenue on ASPs and overall account profitability. So I would say that's what we're looking for in terms of the shift moving forward And just some continued improvement on overall efficiency and ensuring that those teams that we're working with our working in a more singular way and support of account growth. So continued focus on opening up markets, but doing it in a way that will align with our P and L, and we'll continue to focus on delivering on good patient care.

Operator

And our next question comes from the line of Matt Sykes from Goldman Sachs. Your line is open.

Speaker 6

Hey, guys. This is Prashant Kota on for Matt. What split do you see between inpatient and outpatient exome testing? And do you see that evolving over time?

Speaker 2

Hi Prashant. Yes. So the vast majority, I think 97%, 98 percent is in the outpatient setting today, really predominantly focused on exome versus genome in that outpatient setting. I would say though that the rapid setting in the inpatient, which is primarily Utilization of our rapid genome product that is growing quickly. It's just a very small portion of the business.

Speaker 2

I think that's going to fall into the category of longer term market building. There's a lot of fundamental dynamics that We have to continue to work through, in order to drive utilization. That being said, we just had a really nice win, at a health system in Florida, where we've been able to get an institutional contract set up to be able to drive utilization of our rapid genome in the NICU. So I'm encouraged by some wins like that that ensure that, that product is being utilized. The vast majority of the inpatient is institutional pay.

Speaker 2

So that's obviously, one barrier that we have removed both for Utilization and also for us, we get paid 100% of the time on those. So we really appreciate that business. But we Continue to view that as being a longer pull in terms of driving utilization. That's going to take some more time. So as we think about the breakdown over the next several years, we're still going to see it predominantly in that outpatient setting.

Speaker 6

Got it. Thank you. And then can you just talk about your progress in reducing claim denials? And specifically, what percent of claims are not approved, if you have that number? And roughly how long is the appeals process?

Speaker 3

Yes. So as we talked about, we did bring in A bunch of new folks, really to take a look at our end to end processes, in particular, on the front end of claim submission.

Speaker 4

So a

Speaker 3

lot of work is ongoing and we did see an uptick In ASPs, that all driven by a slight reduction in the denial rate this quarter. So pleased with the initial findings, Certainly a long way to go there. I think it was just important to get fresh eyes on our processes and We really feel confident that much of the denials are addressable. To your question, north of 60%, so low 60s is our denial rate today on the Exome portfolio. That hasn't changed in a while.

Speaker 3

Although we did improve about 1 percentage point in the 3rd quarter versus the second, and that's what drove the incremental uptick in average ASPs. I think longer term, you should expect us to take incremental bites out of that denial rate with each passing quarter as the effects of the ongoing work begins to take hold. The appeal process Themselves itself is lengthy with really us going back to payers to re adjudicate claims based on the medical necessity and unique We have an appeal process stood up today, but I think more important to driving down On denials and improving ASPs and therefore revenue comes from avoiding denied claims and that's where all of our effort is focused at the moment.

Speaker 6

Got it. That makes sense. And if I could squeeze one last one in. How are you thinking about capital allocation given the new capital you've raised with the debt agreement?

Speaker 3

Yes. I think the way we look at the new debt agreement is to couple it with the cost reduction actions That we took today, which as I mentioned, the reductions really placing an emphasis on 3 main priorities For the company, how do we drive exome growth? How do we improve exome reimbursement by reducing denials? And then how do we find cost efficiency and reduce costs elsewhere to improve the financial health of GeneDx to meet that commitment to become profitable sustainably in 2025 and beyond. And so all of our available capital Allocated to R and D and product and technology to find ways to help the company get more efficient to drive down exome COGS.

Speaker 6

Great. Thank you. Thank you.

Operator

And that will conclude the Q and A for today. I would now like to turn the conference back Kathryn Stellan for any closing remarks.

Speaker 2

Great. Thank you. We have a strong and growing business, a commitment from the management And we are grateful for the continued support of our shareholders and look forward to seeing many of you at an upcoming conference. Thank you.

Operator

And this concludes today's conference call. Thank you for participating. You may now disconnect.

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Key Takeaways

  • Q3 revenue reached $53.3 million (up 14% YoY excluding one-time benefit) with exome and genome tests driving 71% volume growth and representing nearly 63% of revenue in September.
  • Adjusted gross margin expanded to 48% (from 37% in Q2), propelled by a higher-margin test mix, lower cost-per-test from new sequencing platforms, and a rise in average exome reimbursement to over $2,500.
  • Annualized cost reduction plan of $40 million plus a new $75 million debt facility has slashed cash burn by 52% YoY, delivering a steady-state quarterly burn of ~$25 million and bolstering runway through 2025.
  • Management lowered full-year guidance to $187–192 million in revenue and noted slower-than-expected conversion of chromosomal microarray to exome tests, affecting implied Q4 growth.
  • Exome test denial rates remain elevated at low-60% levels, prompting continued investment in revenue cycle and payer engagement to improve reimbursement.
AI Generated. May Contain Errors.
Earnings Conference Call
GeneDx Q3 2023
00:00 / 00:00