Neogenomics Inc (NEO) 2021 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the NeoGenomics Second Quarter 2021 Earnings Call. (Operator Instructions) It is now my pleasure to turn the floor over to your host, CEO, Mark Mallon. Sir, the floor is yours.

Thanks, Kate, and good morning, everyone. I'd like to welcome you all to NeoGenomics' 2021 Second Quarter Conference Call. Joining me for this call from our Fort Myers headquarters are Kathryn McKenzie, our Chief Financial Officer; George Cardoza, President and Chief Operating Officer of our Lab Operations; Bill Bonello, President of our Informatics Division; and Doug Brown, our Chief Strategy and Corporate Development Officer. Joining on the call via phone from California is Dr. Gina Wallar, President of our Pharma Services Division; and via phone from the United Kingdom is President of Inivata, Dr. Clive Morris. Before we begin our prepared remarks, Doug will read the standard language about forward-looking statements. Doug?

Good morning. This conference call may contain forward-looking statements, which represent our current expectations and beliefs about our operations, 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 statements. 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.

Before turning the call back to Mark, 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. (Operator Instructions)

Thanks, Doug. So we are really pleased to announce strong quarter 2 results highlighted by 40% annual revenue growth to $122 million for the quarter. All 3 of our divisions grew significantly over a depressed Q2 from a year ago. And importantly, we grew our core revenues 7% sequentially over Q1 of this year. I'm especially pleased to note that our strategic growth areas of Pharma Services, informatics and NGS testing and Clinical Services were strong contributors in the quarter and these growth areas now account for greater than 1/3 of our total company revenue. Clinical revenues of $101 million represented 37% year-over-year growth and our clinical business experienced a noticeable recovery versus quarter 1. And this number included no contribution from COVID-19 PCR testing revenue.

On a sequential basis, our core clinical cancer volume increased 8% with a record 281,000 clinical tests performed in the quarter.

While the quarter 2 recovery in volume is encouraging and strong volumes have continued into Q3, we are monitoring a few market-related factors that may impact continued volume uptake in the back half of the year. We have anticipated that our sales team would have full access to their customers by quarter 3, but that remains to be seen in certain territories. We believe that much of this can be attributed to the recent spike in COVID-19 cases driven by the Delta variant. Additionally, market data shows that many patients are still not going in for critical screening appointments, and key cancers continue to be underdiagnosed. We believe our strong sequential volume growth in quarter 2 is evidence that our clinical business will benefit as reopening of offices continues even if at a slower rate in some parts of the country.

Our Pharma Services business continued to shine during the quarter, putting up record revenues of over $20 million with year-over-year growth of 55%. Demand was also robust during the quarter as more than $40 million in new bookings drove signed contract backlog to a record $238 million exiting the quarter. This backlog gives us confidence that as we exit 2021, our pharma segment will be approaching $100 million in revenue on a run rate basis, up from just $20 million annually a few years ago. It's also worth noting that our Pharma Services business continues to migrate up the value chain of our biopharma customers as we are winning a larger percentage of Phase II and Phase III opportunities. These larger contract awards demonstrate the strong confidence our customers have in Neo, awarding some of their most important drug development projects to our pharma services team.

Our informatics capabilities, which improves the ability of biopharma companies to identify patients for clinical trials and provide these clients with commercial analytics to support product launches, continue to be in high demand. Informatics is the fastest growing of our 3 operating divisions, and the team continues to make strong progress. While still relatively small, this business posted record revenues again in quarter 2. And you'll hear more from Informatics Division President, Bill Bonello, later in our prepared remarks.

During the quarter, our team also successfully closed on 2 important acquisitions. We are excited about the addition of Trapelo Health and Inivata into NeoGenomics. And while it's still very early days, we can already see multiple opportunities to drive growth and support our overall strategy of bringing innovation to the community oncology market.

Trapelo Health closed in April, and the acquisition is now fully integrated as a subsidiary of our Informatics division. You'll hear more about Trapelo in the informatics update later in the call.

Inivata closed in June, and our integration activities are well underway. We plan to leverage the advantage of NeoGenomics' strategic position in commercializing our residual disease and recurrence assay or RaDaR with a multipronged strategy for success. As we've discussed, our first priority is ensuring rapid submission of RaDaR to MolDX. I've reviewed the plans and progress of the team, and we remain on track for a submission around the turn of the new year assuming a typical review period will be able to launch into the clinical market in the middle of next year.

Since we have acquired Inivata, we've accelerated the acquisition in retrospect testing of multiple cohorts of samples in multiple tumor types to support the initial MolDX submission and launch in future areas.

Another priority is to gain biopharma support for RaDaR. Our Pharma Services team is now fully engaged in supporting Inivata in pulling through a large and growing portfolio of pharma opportunities. There's been a clear recognition by biopharma teams of the companies of the leading sensitivity and specificity of the RaDaR assay. We expect to leverage our strong relationships with nearly 200 biopharma companies to generate revenue and aid in building evidence -- an evidence base for treating minimal residual disease with RaDaR.

MRD testing will play an important role in the development of therapies, particularly in places like the neoadjuvant setting as well as of course, in recurrence monitoring. Studies in the adjuvant setting are one example of how MRD, RaDaR specifically, can be used to transform drug development and could be an opportunity for quick successes. Today, approximately 70% of patients with early stage cancer are cured by their initial treatment. However, it's difficult to know which patients and as a consequence, patient enrollment into adjuvant clinical studies includes large numbers who do not have residual cancer. By utilizing a test like RaDaR to facilitate more effective trial enrollment, pharma sponsors can help healthy patients avoid unnecessary treatment, reduce trial enrollment sizes, improve the quality of readouts from the trial and reduce costs along the way. We believe biopharma adoption will be an important part of success in the clinical market.

And we will utilize the relationships and oncology expertise of our base clinical sales team, who've been calling on our key clients for an average of 6 years or more. We have recently built out an additional precision medicine managers team to focus on driving the next-generation sequencing and liquid biopsy adoption. This team will be in place well ahead of our planned RaDaR launch and will be tasked with helping drive uptake.

Also earlier this year, we struck an important commercial arrangement with leading breast cancer oncology testing company, Agendia, to co-commercialize RaDaR with breast cancer-focused physicians upon launch. We view the partnership with Agendia and their growing U.S. sales force of over 40 breast cancer specialists as a focused way to gain more feet on the street selling RaDaR at a reasonable cost. We've already received multiple inquiries from other companies who have sales teams of a similar size and reach that are focused on various other cancer types, and we're actively evaluating these opportunities.

We believe that RaDaR's best-in-class published analytic sensitivity of 97% at 20 parts per million of circulating tumor DNA or 0.002% variant allele frequency is a true differentiator. This elite level of sensitivity at such low concentration allows RaDaR to make calls other assets fundamentally may not be sensitive enough to make. We believe these other potential partners are recognizing the assays differentiation as well.

Finally, we believe that Trapelo's clinical decision support software can be a technological multiplier for our sales efforts as the platform is adopted and additional clinical evidence is published for minimal residual disease testing and treatment.

Fast reimbursement, comprehensive evidence generation, success with biopharma customers targeted disease opportunities where quick wins are possible and a multichannel approach to selling will be the success factors to make RaDaR leader in the MRD market, and we are rapidly working on each.

Overall, I'm proud of our team's quarter 2 performance in my first quarter as CEO of NeoGenomics and excited about the early progress from our 2 recent acquisitions. From a big picture perspective, I've been very impressed by several strengths of Neo in my first 100 days on the job. First, it's just how comprehensive our oncology platform at NeoGenomics truly is. As I have dug in, I see how our broad portfolio of services provides a value proposition to all the constituents of the oncology ecosystem, providers, farmers, payers and of course, patients. Our portfolio of multi-modality solutions is comprised of hundreds of assays that provide time-sensitive biomarker-specific answers for oncologists, pathologists, research scientists and pharma trial teams. Our customized targeted panels allow us to provide the right information at the right time for providers to patients at the right price for our direct bill and third-party payers. And that broad-based menu that differentiates in clinical is also great value to our biopharma customers and is a real driver of growth for us.

As we test nearly 0.5 million patients per year, the value of the data and related informatic capabilities are gathering -- we are gathering only continues to snowball every day. Critically, these strengths have translated into leadership in 3 key franchises. We are the clear leader in diagnosis of hematologic cancers, with an especially strong position and have strong franchises in both breast and lung segments where we run more than 100,000 tests annually in each. These are real platforms for growth today and in the future.

I must say that I've been equally impressed by our culture as I've now had the pleasure of meeting hundreds of my fellow teammates at NeoGenomics. And it's this truly a feeling of patient-first mentality at all levels in the organization. As I have visited many of our facilities, it's obvious that our lab employees are dedicated to patient service. This consistent dedication has translated into industry-leading turnaround times in many of our test modalities, and is also reflected in both our strong Net Promoter Scores and an extremely high customer retention rate.

And I know we can do much more. We believe that the commercialization of the RaDaR assay can help transform the cancer care paradigm for millions of patients in need of cancer recurrence monitoring. We see opportunity to drive broad adoption of a leading clinical decision software for our oncology customers to help them navigate appropriate testing for the patients from both a technology and cost benefit perspective. And while we are the leader in the U.S. oncology market, I see so much more opportunity outside the U.S. as we look to further globalize our offering.

We have multiple facilities around the world that have ample capacity to scale, and we have ongoing discussions with various biopharma companies regarding our ability to further support them globally. Along with these organic growth opportunities right in front of us, we also have corporate development and inorganic growth opportunities that we have no intention of slowing down on. We are strategically well positioned and are well capitalized for further deal making as we look to keep pace with the constantly changing and highly competitive marketplace in oncology.

When I put it all together, I see a very well positioned, very well-diversified player in one of the most attractive end markets in the world. And I believe all the opportunity in front of us puts us in a position to accelerate our historical mid-teens top line growth rate over time, which will enhance our margins as well as we fill up our laboratories and continue to implement efficiencies. As you can tell, I am very excited to be part of NeoGenomics, and I could not be more optimistic about the future of our company.

I'll now turn the call over to Kathryn McKenzie to discuss some of the other details of our quarter 2 financial results.

Thank you, Mark. Second quarter Clinical Division revenue grew 37% year-over-year, driven by a strong bounce back in clinical volume compared to the depressed volumes during the initial wave of the pandemic during the second quarter from 1 year ago. As a reminder, we made the decision to wind down our COVID-19 PCR testing capabilities in quarter 1, and we had no contribution from COVID-19 testing in quarter 2 compared to $2 million in the same period last year.

Clinical Division revenue per test was $360 in quarter 2 compared to $362 for the full year of 2020 and $351 in quarter 2 of 2019.

Pharma Services revenue grew 55% year-over-year, growing -- continuing its rapid growth trajectory. Demand continues to be very strong, and we signed over $40 million in new bookings, exiting the quarter with a record $238 million in backlog. Our total gross margins of 43.5% in quarter 2 included amortization of intangible assets related to developed technology acquired through the Inivata acquisition.

Excluding the amortization of these acquired intangible assets, our gross margins improved to 44.1% in quarter 2, driven by efficiencies on increased volume in clinical and higher revenue in our Pharma Services division. More consistent sample volumes allow for more predictable staffing levels, and we were able to see more normalized leverage on our largely fixed cost COGS infrastructure.

Gross profit increased $11 million sequentially on only $6 million of revenue growth. Compared with a year ago, gross profit increased $25 million on a $35 million revenue increase. These levels of incremental gross profit provide confidence that gross margins can improve as we continue to grow, and we believe that over a series of quarters, we should be back to previously achieved gross margins approaching 50%. However, we continue to see the same temporary labor and supply chain constraints that the rest of the country is experiencing. And these capacity-constrained challenges combined with high demand, are continuing to affect service levels and cost per test.

Operating expenses increased $28 million year-over-year to $75 million, primarily driven by onetime acquisition-related costs, expense contributions from the recent acquisitions of Inivata and Trapelo, increased commercial costs on higher revenues and additional investments to support growth. Concurrent with the completion of the Inivata acquisition, we recorded a gain of $97 million within other income related to our prior minority investment in Inivata. This gain represents the amount by which the fair value of the company's minority investment in Inivata immediately prior to the acquisition, exceeded the carrying value of its previously held equity interest and purchase options.

Adjusted EBITDA of $4.6 million in Q2 reflects improvement in our core cancer business offset by expense contribution from the recent acquisitions of Inivata and Trapelo and higher payroll, increased commercial costs and other certain personnel-related expenses.

Turning to the balance sheet. We exited quarter 2 with $572 million in cash and marketable securities, which excludes an additional $4 million in restricted cash designated for construction of our new state-of-the-art laboratory and global headquarters in Fort Myers, Florida. During the quarter, we utilized $390 million in cash to exercise our purchase option to acquire the remaining unowned equity in Inivata, and raised gross proceeds of $200 million in a related strategic private equity transaction. We also utilized $36 million in cash for the acquisition of Trapelo Health, which was announced in March and closed in April. We are maintaining our previously provided annual revenue and adjusted EBITDA guidance based on strong second quarter.

I will now turn the call back over to Mark.

Thanks, Kathryn. As we've done in previous quarters, we'd like to dedicate some time on this call to providing our investors with a progress update on one of the most exciting areas of our business. For this quarter's call, I've asked the President of our Informatics Division, Bill Bonello, to discuss the exciting projects he and his team have been working on. I'll turn the call over to Bill now. Bill?

Thanks, Mark. It's great to be able to speak about our informatics initiatives. The Informatics division is building data and technology solutions to improve patient care and drive growth. In 2 short years, we've grown from a standing start to a team of nearly 60 people and are progressing nicely towards our longer-term goal of establishing a $100 million business.

In our core Informatics business, we provide products and services to life science companies to support clinical and commercial analytics, clinical trials and digital pathology. Over the past 2 years, we have engaged in over 59 contracted projects with 26 different companies, and we have nearly 100 unique projects in our pipeline.

We are engaged with many of the largest global pharmaceutical companies, often for multiple projects as well as several leading contract research organizations. I'd like to highlight just a few of our current projects to give you a better sense of the type of work that we're doing.

In one case, we helped support the commercial launch of a non-small cell lung cancer therapy by analyzing biomarker testing patterns among both oncologists and pathologists. We used this information to identify potential sites for a Phase II clinical trial as well as to identify gaps in testing. We also constructed patient cohorts to identify individuals that might benefit from the therapy or need follow-up biomarker testing, and shared this information with treating physicians within 48 hours of FDA approval.

Finally, we implemented a sponsor testing program to alleviate patient financial burden.

We have several other projects where we're identifying patients that might be candidates for a specific clinical trial, proactively following up with the treating physicians and facilitating enrollment. We also have several other projects where we have identified gaps in biomarker testing to support commercial initiatives.

Another area where we have engagement is around digital pathology and image analysis. We are engaged with several companies to provide annotated digital images, in some instances, supported by our own proprietary machine learning algorithms.

We're also very excited about Trapelo Health, which we acquired in March of this year. Trapelo Health is a precision oncology company focused on clinical decision support for both test and therapy selection as well as streamline prior authorization for both testing and treatment. This comprehensive order to result perspective differentiates Trapelo from any other clinical decision support tool on the market.

As we all know, for precision medicine to work, patients must be tested for the appropriate biomarkers in order to even know that they're a candidate for a therapy or clinical trial. On the front end, Trapelo identifies which biomarker should be ordered for a specific patient and which specific lab tests include those biomarkers. The product is designed to be lab agnostic, enabling providers and payers to designate their own preferred laboratory networks.

Real-world data underscores just how important this biomarker guidance is. We know that up to 35% of patients with non-small cell lung cancer have actionable genetic mutations and up to 55% of patients with metastatic non-small cell lung cancer patients have clinically relevant mutations. Nevertheless, less than 25% of non-small cell lung cancer patients received testing for all 4 of the most common biomarkers, and just 7% of patients received testing for all 7 genes that are included in clinical guidelines. And that's just one example.

On the back end, Trapelo identifies which therapies in clinical trials may be appropriate for an individual patient based on the test results and other clinical information. This guidance is also critical in ensuring the highest quality patient care. About 80% of treatment occurs in the community, and most of those oncologists are seeing a very broad range of cancers, making it next to impossible to keep up with most current science and the guidelines. Also, guidelines alone can change at a pretty rapid clip. Sometimes a guideline for a specific cancer can change as many as 6x over the course of the year.

All of the recommendations for both testing and treatment are supported by scientific evidence, which has been collected and curated into a proprietary knowledge base, which is supported by our own team of PhD curation specialists.

While it's still early days, client response has been overwhelmingly positive. And we are in active discussions with a large number of provider organizations, payers and electronic medical record companies. We will also be integrating the testing portion of clinical decision support into our NeoGenomics online order process, and hope to have that product available to select clients in the fourth quarter of this year.

Now I will turn the call back over to Mark for some closing remarks.

Thanks, Bill. So in summary, I believe our Q2 results have confirmed that our strategy is working and will ensure value creation for shareholders and patients. We achieved 40% growth driven by record test volumes in our Clinical Services Division and grew gross profit ahead of revenue. Fully 1/3 of our business now comes from our growth drivers of Pharma Services, Informatics and NGS testing. We are positioned to drive more growth through the launch of 2 potentially transformative innovations to cancer testing with the acquisitions of Trapelo and Inivata with the RaDaR MRD test.

We remain laser-focused on transforming the lives of cancer patients by being the leading cancer testing and information company. Doug, do you want to take us through Q&A.

Thanks, everybody. (Operator Instructions) Operator, you may now open up the call for questions.

(Operator Instructions) And our first question today is coming from David Westenberg at Guggenheim.

Everyone can hear me okay, right? I had a mute issue earlier.

Yes.

Okay. Perfect. Okay. So good quarter, and nobody's raising guidance because nobody knows what's going on with patient volumes and I guess the Delta variant. But when we ask about July, people say they're coming in, we just can't detail the sales force. So I don't mean to be overly pointed here, but how genuine is the -- this concern in the back half of the year in terms of patient volumes? And how should we model cadence of volumes for the rest of the year given this kind of dynamic. And if you can walk through kind of the genuine Delta case, the genuine I can't detail -- the sales force can't detail kind of case and the puts and takes with that? And since my question is complicated, I'll just stop with that one question and get to next people in the queue.

Thanks, David. Yes. So unfortunately, the evidence of an impact on sort of access to active offices is real. We've been getting examples from pretty much across the country of hospitals that had been open to sales representatives closing. And what I think certainly, it's causing us to have a -- take it seriously is that a number of these are in places that hadn't closed before.

So particularly, we're seeing reduced access in places like Florida and Texas where I think you know that we're actually -- these places have set records above even the previous records for COVID cases. So on the positive side, our sales team has been working both with customers directly face-to-face, but also virtually. So we've built up a lot of capability in this area, and they are super passionate about continuing to make a difference for cancer patients. So we're going to be working hard to keep driving the volume. We have good momentum coming out of the second quarter. But I think it's really too early to say what's going to happen. And we know the spike is occurring and it is causing changes in practices in multiple institutions around the country. The question is how long will this last. And I don't think we can really give you any more guidance than that. Did I answer your question?

Sorry. I did want to get the cadence. Should we model them down Q3 and then maybe move up Q4? Just a clarification there.

Go ahead, Kathryn.

Yes. So I definitely -- based on what we're seeing with the spike in COVID cases and the access that would be a good assumption on how I would expect it to come through. Again, it's unknown as to what the impact will be in Q4 at this point, but I would expect a softer Q3 compared to Q4 as we get our handle on this.

Thanks, Kathryn.

Our next question today is coming from Brian Weinstein at William Blair.

Talk a little bit about the Pharma Services side. You talked about kind of moving into Phase II, Phase III trials here. I'm just curious about what that means in terms of size of deal that, that brings on and the opportunity there. And then as you think about the broader Pharma Services side, you highlighted ways that you're winning. But could you be a little bit more specific on when you win, why you win and where there are maybe some gaps where competitively, you continue to need to fill things out in order to be even more effective there.

So I'll say a word or 2 about the shift upstream with farmer companies. And then I'm going to ask Gina to talk about what are the reasons why we win when we win. And you can expand on the first part of the question as well.

So moving into the Phase II, Phase III work, first of all, I think it's logical for 2 reasons. One, we've had tremendous success in some of the earlier phase work over the last couple of years. And we've built really strong relationships with multiple companies. And so it would only natural as projects progress into later stage that they want to continue to work with a company that they're having great success on.

I think the other thing that supports moving in a later stage is we really have significant capacity and capabilities, right? As these studies -- the bigger studies, they want to work with the organizations they know can deliver, and I think we've shown the way to do that.

It's very exciting for us because once you line have acquired the business for a Phase II or Phase III program, they can be quite large, and that can secure the test revenue for a good number of quarters. Now of course, the time to set those studies up can take a little bit longer. So we have to -- we're going to continue to watch and see how our pull-through goes. But overall, we're super excited about this because it really represents incremental business in some of the most important work that our customers are doing. Gina, do you want to talk about why we're winning?

Sure. Thanks, Mark. In terms of the shift from research/Phase I, Phase II trials to Phase III, one of the large contributing factors to that is our global capabilities. With the opening of our site in Europe and Singapore and now China, this provides a global solution to our pharma company's needs. And so therefore, we are at the table for those Phase III discussions.

And when it comes to providing full services in oncology, I think we win across the board in terms of that global solution. Key areas that we have identified include being able to provide companion diagnostic services ex U.S. We provide a holistic and terrific service within the U.S., and we seek to bring that ex U.S. because that is what our clients are looking for. I think -- did that address your question?

Yes, it does. I appreciate it.

Our next question today is coming from Alex Nowak at Craig-Hallum Capital Group.

The company last quarter spoke to a number of investments the team is making on the RaDaR assay to get it ready for prime time. But I'd say, at the same time, the 2 main competitors out there, they're spending very large amounts of money getting their respective assets ready. Can you maybe expand on the competitive environment now, now that you've had some more time within Inivata under the hood. And then what additional investments Neo's really going to need to make to get the test rate for a clinical launch next year?

Sure. Let me say a couple of words about how I'm thinking about it, but then I would like Clive to talk a little bit more about specifically what we're doing to get ready. So I think the first thing I was looking at when you're thinking about launching a new technology is the profile of the product, and Clive can comment a little bit on this. But as I've come in and really seeing the data that we -- that's been published and what we're developing internally, I'm very confident that this assay is as good or better. And our ability to really detect at very low levels sort of cancer before the current recurring from a visual perspective is outstanding. And that's going to give us a strong base on what I think is going to be the key dimension of competition.

In terms of the investments and the companies are making investments both in evidence generation as well as in having sales forces, those are a surprise. These companies are starting from a position where they don't have large customer bases, large initial volume and long history in oncology. And conversely, Neo has all of those. We have a customer base of over 4,000 customers. We're doing 1 million tests a year on 0.5 million patients, and we've got experienced sales team now over up to 60 salespeople. We've got a big customer service group. We have over 100 pathologists. We have really an incredible infrastructure and a starting point as we move into it. Now absolutely, we're going to have dedicated additional resources and we're defining what that's going to be, and we'll have those in place for launch middle of next year. I'll pause there and let Clive maybe say a few more about the profile, remind us about why we're so excited about the profile of the product and how he's thinking about competing in the marketplace. Clive?

Yes. Thanks, Mark, and thanks for the question. Yes, completely, obviously, endorse everything that Mark just said. I think the sensitivity and specificity we see of the assay, we know is absolutely critical for these early stage cancer patients who've already undergone treatment and then you're detecting microscopic disease effectively. And therefore, the blood traces of DNA are very low, and we believe that the RaDaR assay has a fantastic compelling profile to win in that space. But you sort of working on a range of different aspects. You talked about evidence generation and sort of getting ready for clinical launch. So with a number of clinical cohorts that we're exploring across a range of tumor types. As Mark mentioned, we're looking for submission for initial reimbursements around the turn of the year. With then leading to launch with a reimbursed test towards the middle of next year.

But overall, we see many sort of potential sort of different indications we could approach with an asset like RaDaR, and we're building that evidence using a mix of either ongoing or archival study cohorts where we can access them. But increasingly also seeing sort of prospective studies, which, of course, may be more practice changing in the long term but take a while longer to bring through. So we'll start that with more observational data getting into interventional into prospective, and ultimately, they will obviously drive the long-term outcomes here. And we've seen those prospective studies with academic collaborators, with cooperative group collaborators and indeed with biopharma, as Mark mentioned. So we're building that stable.

So as I say, overall, we believe the market is right at the beginning of the evolution of this sort of clinical testing market. It'll continue to grow, I think. And we'll see, I expect sort of additional sort of tests and indications being reimbursed. As I'm sure you're aware, today, there is a colorectal cancer coverage for Natera. There is a pan-cancer coverage more generic LCD from the MolDX group that we and others will also look at using. So I would expect to see sort of increasing indications building over time. And as Mark said, we aim to be partaking within that.

Alongside the evidence generation, of course, there's a lot more that needs to go into a successful launch from the key opinion leader development, thinking through physician education. How do you think about, of course, then through into sales and marketing. And we're in the process of planning those out in more detail commensurate with the launch timings Mark mentioned. I hope that answers the question.

Our next question today is coming from Mark Massaro at BTIG.

I guess if I can ask a 2-parter. The first is curious if you're seeing any increased adoption of the InVisionFirst-Lung test? And then I wanted to ask Bill Bonello. There has been several interesting digital pathology, machine learning, AI-type companies, raising some money this year and within the last 12 to 18 months or so. Have you had a chance to evaluate your internal initiatives relative to some of the other leading platforms in the industry? And I guess, maybe, Bill, can you remind us how long you've been developing your algorithm and how you think it's differentiated relative to others in the field?

Okay. Let me take the update on InVisionFirst-Lung. It's one of the things I've been looking at that closely. So we've seen steady growth from the beginning of the year, and so that's good. But we want to do better. And so we're definitely taking a couple of steps as I counted the team to see what we can do to accelerate growth in InVision-Lung (sic) [InVisionFirst-Lung] This will be the #1 focus of the new precision managers medicine team -- the precision team of 10 sales representatives that will be focusing on oncologists. This is in addition to the 50 that are already supporting the product. These people come from a very clear background of working in oncology, selling the most advanced tests. So excited about that.

We're also adding a couple of dedicated resources in our customer service team to expedite reimbursement. And also to focus on where we have opportunities to reflect from solid tissue test over to InVision-Lung (sic) InVisionFirst-Lung and really do a much better job with that.

Importantly, we're really going forward with a new positioning of talks about patients first as our approach in the lung cancer space. Fully 60% of patients -- lung cancer patients really are eligible under the current LCD for InVisionFirst-Lung, and it's the best choice for these patients. And we're going to be really emphasizing that. These are patients really, it's medically contraindicated to do biopsy. The physicians are clear that probably won't be able to get enough of the tissue, and we can go right to InVisionFirst-Lung which is a great profile. So I think with a really stepped up effort clearer messaging, further investment in resources, we can take what is a growing test and make it into an even faster-growing test. So we'll be putting a big emphasis on the second half of the year. Bill, do you want to take the second part?

Sure. Thanks a lot for the question, Mark. We're -- we know most, if not all, of the companies that you're referring to. And in many instances, we're actually working with those companies in various ways. I would say that the kinds of algorithm work that we would be doing in our projects are fairly basic. Things that make the R&D work easier for pharma customers who are using digital images to do their research. So that may be things like slide circling tumor calculation, histology detection, et cetera.

The distinction I would make from some of those other companies and what we're doing, we are not currently working at all on any kind of a clinical assay. That is not within scope of what we're trying to do. It doesn't mean that it couldn't be in scope of what we try and do at some point in the future. But we would need significantly enhanced resources and capabilities to be able to do that.

I would say the one thing that we have that differentiates us from many of the other players is we probably process more digital images in a year than anybody else the marketplace. And we have dozens and dozens of pathologists that can help with training and evaluation and validation of algorithms as they're created. And hence, one of the reasons that many of those companies want to work with us as do many of the pharmaceutical companies. So hopefully, that gives you some sense of where we're at.

Thanks, Bill. Did I answer your question, Mark?

Yes, that was great.

Our next question today is coming from Tejas Savant at Morgan Stanley.

So just a couple of quick follow-ups on Inivata and then I have a separate question for Kathryn. So on Inivata, Clive, do you envision different versions of RaDaR for the recurrence detection versus response monitoring indications? And secondly, in your mind, how important is FDA approval for broader adoption of MRD as a modality, in general?

And then for Kathryn, can you just give us an update on when you expect the Fort Myers lab to be fully operational? And any color on OpEx cadence you're heading into the back half of the year?

So Clive, do you want to take the first part. And actually, since we've got George Cardoza here who's responsible for our lab operations, I'm going to have him give you an update on Fort Myers, if that's okay.

Sure.

Clive?

Sure. Certainly, Mark Yes. The beauty of an assay like RaDaR is it's completely suitable for both the residual disease detection following surgery and then the ongoing monitoring potentially for the recurrent disease. So we create the assay highly sensitive. We're tracking a high number of variants. So we're looking at 48 known variants per patient with great sensitivity, which means even if there are changes in the landscape, the genomic landscape of the patients. the majority but all of those will be conserved and we then have a very good detection rate. And the early data we've presented in breast and lung cancers show that actually we can detect the recurrence many months earlier than actually using conventional mechanisms. So we can use the same test really for both of them is the short answer to the first question.

In terms of FDA, the assay has been built with a view to moving through the sort of as an LDT initially and then with a view to the future FDA. As we've already said, we have an FDA breakthrough device designation already, and we're discussing with pharma. And I think certainly, early on, I think, to working with pharma. I think that FDA approvability and access is key because clearly, the drugs that are tested, these become the companion diagnostics for those therapeutics in the future. So we want to make sure we're ready to be performing the regulatory clinical trials with pharma partners under full regulatory scrutiny and oversight. And then, of course, as those trials read out, hopefully positive, then of course, we're then naturally partnering with the pharma company to run those through as a companion diagnostics.

Ultimately, of course, then as they are approved, that then further reinforces the clinical use of LDT and guidelines and everything else and eventual testing. So that will continue to drive the uptake of such testing long term. So we see that FDA readiness and eventual FDA approval as a key part for the -- certainly, the short-term biopharma and the long-term clinical adoption.

Thanks, Clive. George.

George, do you want to take the other?

Sure. Yes. No. I drive by the Fort Myers headquarters every day, and it's looking really nice. It's come so far, and it really looks beautiful. And I think the team is very excited. There's 2 buildings, the admin building, which will be the corporate headquarters. That's obviously the easier one to move, and that move will happen fairly soon. The laboratory though, is open right now. We have techs in the laboratory doing equipment validations, doing testing validations. Obviously, all of these tests have to be revalidated in the new facility, which does take a bit of time. But the team's certainly working hard. And our expectations right now are in the fourth quarter that we will be open, and we will be testing in the new laboratory facility.

So the team is very excited. And also just in terms of the capacity and the ability for us to streamline some of our workflows, our Fort Myers facility is a bit dated, and we are fairly cramped in that facility. So we're very excited to get over into an open concept laboratory, which I think is going to allow some efficiencies and the really ability to scale our growth over time. So the team's extremely excited about the new facility.

Got it. And Kathryn on OpEx?

Go ahead, Kathryn. Could you repeat the question?

Yes, can you repeat the question on OpEx?

Just wanted to get your views on OpEx cadence heading into the back half of the year. I mean, anything particularly noteworthy 3Q versus 4Q?

No. Consistent with what we said before. We're seeing some pressure and some capacity constraints that could be impacted in the third quarter and fourth quarter related to COVID, but there's no significant other impacts between the quarters.

Thanks, Kathryn. I'm just going to -- I want to sort of clarify or point out something that maybe is sort of obvious to us, but probably we could do a better job of clarifying and he thought about it, Kathryn was answering about the question of sort of OpEx and which goes to the resources. As we're getting ready for the launch of RaDaR, we have in place already 60 sales -- very experienced salespeople at Neo. We've got the partnership with Agendia, which is going to add 40 very experienced people. So a year before the launch, we've got in place 100 highly experienced people actively selling into these markets. And we have backing them up, very substantial customer service team, very substantial medical team, actually, with Neo, we're talking over 100 medical doctors and PhDs.

And so I think this is a starting point that would be -- I put up against any lab that was launching a new test in the last few years as a starting point.

And we're going to also work on what is the additional dedicated resources that we need to have in place for the launch. But make no mistake about it, and we have the resources to compete in this market. And what's great is they're already experienced calling on customers and in place today. So I just wanted to kind of highlight that and make sure we're clear.

Our next question today is coming from Mike Matson at Needham & Company.

I guess just following up on the comment you just made about the number of reps you'll have selling RaDaR, I was wondering -- I mean, is it realistic to assume that this could add a couple of points to growth maybe in the 2023 time frame, if not 2022? if you're $500 million or something in revenue, I mean this adding $5 million, $10 million, $15 million in pretty short order, is that crazy or...

So what we've said in the -- so no, it's not crazy to be clear that we can add a material impact on growth in '23. We've said that -- we see '22 -- '21 and '22 is the year where we're focused on getting reimbursement and getting resources and all the activities in place and focused on driving pharma sales and making sure we're building the evidence. But as we get into '23, we definitely expect to see sales starting to come in on RaDaR in a material way and especially in '24. So I think you're thinking about it in just the right way.

Okay. Great. And then I wanted to ask one on M&A. You've done a couple of deals here recently. It sounds like you called that out in the prepared remarks as you're still looking at other things. So the deals you've done seem to be more kind of technology oriented, I guess, if you will. One on IT and one in terms of a specific test. So is that the main thing you're type of deal you're looking for? Would you do deals for scale or breadth or just an overview of kind of the approach there in terms of M&A.

That's a great question. I'm going to have Doug answer that for you.

Yes. Thanks, Mike, for the question. You're right. I mean I think there's been an evolution how we've gone to market with M&A, right? The first couple of deals were about scale. And the last 3, we have done about technology or adding a test. When we think about more scale transactions, frankly, it's on the pharma side and it would be probably from a global perspective. As we think about clinical, it might be about adding more technology into the channel. And then with informatics, we could also look for scale there as well. But we have a lot of opportunities that we're evaluating. And as Mark echoed, it continues to be a major driver of growth here.

Our next question today is coming from Matt Sykes at Goldman Sachs.

Just 2 for me. Just the first one, and apologies if you guys have outlined this in previous calls. But any additional color on the economics for the commercialization agreement with Agendia on RaDaR? And then what percentage of volume do you think you expect to run through Agendia versus your own in-house sales team? I know you mentioned sort of a 60 in-house salespeople versus 40 at Agendia. Are there any expectations for how the volume might look in terms of how RaDaR is going through into the market?

So we haven't communicated, I don't believe, the economics of the details of the agreement with Agendia. We see that as confidential information. And I think that's the first thing -- and, Clive, if I missed anything, jump in. The second point in terms of volume, again, I think it would be premature to try to estimate volumes going through the Agendia. What I would say is clearly, Agendia is a very successful and experienced organization in the breast cancer market. They're driving significant growth of their products with MammaPrint and BluePrint. And they have tremendous capabilities, particularly in evidence generation. So they're, I think, a super exciting partner.

And then you add that together with Neo, which has, if not the leading, one of the leading physicians in breast cancer testing. We do -- as I mentioned, I think, earlier in my remarks, we do over 100,000 tests a year which I think is a -- and these patients are patients that potentially could be early disease patients that -- or have been treated curatively that are going to need an MRD test to confirm that there's Medicare, and they're going to be great candidates to transition to recurrence monitoring. So we're super excited in the breast cancer area. I think the profile that RaDaR brings with its sensitivity and specificity is outstanding. And so I think it's going to be -- it's going to be a great opportunity. Clive, do you want to add anything?

I support that the only 2 additional bits I'd say as further clarification because Agendia focus exclusively on breast cancer, whereas, of course, a test like RaDaR has utility across other tumor types in lung, colorectal and others. So again, Agendia will be driving the breast cancer part of this alongside efforts at NeoGenomics. And the other part is the agreement we have with Agendia also covers the EU, not just the U.S. So again, in terms of bringing that breast cancer channel and commercialization to the European Union as well. So just 2 things to think about it. They're complementary in many ways. So we'll help to drive that breast cancer alongside the in-house efforts and there may be additional partnerships we see in the future as well in different areas and different geographies. So something we're currently looking at around how do we get the test, which is, we believe, a great test to as many patients who need it as possible as quickly as possible.

Thanks. Does that answer your question, Matt?

Yes. Helpful. Yes. No, that's very helpful. And then just lastly, a more bigger picture. When you were talking about Pharma Services, it sounds like there's an opportunity for ex U.S. You mentioned companion diagnostics, I'm sure there are other things. Do you have sort of a plan in mind in terms of expanding that business ex U.S. and growing it?

Gina, do you want to take that?

Sure. We are evaluating several ways to do just that. As you know, companion diagnostic offerings include a multitude of factors, including reagents, quality compliance. So we're looking at building it versus buying it and assessing what we have and what we might need. So I know that's vague, but there's a lot of different ways that we could go about that expansion, including doing it ourselves or looking at M&A.

Yes, I would just add maybe 2 points on this, and it's also what I -- just overall and what I've seen in the Pharma Services business that has excited to me. So one is -- the team is extremely effective at partnering. We work with other labs. We work with other like we work with certainly CROs, and we work with some of the device test kit manufacturers very closely. We have announced a couple of exciting partnerships already in China that will be collaborating to run studies locally.

And I think one thing that's true with the lab business is that to be successful globally, you certainly have to have a position around the world and we do that. But you've got to be able to partner because diagnostic testing is so locally driven that if you can't sort of collaborate and partner, and I think this is something that Neo does exceptionally well. And the other thing that is really excellent, not just in the driving global or ex U.S. opportunities, but it's been core to the successes. The customer focus that they are renowned for here in the U.S. and the clinical lab services is what they're bringing to pharma accounts. We focus on pharma full front and center we really responsive. We're able to customize tests. We have fantastic service levels and a mindset of really customer first. And I think that has been a core to the success with pharma companies because they want a company that like the only thing they're thinking about is how do we deliver on the study in front of us, and nobody does that better than Neo, I believe. Does that answer your question?

Yes, that's great.

Our next question today is coming from Derik De Bruin at Bank of America.

Most of mine have been answered, but I just wanted to clarify a couple of things. Can you talk a little bit more about the R&D investment and how that's going to ramp. I mean, obviously, with the Inivata coming in, that's going to pick up significantly. And then I have a follow-up.

Kathryn, do you want to talk about R&D and the ramp up of expenses overall?

Yes. So the addition of Trapelo and Inivata definitely is increasing our future R&D expenses. As we've mentioned before, Inivata's running around $3 million a month in cash and a lot of that's focused in R&D. We do expect in the back half of the year that you're going to see increased R&D related to Inivata in particular, as we do prepare for the MolDX submission around the turn of the year. We've said before that could be with Trapelo and Inivata about $13 million to $15 million a quarter. And then again, as Mark mentioned, we are looking going forward as we are preparing for future years of what that investment will look like to support the further development and commercialization of RaDaR.

Great. That's what I was looking for. And just on a bigger question on the MRD market. I mean, the data from -- but looking at the literature and then just from some of the other stuff coming out of some of the other companies, I mean, it looks like they're -- particularly for cancer recurrence, there does seem to be good indications that you need or that -- certainly, the data is enhanced by adding epigenetic component to it and the analysis versus the personalized approach. I'm just sort of just your thoughts on the need to maybe expand the assay to look at epigenetic markers? And just your thoughts on when can we expect to see, I guess, some data on studies sort of like comparing the 2 approaches. Not complete, but just from the just from the overall market, are you aware of any of it out there?

Yes. Sure. Clive, do you want to take that?

Certainly. So thanks for the question. Cognizant of time, and I'll try to be very brief. But essentially, people are really searching for sensitivity. The levels of DNA cancer DNA in these early-stage cancer patients who've undergone therapy are very low. So traditional sequencing with fixed panels tend not to be sensitive enough. So the 2 avenues people have pursued is one is to try and personalize. So you're tracking a known number of variants Signatera from Natera; the Archer PCM; our own RaDaR test have come down that route. The other one is to move into epigenetics to try and look at other things that may be more abundant such as these genetic changes and that you see, for example, with the Guardant test. We believe that actually both of those can improve sensitivity. But actually, based on what we're seeing on our sensitivity that we see with RaDaR between the technology advantages and the tracking the high variance, we're very pleased with the levels of sensitivity that we see.

It's not to say it couldn't be further improved by adding other markers to be determined what they are. But for what we've seen today, we believe that we'll have an incredibly sensitive test there that will be very competitive. So we may look at these things in the future, but there's no imminent plans to add these. And based on things like recurrence monitoring, as you say, the early preliminary data we've got is very reliable detection of recurrence and actually, many months, in fact, the studies we showed were out in the year ahead of clinical relapse, we were detecting ctDNA relapse. So we can already do that, I think, with a high degree of precision and accuracy. So it's something to look at.

In terms of comparative studies, these are notoriously difficult. And in time, they'll see that as more tests come through. Today, we're still validating the independent tests. So at some point, they will come. And of course, in the meantime, you will get sort of more cross-trial comparisons, where there are equivalent patient populations or studies that it will enable some of those comparisons to be made. But I think we're probably some time off before we get fully completed head-to-head studies. And part of the reason is in this setting, these studies as a prospective study are very long duration, so they take a long time to do. So even starting today would be a number of years before they read out.

Okay. Thanks for that question, Derik, and Clive hopefully has answered it.

Yes. Thank you.

Okay. Well, thanks for all the great questions. We'll take one more question. Probably we're running a little bit over, but we'll take one more question and then wrap up.

Our final question today will be coming from Andrew Cooper at Raymond James.

But maybe just one. We've talked about it a little bit before, but when we think about the pathway for RaDaR partnering with Agendia breast certainly seems to be a focus. But I guess as we think about where you focus your efforts from prospective data generation and things like that and especially as we think about pharma layering in as well, what are some of the indications that you feel like should bump to the top of the priority stack? And how do we think about again, just kind of comparing where some of the others have started. Do you want to be a fast follower there with a good assay? Or would you rather carve out a niche in some cancers that maybe there's less data from the competitors first. Just thinking about sort of the ordering and stacking of indications.

Clive?

Yes, I'm not sure I can answer that in a very short, succinct way other than thinking all of those things you allude to are possible. So very clearly, there are some assays already in the market, the Terra -- colorectal cancer, for example. So clearly, we would not be first if we entered that, but we believe we could be a fast follower. And based on the profile we see we think we could still be compelling. And that market is still very nascent. So we're still developing. And we think there is a good opportunity of a fast follow-up.

We also believe that the leading in certain indications is also possible, and we are exploring a number of indications where that may well be the case. And we think, certainly, the high levels of sensitivity that we see may open up some indications that may be more difficult for others. And the last part I would say is the nature of a personalized assay versus a, if you like, an epigenetic-based assay the last question, means we can be somewhat tumor agnostic. So clearly, we need to develop the data. We clearly need to look at the utility and the value proposition in any indication. But we think we're able to take the same assay into different tumor types, and that's certainly the strategy we are pursuing. So expect to see a mix of fast follower in some, and some where we may be leading.

So thanks again to everybody for the great questions. I'd like to end actually probably what the most important thing I need to say, which is thank you to recognize incredible work that our 1,900 NeoGenomics team members around the world are doing on behalf of cancer patients. As I've been through the labs and met with a few people on video calls and around our sites, as I said earlier, I'm just so impressed with their commitment every Neo employee really carries cancer patients in their heart and the passion that they bring and their commitment is really taking my breath away. So thanks to all of my colleagues. Really appreciate it. Thank you, everybody.

Thank you. Ladies and gentlemen, this does conclude today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.