GeneDx Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 30, 2024

There are 9 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the GeneDx Second Quarter 2024 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 Please be advised that today's conference is being recorded. I would now like to hand the conference over to Sabrina Dunbar, Investor Relations.

Operator

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 Feehley, Chief Financial Officer. Earlier today, GeneDx released financial results for the Q2 ended June 30, 2024. 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, July 30th, and we

Speaker 2

are under no obligation to update.

Speaker 1

When discussing our results, we refer to non GAAP measures, which exclude certain items from reported results. Please refer to our Q2 2024 earnings release and slides available at ir.geandx.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 will turn the call over to Catherine.

Speaker 2

Thanks, Sabrina, and thank you all for joining us. The Q2 proved to be another strong quarter by all measures. We delivered nearly $69,000,000 in revenues, expanded gross margins to 62% and achieved our 9th consecutive quarter of cash burn reduction. We've been relentlessly focused on these three metrics and that focus continues to pay off. Given the strength in the first half of the year, I'm happy to say that we're raising our revenue guidance for the year to $255,000,000 to $265,000,000 and we're even closer to our goal of becoming profitable.

Speaker 2

This is an important milestone for us as a company because of the mass of opportunity in front of us to serve an ever growing number of families and to positively impact the future of healthcare. Today, GeneDx is primarily focused on pediatric patients and the providers that care for these patients, including medical geneticists, genetic counselors, pediatric neurologists, developmental pediatricians and neonatologists. We have now sequenced more than 665,000 exomes and genomes and have performed more than a 1000000 genetic tests, working tirelessly to carry 1 of the largest and most diverse databases of disease associated genomic variants. This industry leading data set combined with our proprietary bioinformatics and variant identification and interpretation capabilities coalesce to create the most advanced diagnostic exome and genome sequencing options available. And those tests continue to become recommended as first line tests and the standard of care, resulting in better health outcomes and cost benefits for both patients and healthcare systems.

Speaker 2

So to track our success, one of the key metrics we focus on is test mix. This quarter, exome and genome test accounted for over 74% of our total revenue, reflecting our successful transition towards a more streamlined and impactful product mix. The upshot of strong commercial execution has been amplified by our team's operational and technological excellence. These teams continue to put additional wind in our sales by reducing costs and shortening turnaround times by identifying opportunities for improved efficiency, scaling our lab with support from AI and machine learning technologies and improving our billing workflows and service of better patient provider and payer experiences. In the Q3 of last year, I shared that we had adopted a mindset of discipline and focus on near term highest impact business drivers and that we must earn our right to invest in longer term strategies as the point of profitability approached.

Speaker 2

It's the right time to lean in and invest in our future starting with a focus on whole genome sequencing. This quarter, we announced a partnership with Epic to integrate with health system workflows and improve provider and patient journeys via Epic's electronic connections. And today, we shared more information about investments in our products as we translate our leadership in exome to pave the way for our genome future. We unveiled a series of enhancements to our genome product to reduce turnaround times, expand accepted sample types and increase diagnostic yields. We will remain absolutely disciplined as we approach future investments and focus on commercial viability for the dollars we invest.

Speaker 2

We're also making progress on key policies across the United States that ensures there is expanding access to exome and genome testing nationwide. We're pleased by the adoption of additional biomarker legislation in the 2nd quarter and know the direct impact these laws will have on patients and families. As a company headquartered in Connecticut, we were proud to see rapid whole genome sequencing passed into law here effective July 1. Today, 14 states cover rapid genome sequencing with North Carolina adding announcing added coverage in just the last few days. We also see certain commercial payers taking steps in the right direction as shown through our partnership with UnitedHealthcare to offer whole genome sequencing to their patients across the country.

Speaker 2

We believe that equitable access to testing is fundamental and are thrilled to see bipartisan support among policymakers throughout the country. In addition to the supremely important work being done by state Medicaid programs and commercial payers, we've taken our own steps to drive progress forward. In the Q2, we launched a patient access program for epilepsy patients in partnership with biopharmaceutical leaders to open up access to exome testing, while helping eligible patients enroll in clinical trials and other therapeutic opportunities. Our proprietary genomics data set was built by patients across America, thus offering one of the most representative and diverse looks at genomic data available. As we think about differentiation, we appreciate the steps we've taken historically to prioritize equitability and remove barriers to cost on our journey to servicing patients and providers of every circumstance.

Speaker 2

But we're not done yet. There are millions of patients and families in the U. S. And globally that can benefit from the actionability of a genetic diagnosis. A diagnosis can immediately change clinical management, unlock clinical trial opportunities, qualify patients for the financial support they desperately need, connect families communities unified around their child's diagnosis by way of patient advocacy groups and much more.

Speaker 2

We recognize the privilege that a market leading position offers us and we are continuing to invest in accelerators for our business while balancing growth and scale with financial discipline and strength. With that, I'll pass it over to Kevin to go through our results.

Speaker 3

Great. Thanks, Catherine. Q2 2024 revenues from continuing operations grew to $68,900,000 compared to $45,200,000 in the Q2 of 2023 $61,500,000 in the Q1 of 2024. That's an increase of 52% year over year and 12% sequentially in total. Drilling into that, exome and genome revenues grew 77% year over year and 15% sequentially, delivering $50,000,000 in revenue this quarter.

Speaker 3

Both volume and collection performance contributed nicely. Adjusted gross profit from continuing operations was $42,800,000 in the Q2 of 2024. That's up 153% compared to Q2 2023 and up 13% from the Q1 of 2024. Adjusted gross margin from continuing operations was 62% in the Q2 of 2024, up from 37% a year ago and up from 61% in the Q1. Gross profit growth and margin expansion is driven by increased volume, improved average reimbursement rate, continued cost per test leverage and favorable mix shift.

Speaker 3

On volume and mix, exome and genome was 31% of all tests resulted this quarter, up from 22% a year ago and up from 30% in the Q1. Overall, I'm quite pleased with the mix given the strong underlying exome and genome volume, whereby our team delivered over 18,000 tests this quarter, an increase of 52% year over year and 9% sequentially. We'll continue to optimize the test portfolio towards Exome and Genome balancing unit economics, clinical impact and customer satisfaction over time. On average reimbursement rate, our exhaustive effort to improve exome reimbursement rates through denial reduction is working. In the Q2 of 2024, our average reimbursement rate for exome and genome after all denials was approximately $2,800 up from $2,600 last quarter and up from $2,500 in the Q4 of 2023.

Speaker 3

Across the commercial insurance payer environment, we continue to enable and calibrate insurance specific workflow to reduce administrative and procedural denials. That said, we remain clear eyed about the complex operating environment where some payer business models are inherently predicated on collecting premiums while narrowly interpreting archaic medical policy and administrative requirements to suit their own business needs. Our focus on generating clinical data and articulating the value proposition of our differentiated exome as a first in line test will continue to underpin our advocacy for equitable access and patient centric medical policy, all so that we can help get more families the care they need and get reimbursed fairly. Across Medicaid populations, denials are and should continue to come down as medical policy continues its momentum towards broad coverage for Exo and Geno. In particular, state Medicaid programs continue to expand coverage for rapid genetic testing in the NICU.

Speaker 3

We highlighted North Carolina, Texas and Connecticut in our release today. And on cost per test, the team has done a great job optimizing the wet lab and there remains opportunity to couple our unparalleled genomic data set with new generation of automation tools to drive scalability and efficiency across dry side clinical interpretation, analysis, abstracting and report writing. Now moving down to operating expense. Total adjusted operating expense was $45,000,000 in the Q2 of 2024. That's a reduction of 24% year over year and 1% sequentially.

Speaker 3

I now consider us to be at a normalized relative OpEx base for the business ready to drive operating leverage as we grow. One call out this quarter, GAAP expense and GAAP net loss in the Q2 of 2024 includes a one time litigation charge, net of expected insurance recovery of approximately $13,000,000 The charge relates to a stockholder commenced lawsuit brought in the prior year as a class action on behalf of former stockholders of Centimeters Life Sciences, who did not redeem their shares in connection with the 2021 business combination between Centimeters Life Sciences and Legacy Semaphore. The suit named Centimeters Life Sciences and its directors at the time of that business combination. And on the bottom line, total company adjusted net loss for the Q2 of 2024 narrowed to $2,700,000 That is an improvement of 93% year over year and 68% sequentially, driven by gross profit growth and operating expense rationalization. With that, we're approaching the turn to profitability.

Speaker 3

Our 2nd quarter net cash burn was $6,100,000 which improved 89% year over year and 65% sequentially. And we've now delivered 9 consecutive quarters of cash burn reduction. On the balance sheet, cash, cash equivalents, marketable securities and restricted cash was a total $108,000,000 as of June 30, 2024. And as of June 30, 2024, there are 26,926,383 Class A common shares outstanding. The outstanding share count includes the issuance of 645,414 shares of Class A common stock to Perceptive in April 2024 to satisfy a cashless exercise of the 800,000 warrants they received in connection with the October 2023 debt placement.

Speaker 3

And now turning to guidance. We are again raising previously issued revenue guidance and now expect to deliver revenues between $255,000,000 $265,000,000 for the full year 2024. We are reiterating previously issued adjusted gross margin guidance to land full year 2024 at 60% or higher. And we're improving our net cash burn guide and now anticipate using $65,000,000 to $75,000,000 of net cash for the full year 2024. That latest guide here contemplates fully absorbing the legal settlement should that be required in 2024.

Speaker 3

The ultimate timing of that payment is still uncertain at this time. And as a reminder, the next scheduled payment under the 2022 legacy Sema 4 payer settlement is $10,000,000 and that will be paid in December of 2024. Finally, we once again reiterate our expectation to turn the business profitable in 2025. With that, I'll turn it back to Catherine.

Speaker 2

Wonderful. Thanks, Kevin. Over the past few years, we've successfully transformed GeneDx into a driving force in genetic diagnostics and we couldn't have gotten here Our patients and their families, our customers, collaborators, our team members and our shareholders make all of this possible and I want to thank each one of those constituents for their ongoing dedication and support. We're painting a vision for a better future in healthcare, one where every family can benefit from earlier diagnosis of disease through genomics and with another successful quarter under our belt or one step closer to realizing that future. We'll now open the call up for questions.

Operator

Our first question comes from the line of Tycho Peterson with Jefferies.

Speaker 4

Hey, good afternoon. Maybe starting with pharma, biopharma, it looks like you added 11. I think you had 21 at the end of the Q1. So maybe just talk a little bit about momentum spend on biopharma, how much is data versus kind of new program adds?

Speaker 2

Certainly. So we added, as you pointed out, several new programs for the quarter. We're really pleased. Some of that is repeat business from existing bio pharma partners. These are the nature of these programs, predominantly connecting biopharma partners with providers who have patients who may be eligible for a clinical trial.

Speaker 2

And then as you saw in June, we announced a program in support from biopharma companies to open up access to epilepsy exome testing. And so we are, through that program, able to run all patients through insurance, work with biopharma companies on those patients who have been denied to be able to ensure that no patient has a barrier to that testing. So it is data by way of connecting these biopharma companies to patients. And we continue to see that as being the most, I think, representative commercial approach for the data business over the next 18 months or so. It's meaningful not only in terms of building up that ecosystem, diversifying our revenue streams, but I think importantly really paving a path forward for a lot of these patients to make sure that they know what they can do beyond getting a diagnosis, being able to connect them with those next steps.

Speaker 4

And then what are you assuming for whole exome genome mix in revised guidance? Can you kind of bridge the new guide with the old and what's getting better?

Speaker 3

Yes. So look, we're really encouraged with the trajectory of exome and genome volumes. From a mix perspective, the 31% was a function of really strong underlying volume growth for Exome and Genome, but then also growth in other lines. I mean, we continue to look at the test menu and our offerings to optimize for unit economics as well as clinical impact. We've said previously expect sequential growth in exome, genome mix in terms of total tests anywhere from 1% to 3% per quarter.

Speaker 3

We delivered that this quarter and I'd expect the similar pacing for the remainder of 2024.

Speaker 4

And last one just on pricing over 2,800 in 2Q. Is there still kind of room to go in the back half of the year? And then Kevin, I think you talked about reaching profitability in the next couple of quarters. I mean, that's a little bit different than what you previously said on 2025. I'm just curious if you can give us a sense of when in 2025 you think you'll hit it?

Speaker 3

Yes. Really encouraged about the performance on collection and bringing down denials to raise that average reimbursement rates. Previously, we said expect with each passing quarter of 2024 to assume something close to $100 in uplift in that aggregate rate. We were able to outperform that in the Q2 and I think that remains the expectation is that we ought to be able to raise that rate something in the order of magnitude of $100 per quarter for each of the remaining quarters in 2024. Overall, really strong with where we came out in the Q2.

Speaker 3

We're really pleased with where we came out. Overall, on timing, for the turn to profitability, look, we just posted a net loss of sub $3,000,000 $2,700,000 So we're right on the doorstep. It will be in a coming quarter. The guide reiterated that the full year of 2025 on that measure of adjusted net loss, the balance of the full year 2025 will be profitable and there will be a quarter upcoming year likely in the first half of twenty twenty five. But we're on the precipice of hitting that milestone.

Speaker 4

Great. Thank you very much.

Operator

Our next question will come from the line of Bill Bonello with Craig Hallum.

Speaker 5

Hey, guys. Great quarter. Can you tell us a little bit more about the Epic collaboration? How quickly do you expect to have that rolled out? Maybe the breadth of your clients who are using Epic and then maybe a little bit on the cost?

Speaker 2

Certainly. I'll kick it off and thanks, Phil. The APAC partnership is one that other companies in our space have proven really can drive patient access and can accelerate utilization. And so, we took a very data driven approach to assessing the opportunity and whether or not the timing right for us to make the investment now. And we saw a really impressive pipeline of opportunity, particularly in the NICU, to be able to drive our rapid whole genome sequencing product into that space.

Speaker 2

And strategically that becomes a fantastic opportunity in terms of being able to embed our services. It ensures that it is easier for these providers to order. And then if you think about then extending that same sort of service through an entire health system more broadly into the pediatric setting, we think that it will translate nicely. And I would remind you of the business on the NICU side of things is predominantly institutional. So we took a look at the pipeline of opportunity and we're really pleased with what we believe we can realize likely in the second half of twenty twenty five.

Speaker 2

It requires some work later this year and into the 1st part of next year to actually make sure that the engineering side of things is well planned and well deployed in partnership with EPIC. And so we've got that on our roadmap, for Q4 and into next year. But as I said, we expect to start to see the benefits of that in the second half of twenty twenty five, but even more so broadly into twenty twenty six and beyond.

Speaker 5

Okay. Thanks. And then just one other maybe you could talk a little bit more about the what you're calling the reinvestment in whole genome and sort of specifically, what it is you're spending on, what the improvements will be that and I'm assuming those expenditures are probably in the guidance, but just to confirm that.

Speaker 2

Yes. All of the investments are contemplated in the guide that we provided today, the updated guide. So the reality is when we prioritize the company's efforts last fall, Everything was organized around really driving exome utilization. And we put a pause on some of the genome improvements that we would have wanted to invest in earlier. Those are namely faster turnaround times, getting a written report out in 5 days.

Speaker 2

We previously have been doing a verbal in a number of dates, and that is no longer what customers seem to be the right product delivery. So being able to drive a written report in 5 days, making it easier for sample collection, cheek swab or a buccal sample, is something that is an additional product feature. And then repeat expansion help us drive a higher diagnostic yield, and ensure that there doesn't need to be any retesting. So, those features we have put a pause on, but because of the strength of our performance, we're really, really pleased to be able to be in a place where we can start, as we said, reinvesting in genome and ensuring that we can continue to translate our leadership that we've enjoyed with 80% of clinical exome coming through GeneDx, having that same sort of market leadership on the rapid whole genome side of things as well.

Speaker 3

Yes. The only other thing I'd add to that is just overall reducing friction on the customer experience and the Epic collaboration is a prime example of that. We've heard loud and clear from in particular, hospital based physicians, that the Epic ordering process, really important to their experience and we want to meet customers where they are in that regard.

Speaker 5

And just to follow-up on that, I assume Epic is sort of a two way street, it's ordering and results delivery?

Speaker 3

Yes.

Speaker 5

Yes. Okay. Thank you very much.

Operator

Our next question will come from the line of Mark Massaro with BTIG.

Speaker 6

Hey guys, congratulations on a solid quarter. When I look at the Q2, I guess this might be for you Kevin, The $69,000,000 of revenue from continuing ops, that's approximately $7,000,000 or $8,000,000 up sequentially. Can you quantify if there was any material contribution from prior period collections?

Speaker 3

Yes. And the way I characterize that is that average reimbursement rate, the $2,800 that we cited is looking at resulted volume in the quarter as a function of revenue. And the calculations there taking a historic look back in order to quantify the rate and we continue to see overall improvements in collection performance visavisa reduction in denials and we've seen that consistently over the past 3 quarters or so. And so those calculations used to derive revenue are continuing to be refined to pick up the improved performance. And so the way you see that is in the uplift in the overall rate there.

Speaker 3

I think the $2,800 or so is a good baseline to assume moving forward as a new baseline from which we'll look to improve in future quarters.

Speaker 6

Okay. And then when I look back the last couple of years and I know that you guys underwent transformation and a management change. But last couple of years you had about 55% of revenue in the second half, obviously 45% in the first half. When I look at your guidance split this year, it's fifty-fifty right down the middle. And that would sort of imply that like Q3 and Q4, if they come in flat with Q2 levels, you're still going to come in above the high end of your guidance.

Speaker 6

So I guess I'm really asking about seasonality and pacing and maybe walk me through how what could happen in Q3 or Q4 that could cause revenue to come in down sequentially from the Q2 level?

Speaker 3

Yes. Maybe one way to think about Mark, is the revised guide still puts us at the low end there, nearly $10,000,000 higher than the previous high end. So we view it as a substantial increase in the guide, which should tell you our relative confidence on the business to continue its momentum. Overall, seasonality, as we've always said, Q4 is typically the strongest of the quarters with Q3 being particularly light given available days for physicians to have appointments. And so certainly don't want to signal any hesitancy with respect to continuing on our growth path.

Speaker 3

We think the guide uplift was meaningful and should be read that way. The 3rd quarter expected to come in a little bit lighter than the second in terms of seasonality and then the 4th quarter on top of that. I'd say all of that within the context of we've wanted to leave room in the guide throughout the year with respect to any decisions we might make on the non exome portion of the portfolio as we continue this effort to rationalize and optimize test offering. And so the guide allows some room to absorb if we make any of those decisions.

Speaker 6

Okay. That's helpful. Then maybe the last question for me. You guys are clearly knocking on the door of profitability and coming in at $2,700,000 adjusted net loss. I think for people listening on the line, I think would you mind just reminding us that your definition of profitability would be to an adjusted net loss of either breakeven or slightly up?

Speaker 6

Or is it some other definition? Because it seems like there is an opportunity to potentially get there sooner than 2025. But maybe just walk me through some of the incremental spending you have in the back half and how we should be thinking about your definition of profitability?

Speaker 3

Yes, the right definition there being like for like with that adjusted net loss of $2,700,000 we posted in the Q2 here. And that's adjusted really to take out non cash items, depreciation, amortization, share based compensation and any non recurring one time item. The second part of your question, Mark?

Speaker 6

Yes. It was on, obviously, if you keep doing what you're doing, you have a chance to get to profitability before 2025. So I'm just trying to think about what type or incremental level of spending do you have contemplated in the second half of this year that because you're call it $3,000,000 away from your goal. So I'm just trying to understand what you have planned for OpEx in the back half of this year that could keep your profitability out to 25

Speaker 3

Yes. Look, I think you're thinking about it the right way. We provided the guide on gross profit of 60% or higher. We outperformed that in the Q2 here with 62%, would expect fairly stable gross margin profile for the remainder of the year. And like I said in my prepared remarks, I think that OpEx has really leveled out.

Speaker 3

And so if the business were to continue on its top line growth trajectory, which we expected to were imminent with respect to the next couple of quarters having one of those hit that point of breakeven.

Speaker 6

Great. Thanks for the time.

Operator

Our next question will come from the line of Dan Brennan with TD Cowen.

Speaker 7

Great. Thanks for the questions. Congrats on the quarter. Maybe just on denial rates, can you just reflect what they were in Q2, Kevin? I didn't hear I know you said you made progress on it, but I know you've talked about still meaningful opportunity to close those.

Speaker 7

And maybe in that context, could you speak to how the progress with state Medicaid coverage plays into that?

Speaker 3

Yes, Dan. Thanks. I think the denial rate, slightly less than 50% of all tests now being denied, with a fairly equal split between the commercial insurance portfolio and Medicaid, but for vastly different reasons on those denials, where we've seen nice reduction in denials. As you can imagine on the Medicaid side is on the heels of the momentum in various states picking up coverage for exome and or whole genome sequencing. What we tend to see is that when a Medicaid program picks up coverage, this fairly clear medical necessity guidelines, administrative guidelines and therefore, predictable behavior with respect to adjudication of claims.

Speaker 3

And so it's a matter of policy becoming effective, working out some initial kinks operationally, but then we tend to see a much lower denial rate and something far more predictable. Within the commercial insurance portfolio, almost the opposite, whereby many payers have some published criteria, but then we're still subject to individual claim adjudication subjectivity with respect to meeting administrative requirements and or medical necessity. And so we're attacking the problem by ensuring that we can retrofit payer specific workflows upfront. Very different experiences, but slightly less than half of all claims being denied at this point, which is significant progress from where we were at this point a year ago.

Speaker 7

And in terms of the 14 Medicaid states we have approval, have you baked in any more expectation for further coverage expansion within your guidance for 2024?

Speaker 3

Where we tend to look at it is to count it once enacted and published publicly. And I think the uncertainty in the way in which states need to take up the issue individually subject to political and other bureaucratic and fiscal means within the state makes it really hard to predict. And so we're not in the business of predicting, which states will come on next, and only incorporating to the guide those states and coverage decisions that we have direct line of sight to.

Speaker 7

Got it. And maybe just staying on that theme, like the biomarker bills, have they had much impact yet? Obviously, there's enthusiasm for what could happen, but just kind of wondering what kind of progress, if any, you've seen from payers kind of starting to pay in those states?

Speaker 2

Yes. We are seeing a direct impact of biomarker bills and then Medicaid coverage coming online and it's the product of patient advocates, our team in market access, policymakers, thought leaders, all coming together to take a look at the problem that these states are facing. And so there is a really nice correlation between it. We see other states where they're going right to Medicaid coverage without a biomarker bill, but there is a correlation including recently here in Connecticut.

Speaker 7

Got it. And maybe one more just on whole genome since you kind of seem to be an increasing focus now. Just can you remind us like how big is whole genome today for you within that genome exome split? And to the extent genome does really pick up here, what kind of impact could it have on your business from a revenue margin standpoint?

Speaker 2

So no impact on our 2024. The percentage, we have not broken it down between Exome and Genome. It's a small, small percentage though in terms of the business. Small but growing rapidly, right? So as we think about 2025, I think that's where we expect to see that it will really be a greater focus way of volumes, by way of revenues, and we'll put some thought into gross margins as well on that.

Speaker 7

Great. Okay. Thank you. Congrats. And then one

Speaker 2

thing to note, Dan, one thing to note is Texas actually, their Medicaid actually skipped exome and went directly to Genome. And I think that that's really an important flag that they're planting. We're not going to be moving forward in a genome world if it's not going to be reimbursed. And so making sure that we continue to tie back our strategy to ensuring our services get paid for is something we're going to continue to have a lot of discipline on. But I think that that's a really interesting one to take a look at and we'll keep our eyes open to see if other states might also think about leapfrogging over exome straight to genome.

Speaker 2

Yes.

Speaker 3

And the pivot there is more to say, we'll be ready for that, right. If you go back to January 2023, we changed the name of the company to GeneDx and intentionally picked our ticker symbol as WGS, knowing there was a day where we'd be leaving towards an exome and genome only backbone.

Speaker 7

Great. Sounds good. Thanks, Kevin. Thanks, Haeffer.

Operator

Our next question will come from the line of Matt Sykes with Goldman Sachs.

Speaker 8

Hey, good afternoon. Hey, Catherine. Hey, Kevin. Thanks for taking my questions. Congrats on the quarter.

Speaker 8

Kevin, if you could just start out, you made some comments about reducing cost per test. You made great progress there. Is there any way you can kind of help quantify what those changes in cost per test have been historically or maybe on a quarterly basis? Just to give us some context what progress you've made?

Speaker 3

Yes, maybe one way to think about it is, if you go back to this quarter 2021 is when Catherine joined the company. And I think it's fair to say we nearly halved the cost per test on exome in that period of time, predominantly coming from wet lab process improvements, fairly modest impact, but appreciative of some lower input cost from manufacturers, but much of those improvements coming in the form of automation and process improvements that we were able to introduce into the laboratory. Certainly, we're seeing the benefit of scale with more volume, comes some scalability and efficiency gains on a cost per test basis. We've made good progress in reducing dry side costs, that being analysis, interpretation, abstract and report writing. But those processes are still fairly manual and we have a large dedicated differentiated team there.

Speaker 3

But that's where we see major opportunity in the next year to 3 years in further reducing costs as we scale to be able to further deliver margin expansion via cost per test reduction.

Speaker 8

Got it. And then just on the cash burn guide, which you brought down, I'm just trying to square those comments that guidance change with the comments you made about leaning into investments. So I'm just wondering where that cost savings is coming from. I don't know if it's legacy test portfolio and supporting those tests or other areas, but maybe just help me square the leaning into investments with the continual reduction in cash burn that you've shown?

Speaker 3

Yes, a few different areas to think about there. Certainly, exome cost per test, like we spoke about, we've been able to drive meaningful margin expansion both from COGS reductions, but as well as increased average reimbursement rate, therefore, expanding gross profit. I'd say ancillary to improvements we've made focused on exome, we are seeing improved gross margin on the non exome tests that remain. We've gone through a fairly extensive exercise over the past year to retire tests that were lower value clinically to physicians and patients, but also drags on gross margin. We've retired those tests.

Speaker 3

The bulk of the other panel line that you'll see in our volume split in the release is chromosomal microarray. And that test along with the hereditary cancer line, we've been able to expand gross margins nicely over the last year. I'd say, those were somewhat a byproduct of the improvements we've made throughout processes to benefit exome and genome. But nonetheless, we're seeing good margin expansion in those test offerings. From an OpEx standpoint, we've really built muscle memory throughout this organization to find ways to get more efficient, to look at process, to use technology and we're going to continue to do that.

Speaker 3

So do expect that in the coming quarters that adjusted net loss or net income will pretty closely conform to our cash flow on a quarterly basis. I did call out of course 2 large lumpy items. December will be $10,000,000 for the payer settlements that Sema4 signed in 2022 and then potentially making that $13,000,000 net payment on the litigation settlement. So that might help bridge the cash burn guide to our current run rate on adjusted net loss.

Speaker 8

Got it. And if I can just ask one more, Catherine, just following up on one of Dan's questions. Do you believe that sort of what you guys have achieved so far in whole exome and sort of the growing acceptance from payers plus the biomarker bills. Do you think that's a fair assumption to assume that when acceptance for whole genome, we get closer to that, that mix shift could actually progress even more rapidly than what you've done with whole exome because exome has kind of paved the way. I mean, you mentioned the example with Texas skipping over exome to go to genome.

Speaker 8

I'm just wondering what your thoughts are in the future of the pace of whole genome acceptance, going forward relative to what you experienced in whole exome?

Speaker 2

Yes. I think, as I said, that Texas flag that they've planted, I think was really encouraging to us in terms of where this market is going. We have debates routinely about is it exome, is it genome and making sure that providers are ready to order the tests that we're offering. So I do think that an important element of it is most definitely the policy to support payment for it. There's still a lot of education that we need to do on exome and genome more broadly in terms of the benefits by way of faster turnaround times, more comprehensive answers.

Speaker 2

So there's still, I would say, an important, educational mission that we have to continue to drive in order to realize the opportunity for exome and genome. But I do think that once payers and policymakers start lining up behind the technology that we will see a faster clip of adoption there. So all really important in terms of being able to lay the groundwork for us. We're fortunate, as I said, 80% of exomes come through GeneDx and we have we are making ourselves synonymous, not just with exome, but with genome. And so we intend to be that market leader, regardless of whether a provider or a payer wants to be covering exome or genome, we will be the leader in either one of those cases.

Speaker 7

Got it.

Speaker 8

Thank you very much.

Operator

That concludes today's question and answer session. I'd like to turn the call back to Kathryn Stuland for closing remarks.

Speaker 2

Thank you so much. We appreciate everyone joining today and look forward to seeing you hopefully in the near future at a conference. So have a good, safe rest of your summer. Thank you.

Operator

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

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Key Takeaways

  • Revenue of $68.9 M in Q2 grew 52% YoY and 12% sequentially, prompting a full-year guidance raise to $255 M–$265 M.
  • Exome and genome tests comprised 74% of revenue, with those segments up 77% YoY and gross margin expanding to 62%.
  • Achieved ninth consecutive quarter of cash burn reduction, cutting net cash burn 89% YoY to $6.1 M in Q2.
  • Announced a partnership with Epic and new genome sequencing enhancements—faster turnaround, broader sample types and higher diagnostic yields—to drive future growth.
  • GAAP net loss includes a one-time $13 M litigation charge; however, adjusted net loss narrowed 93% YoY to $2.7 M, with profitability expected in 2025.
AI Generated. May Contain Errors.
Earnings Conference Call
GeneDx Q2 2024
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