Neogenomics Inc (NEO) 2021 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the NeoGenomics Fourth Quarter and Full Year 2021 Earnings Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions and comments after the presentation.

It is now my pleasure to turn the floor over to your host, Chief Executive Officer, Mark Mallon. Sir, the floor is yours.

Thanks, Holly. Good morning, everyone. I'd like to welcome you to NeoGenomics' Fourth Quarter and Full Year 2021 Conference Call. Joining me on this call from our Fort Myers headquarters are Bill Bonello, our Chief Financial Officer; George Cardoza, President and Chief Operating Officer of our lab operations, Doug Brown, our Chief Strategy and Corporate Development Officer; and Charlie Eidson, our Director of Investor Relations.

Joining on the phone are Dr. Gina Wallar, President of our Pharma Services Division; Dr. Clive Morris, President of Inivata; and Clynt Taylor, President of our Informatics Division. Before we begin our prepared remarks, Charlie will discuss the forward-looking statements and the non-GAAP measures used on this call.

This conference call includes forward-looking statements about our 2022 initiatives, 2022 financial outlook, growth opportunities and anticipated operating results and performance. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements.

Additional information regarding these risk factors appears under the heading forward-looking Statements in the press release we issued this morning and in the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2021, that is filed with the Securities and Exchange Commission and available at www.sec.gov and on our website at www.neogenomics.com as well as subsequent filings with the SEC.

The forward-looking statements made during this call speak only as of the original date of the call, and we undertake no obligation to update or revise any of these statements. In addition, during the conference call in order to give greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. These non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by GAAP, should not be considered measures of liquidity and are unlikely to be comparable to non-GAAP financial measures provided by the company.

Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in a table available in the press release we issued this morning. Before turning the call back to Mark, I want to let everyone know that we'll be making a copy of our prepared remarks for this morning's call available on the Investor Relations section of our website shortly after the call is completed. We also want to let everyone know that we are going to limit the number of questions to one per person in order to give more people a chance to ask questions within the 1 hour that has been allotted for this call.

Thanks, Charlie. For today's call, I'll briefly review our full year 2021 highlights, provide updates on each of our core businesses, including key 2022 initiatives and discuss an exciting new addition to the NeoGenomics leadership team, a new Executive Vice President of R&D and Chief Scientific Officer; Dr. Shashi Kulkarni. Bill Bonello will then provide a more detailed review of the financial results and introduce our 2022 financial outlook. We will then have time for Q&A.

2021 was an eventful year for NeoGenomics. Our team successfully navigated constantly changing environment and took important steps in executing our growth strategy. I'm incredibly proud of the results our employees showed in providing excellent care for cancer patients often under very difficult circumstances.

Our teams also took on the challenge of moving our Fort Myers lab operations into our new lab and headquarters facility. The majority of the move is complete, with the final stage set to occur in April. The new laboratory triples our capacity in Florida and will support our growth in the near and long term.

In 2021, our labs processed almost 1.1 million clinical tests and generated revenue from over 1,000 pharma projects, ending the year with $484 million in consolidated revenues. This represents 16% year-over-year growth, excluding COVID PCR testing revenue. These are strong results given the extraordinary environment.

During the year, we also executed on 2 highly strategic acquisitions that we believe will boost our growth in the years ahead. Both Inivata and Trapelo are fully integrated into the organization and are proving to be strong cultural fit with NeoGenomics. I'll touch on some early progress by both groups later in my remarks.

While our acquisitions are certainly exciting, the foundation of our company is our clinical business, which represented more than 80% of our revenues in 2021. We've continued to strengthen our leadership position in the market through our comprehensive menu of tests focused only on cancer, our exceptional service levels, our managed care and hospital relationships and our overall partnership approach. These critical differentiating factors support new growth and drive high levels of customer retention.

In 2021, our average customer account awarded more than 250 tests during the year, and many of our customers view us as their primary reference labs for cancer testing. This dynamic is supported by the results of a national survey of independent labs and hospitals conducted in December 2021 by Laboratory Economics in which NeoGenomics was named as the #1 preferred reference lab for cancer testing by pathologists. I'm also pleased to share that Neo again achieved a Net Promoter Score in excess of 60 -- a world-class result. I want to thank our committed employees who are the key to our strong customer relationships and our track record of delivering elite service.

As we turn to the page to 2022, we are confident that the formula we have used to drive market share gains for years will play out as we emerge from the pandemic. To ensure we can meet this additional demand, we've expanded our lab operations staff in 2021, and we'll continue to do so in 2022 as needed. With that said, similar to previous waves of the COVID-19 pandemic, our clinical business was heavily impacted by the omicron variant in January. February has been much better than January, and we anticipate even better for March, but quarter to date has been challenging.

Now, many of the strengths I highlighted on the clinical side of our business, also apply to our Pharma Services business. Our biopharma customers clearly appreciate our strong focus on cancer, our comprehensive service venue and our outstanding service levels. Our global footprint and ability to launch a test to our leading clinical channel in the U.S. are additional reasons why biopharma clients view us as an excellent partner.

Demand through the pandemic across our pharma service offerings has been strong. And over the course of 2021, we booked $172 million in new signed contracts and ended the year with $267 million in backlog. Our Pharma Services revenue grew 29% year-over-year in 2021 despite COVID-19 impact.

While COVID-19 conditions have slowed our pace of converting backlog into revenue, we believe that many of these projects will convert as conditions normalize. This will put us in a great position to grow this business in 2022.

We also made progress with our global pharma services strategy during the year and successfully opened up a new laboratory in Suzhou, China. The demand from biopharma customers for capabilities in China has been extremely strong. We expect the lab to be strategically important as we look to compete for global clinical trials with study arm in China and for China-based clinical studies.

We believe our global network is now largely set. In 2022, we will focus on filling our international avenues and using the power of operating leverage to improve our pharma services profitability. Our informatics efforts continue to progress rapidly, and our growth trajectory in this business has been largely unaffected by COVID-19. Our team launched a cloud-based cohort builder in January that is already getting very good feedback from biopharma clients. We anticipate that Software-as-a-Service tool will accelerate our sales results. The Trapelo Health team is also making progress on scaling the next generation of clinical decision support too for oncologists, and we anticipate launching a web-based Quick Start version by the middle of this year.

For our Trapelo clinical decision support platform, adoption of oncologist is the most important key performance indicator, and we are monitoring closely. Our primary goal will be to accelerate adoption over the course of 2022.

It's been less than a year since we announced the Inivata acquisition and we are proud of the progress the team has made towards realizing the potential of our leading minimal residual disease and recurrence test, RaDaR. The assay's ability to detect circulating tumor DNA in blood down to levels as low as 11 parts per million with 95% sensitivity and 100% specificity is differentiating, and this is resonating with our BioPharma clients.

Our sales pipeline is robust and growing quickly. We expect to sign our first significant clinical trial contract this year, which will add to the pharma backlog over time. Evidence generation remains a focus for the team and we have a number of patient cohorts anticipated to read out over the course of 2022, with multiple datasets expected to be published in peer reviewed journals.

Earlier this month, we were pleased to announce that the LIONESS prospective Head & Neck Cancer cohort data was published in the British Journal of Cancer representing the first peer-reviewed publication for RaDaR.

In the LIONESS study, blood samples taken from 17 patients with Stage 3 or 4 head and neck cancer who received curative-intent primary surgical treatment, were tested using RaDaR to detect circulating tumor DNA as evidence of minimal residual disease and recurrence pre- and post-surgery.

All patients had detectable ctDNA prior to surgery. In longitudinal monitoring after surgery, ctDNA was detected in 5 patients at levels as low as 6 parts per million with lead times ahead of clinical confirmation ranging from 108 to 253 days. In the remaining 12 patients there was no recurrence detected, indicating a 100% clinical specificity of the RaDaR assay and confirming post-operative tumor clearance.

The team has also made considerable progress on the reimbursement front and we announced 2 important regulatory milestones in January. First, we received CE-Mark for RaDaR which we believe will be important for BioPharma and allow us the ability to make the test available to clinics and hospital systems throughout Europe to support patient management and clinical research.

Second, we achieved our goal of submitting RaDaR, as planned, for U.S. reimbursement of our first indication via the MolDX pathway around. This submission keeps us on track to commercialize the assay in the clinical market around the middle of 2022.

To summarize, we are incredibly excited about our market position and the progress we are making across our businesses toward becoming the world's leading cancer testing and information company. The attributes that have made Neo successful in the past remain as foundational drivers of growth.

We've added new, differentiating capabilities that we feel will boost our growth trajectory over the coming years. I see a truly bright future ahead for NeoGenomics.

Part of working towards that bright future is adding top talent and before I pass it over to Bill, I would like to highlight an important upcoming addition to our leadership team. Earlier this month we announced the appointment of Dr. Shashi Kulkarni as Executive Vice President of R&D and Chief Scientific Officer.

Dr. Kulkarni is considered a world-renowned expert and key opinion leader in cancer genomics with a focus on the application of genomic and multiomic technologies to improve the understanding of human disease and the precision of clinical diagnosis, prognosis, and treatment. He is also an experienced commercial laboratory leader, having played key roles in commercial laboratories at Washington University and in Baylor's partnership with Miraca Holdings. He brings a unique combination of world-class clinical, scientific, commercial, and regulatory talents to the role.

We are thrilled to have such a well-respected, global oncology genomics authority like Dr. Kulkarni leading our research and innovation teams. Dr. Kulkarni will be a vital member of our executive team, drawing on years of research expertise, clinical genomics experience, a strong network, business acumen, and a passion for innovation in precision medicine. He joins us officially on March 7th and I know he is excited to get started.

I will now turn the call over to Bill, our CFO, to discuss some of other details of Quarter 4 financial results.

Thanks, Mark. Before I walk through the numbers, I wish to point out that the growth rates we site exclude prior-period revenue from COVID-19 PCR testing. We have made this adjustment to make the year-over-year comparisons more useful as we stopped performing COVID testing in the first quarter of 2021.

Fourth Quarter consolidated revenue increased 7% year-over-year to $126 million. Clinical Division revenue increased 6% year-over-year, with test volume up 2% and average revenue per test up 4%. Consistent with our experience throughout the pandemic, our volumes decline during COVID surges and then recover quickly as COVID subsides. We saw a steady volume recovery in October and November as the Delta variant receded, but saw volumes decline again in December with the emergence of Omicron.

Clinical Division revenue-per-test of $383 increased 4% from the 4th Quarter of 2020 and 2% sequentially. The Q4 improvement in revenue per test is primarily driven by billing and reimbursement initiatives which drove reimbursement that was higher than initially anticipated. For all of 2021, revenue per test increased 2% year-over-year. Looking forward we would expect AUP to be in line with, to modestly above, our full year revenue per test of $370.

Pharma Services revenue increased 13% year-over-year to a record $22 million in the fourth quarter. For the full year, Pharma Services Revenue increased more than 29% to $80 million. New bookings were strong once again for the quarter at $49 million leading to a year-end backlog of $267 million.

Cancellations and projects classified as dormant were $21 million, primarily driven by a few larger project cancellations. We are optimistic about the strength of this business as we look forward to 2022 and beyond.

Our total GAAP gross margin was 36% reflecting a sizable impact from Inivata related non-cash amortization. Total adjusted gross margin, which excludes non-cash amortization related to the Inivata acquisition, was 39.9%. Gross margin was impacted by lower than typical clinical volume growth and pharma services revenue growth on our largely fixed cost COGS infrastructure coupled with both wage and supplies cost inflation.

In addition, during the fourth quarter, we moved into our new Fort Myers lab facility. While this move will drive productivity and efficiency improvements, we did incur extra costs related to operating 2 different Fort Myers labs during the transition.

Our gross margin was also impacted by a $3.8 million reversal of prior period credits related to the Employee Retention Tax Credit, or ERTC. While we continue to believe that the company may be eligible for certain credits from the ERTC, the IRS guidance related to ERTC eligibility have evolved over the past 2 years leading us to conclude that a reversal of prior-period credits is appropriate unless or until we have new evidence in support of the credits.

The change in ERTC credit reduced gross margin by roughly 300 basis points in the fourth quarter. Excluding this prior period re versal, Fourth Quarter consolidated gross margin would have been 43.0% or essentially flat sequentially.

Omicron and inflation notwithstanding, our gross margin is not where it should be and we are taking near-term action to address our cost structure. We are also developing a long-term plan to drive step-function improvements in productivity and efficiency through automation, process improvement, product, payor, and customer mix and pricing.

Driving gross margin expansion is a top priority for me as I step into the CFO role and I am confident that we can return to approximately 50% gross margin, or better, over time.

Operating expenses increased $35 million year-over-year to $87 million. The increase is primary driven by the acquisitions of Inivata Limited and Trapelo Health, as well as additional investments to support growth.

Adjusted EBITDA loss was $10 million in Q4. The loss is attributable to significant investments to develop and launch new assays, including our MRD assay, RaDaR, offset by contribution from the core Clinical and Pharma Services business. The previously discussed reversal of prior period credits related to the Employee Retention Tax Credit, or ERTC, reduced adjusted EBITDA by $5.9 million in the quarter. Excluding this change in accounting estimate, adjusted EBITDA would have been a loss of $4 million in the Fourth Quarter.

Turning to the balance sheet, we exited Quarter 4 with $515 million in cash and marketable securities. We believe our balance sheet positions us well to fund our growth initiatives with optionality to pursue M&A as well.

Next I will discuss our guidance. We expect full year revenue of $530 million to $550 million, which equates to topline growth of 10% to 14%. We expect Adjusted EBITDA to be in the range of negative $40 million to negative $25 million.

Our guidance reflects Q1 revenue and adjust ed EBITDA that is both down sequentially and lower than we would see in a typical year. As we discussed during the call, our January revenue was significantly impacted by the spike in COVID-19 cases. While we have seen a nice recovery of volume in February, the January impact is sizable enough to impact our quarterly results. Therefore, we expect Q1 revenue to be in the range of $118 million to $120 million.

From a profit perspective, we have continued to staff our lab at full capacity so that we are able to handle increases in test volume that will come as COVID incidence recedes. We are also seeing a significant impact from both wage and supply cost inflation. With these factors in mind, we anticipate that Q1 adjusted EBITDA could be in the range of negative $15 to negative $12 million.

Our view on First Quarter results is not indicative of our view of the underlying growth and profit profile of our business. We anticipate that Q1 will be a significantly outlier and expect to see growth and profitability increase as the year progresses.

Our full year revenue guidance of $530 to $550 million implies a return to mid-teens revenue growth for the remainder of the year, with outsized growth in the third and fourth quarter as we begin to reap benefits from our expanded sales force. We also anticipate that EBITDA loss will decline sequentially each quarter as we realize increased revenue and leverage our fixed cost structure.

We also expect 2022 to be an outlier year in terms of adjusted EBITDA. We are making a substantial investment to support and launch RaDaR, including clinical studies to support evidence generation and publications, an increase in the size our sales force and medical science liaison team, and associated marketing costs. These expenditures will be incurred before we are able to generate significant revenue from this new product.

As we look beyond 2022, we anticipate that our continued investments in RaDaR will be offset by both MRD revenue and increased profitability from our core businesses and we expect to turn EBITDA positive in 2023.

I will now hand the call over to Charlie Eidson to lead us through Q&A.

At this point, we would like to open the call for questions. Incidentally, if you are listening to this conference call via webcast only and would like to submit a question, please feel free to email us at charlie.eidson@neogenomics.com during the Q&A session and we will address your questions at the end if the subject matter hasn't already been addressed by our call-in listeners.

As mentioned at the beginning of this call, we would like to ask each person to limit their questions to one so that we may hear from everyone and still keep within the hour allotted for this call. Operator, you may now open up the call for questions.

(Operator Instructions) Your first question for today is coming from Brian Weinstein.

So Bill, just on some of the comments that you made on the guidance to get that out of the way. You talked about a significant -- I caught the inflection in tone there, the significant impact on revenues in January as well as the significant impact that you guys have seen on wage and cost inflation in general. I was hoping you could provide a little bit more context for how significant that impact really was.

And really, as we think about what we heard last quarter from you guys as it relates to Delta, there seem to be more of a sort of a lingering effect as a result of not being able to get in with customers and have conversations with them, but I'm not hearing that kind of conversation this time. So can you talk about maybe the difference between the lingering effect from Delta that you called out? And what I'm not hearing a lingering effect on omicron B? So hopefully that all makes sense. Sure.

Absolutely, Brian. Thank you very much. Great questions, and I'm happy to elaborate. So first of all, when you think in terms of the impact of Omicron on volume and revenue in Q1, we do think of ourselves as normally a mid-teens revenue grower. And implicit in our Q1 guidance is the fact that we will be mid-single digit on the low end of mid-single-digit grower of revenue in Q1. The vast majority of them that impact is going to be from what we saw in January. We're starting to see recovery in February, and we expect it to be greater in March. So that gives you some sense of the magnitude of the COVID impact on revenue that we saw just from the month of January.

In terms of wage and supply cost inflation, we are seeing things in the range of 6% plus on an apples-to-apples basis in terms of payroll expense, and that's significantly higher than what we would have seen in prior years, which might have been more in the sort of 3%, 2.5% to 3% level. So absolutely, that is a change in what we're seeing, and that will have an impact on Q1 results and obviously, results throughout the year as well. We don't expect that to subside anytime quickly. And that's why we are taking some of the margin actions that I discussed.

In terms of your question about the lingering effects, we are optimistic. We are seeing green shoots. We are starting to hear that our sales team is getting path in front of clients. As you know, historically, about half of our growth has come from market share gains. It's very difficult to achieve that when you aren't out meeting face-to-face with your clients. So we're very optimistic about the growth rates picking up as we move throughout the year, now that things are opening back up as well as any rebound, obviously, in utilization of patients being tested and treated.

We're also seeing things begin to open back up on the Pharma Services side and seeing some green shoots on that end. You could see that we won a substantial amount of business. Our team has done a great job through the pandemic of winning business, but it's difficult to convert that to revenue when clinical trials aren't enrolling or are enrolling at a much slower pace. And so we're starting to hear wins of those trials picking back up and activity starting. And so yes, much less of a trailing factor than what we discussed with Delta.

Your next question is coming from Mark Massaro.

Mark at BTIG. So Bill, I heard you talk about, obviously, 2022 being an outlier year as it relates to spending for Inivata, et cetera. I think on the Q3 call, you talked about plans to add 50 sales reps, and I believe 10 medical science liaisons. I'm curious if you can just give us an update on that and just if you're able to kind of quantify or give us any additional details about the investment going into Inivata versus other areas and head count, that would be helpful.

Absolutely. So I'm going to turn that one over to Mark to talk about what we're doing with the sales force. And if he wants, I can add a couple of dollar comments around it.

Thanks for the question, Mark. So as we communicated in the third quarter, we're on track to expand our precision medicine team. We're setting up a second team in the second quarter. We're also going to be bringing on board our -- really our first Metro Science liaison team, both of those support RaDaR, and our other NGS assays that in reaching out to oncology, where we will get that team started to expand in the second quarter in line with when we received the reimbursement from MolDX for RaDaR.

And then we will expand that through the course of the second half of the year to make sure that we've got the right level of resources behind RaDaR and in offices with oncologists and supporting our whole NGS portfolio with oncology.

Did that answer your question, Mark?

Yes. Sorry, I might have missed it. Just the number of head count adds, is that in the 50 reps and the 10 liaison range? Or -- and if I missed it, I apologize.

So the plan that we announced is the plan we're continuing with. So we did talk about up to 50 and up to 8 to 10 MSLs, but that will be through the course of the year, right? We're going to start getting our team stood up in the second quarter, and then we'll expand that sort of in line with the opportunities we see.

Your next question is coming from Alex Nowak.

Just going back to the revenue guidance to Brian's initial question. Just focusing on the second half acceleration here. Just what are you baking into the guidance for the rebound of cancer cases, cancer diagnoses? And then also, how quickly an impactful can the new reps contribute? What sort of visibility do you have on that? And then the visibility around RaDaR's contribution?

I know there's a couple of questions there, but I'm just trying to understand if these additions…

Alex? Anyone? Operator?

Alex, your line is still live.

Operator, why don't I -- I think we got the gist of the question. I could respond to that so the other people on the call can hear it. And if Alex comes back, he can complete the question. So in terms of what we're expecting on the COVID front. Clearly, at the high end of our guidance, we're assuming that we're closer to smooth sailing and COVID recovery. Again, that would be projecting a 15% revenue growth for the remainder of the year. And so that is a pretty good growth clip in a normal environment.

We did intentionally give a wide range of revenue guidance because we know that COVID has been incredibly difficult to predict. And so the lower end of the range allows for some continuation of the virus as we move throughout the year.

In terms of what we have for the impact of the new sales force, we do anticipate that in the back half of the year, they will contribute to revenue. That may be more so from sales of our other NGS products into the oncology market than it is from the RaDaR assay itself, that we do think we will have preliminary radar sales as well in the back half of the year, particularly following securing of reimbursement. We also think that we will have some radar revenue on the pharma services side of our business. And that will be the more significant contribution from RaDaR to revenue in the first couple of years with the clinical market picking up over time.

Your next question for today is coming from Puneet Souda.

So first question, I mean, really, let me keep it to one. I mean you're baking in clinical -- what's the clinical growth and the pharma growth that you're baking in? Volume appears to be down, obviously, in the first quarter. But just wondering what -- how should we think about ASP? Is that in line with sort of the fourth quarter or the $370 number that you talked about? And then on the cost side, should we expect elevated costs to elevate from the current levels into the first quarter as well?

Because I think there are obviously a number of questions on the first quarter guide. And if there -- if I could just get a brief follow-up in there, what are the indications that you'll be pursuing for a RaDaR right out of the gate at the time of the launch and for submission to MolDX?

Well, let me take the revenue growth question encased in the question and then I'll let Bill comment on a couple of the more specific number of questions you mentioned. So our view is, as we get clear of the COVID effect that we are seeing or saw in the first part of the quarter that we would return in line with what we expect from our businesses, both in clinical and pharma.

So in clinical, we talked about getting into low teens. We've talked about pharma being a business that can grow over time north of 20%. And so in aggregate, if you think about the last 3 quarters being back to what our expectations are for the business from a revenue standpoint, we're certainly aiming for a mid-teens growth in the last 3 quarters.

And I think we've got the resources in place. We've got the products in place. The team is motivated and energized and with access opening up again and assuming no twist and turns from COVID, we feel good about the last 3 months. Bill, do you want to -- in terms of indications, as we said before, we're not going to comment on which indication is until we get the reimbursement. It's competitively sensitive information.

RaDaR is clearly a pan-tumor assay with -- we've got data that we've already shared in multiple cancer areas, including breast and lung, but we see this as a tool for pretty much a broad range of solid tissue types of cancer. And we're able to pursue both validity of approvals via fast follower and validity -- or clinical. We've got programs in both areas. Bill?

Sure. On the average revenue per test and in terms of cost inflation, I would just reiterate what we said on the call. We would expect average revenue per test to be in line with the full year amount of $370 to up modestly. We do have a number of interesting reimbursement initiatives that could drive some upside to that. On the flip side, there is some pressure from the Medicare physician fee schedule. And so we think that's a pretty prudent number to put out there. In terms of inflation, again, we're seeing payroll inflation around 6% or so. That's significantly higher than in other years. And so that is contemplated as part of the Q1 guidance as well as part of the full year guidance.

The big challenge for Q1 from a profitability standpoint is, as we said, we expect revenue to be down sequentially. We aren't going to make a bunch of immediate cutbacks to our laboratory staff as a result of a temporary resurgence in Omicron. We need to be prepared to handle the volume when it comes back as it has started to do. But when you have the overhead there and the volume not, that's a big hit on profitability for that particular quarter.

Your next question for today is coming from Dan Brennan.

Dan Brennan from Cowen. So a couple of questions. First, I was wondering if you could break out a little bit within the '22 guidance, what's the expected contribution from Inivata, from informatics, if you could comment at all on NGS, that would be helpful as well. And then secondly, on the Net Promoter Score, which you talked about, north of 60, how does this compare to the recent trend, in particular mention what the feedback has been, given that on prior calls, you've discussed some staffing issues given COVID. So I'm wondering kind of how you kind of manage through that and what you're hearing from the field.

So Dan, I'll take the second part of your question, and then Bill will comment on the first part. So having -- we continued to maintain our Net Promoter Score in the 60s, which is really good on this metric. For those of you who are not familiar with it, it basically is sort of the net of those that would actively promote your services, colleagues, and other businesses, minus those that would be the detractors.

And so it's a very high bar. We consistently had it in the 60s. And so I'm really proud of the team that despite COVID, despite the challenges of access, they've been able to -- the clinical team -- to sustain that type of customer service. I think it's a testament to the relations they built over the years and the efforts they've put in over the last 2 years and gives us a lot of confidence, as access comes back that when we get a chance to really have more face time and direct to direct interaction with our customers, that we'll really see further progress in the clinical business.

And it's a little bit harder to get that type of score in the biopharma world, but really, we deliver the same level of great service to biopharma companies. It's the core part of our strength. And similarly, we're starting to see opening up in that part of our business well in terms of interactions. We're starting to see face-to-face conferences coming back, which is a really important way to meet with biopharma customers as well. So a lot of encouraging things to look forward to in the rest of the year from our sales teams. Bill, do you want to take the other part of the question?

Sure. So Dan, we don't guide specifically to the growth rates for the individual businesses. We have said longer term that we expect our pharma services business to grow north of 20%, and we expect our informatics business to grow north of 25%. We have said initially at the time that we acquired Inivata that we would expect it to have a modest contribution, maybe somewhere in the single digits of revenue in its first year.

So that's kind of what we'd be expecting in 2022 in terms of revenue. So I think I would look at the growth rate from pharma and informatics to be more or less consistent with our long-term growth rates and then some modest contribution from Inivata as well.

Your next question is coming from Andrew Cooper.

Andrew Cooper from Raymond James. Maybe just to ask it another way, I know you're not disclosing the indications that you're going for first on RaDaR, but can you give a sense for maybe the pacing of additional submissions. How many do you think you might have ready to go maybe this year and sort of what that build up to what you call pan-cancer applicability sort of looks like over time?

Thanks, Andrew. I'm going to ask Clive to take that question. Clive?

Thanks, Mark. Hopefully, you can hear me okay. Yes, as you mentioned, we haven't disclosed the indication that we've initially sort of worked through. I think the best way to think through this is we see this as a journey building out. There's a huge potential market. We see the potential for RaDaR across tumor types. And we see this as a multiyear program to build breadth of evidence starting from the first indication, but then broadening out into new indications as well as deepening the data within each indication.

We haven't commented specifically on what or how many additional ones there may be this year. Our view is that there will be additional submission or submissions this year. As I said, we're not disclosing at this point exactly the tumor types. But you can imagine that as we start to present data at conferences, there's been a 6- to 9-month lead time as those things then come through into peer-reviewed publications. And it's the data that we need that will ultimately need to support those reimbursement applications.

So if you're keeping a close eye on the sort of things we are publishing sort of last year and then this year as we get into the major conferences where we're expecting a number of presentations, that will be the guide to the sort of things you can then expect to see with a little time lag in peer-reviewed publications and of course, the type of things that will ultimately go into reimbursement.

The only other thing I would say is, of course, it's a competitive environment and a number of other companies, of course, active in this space. And as any of us gain reimbursement, it changes that landscape. So it's something that we will look at dynamically over time. We have our own plans, but we'll also be reactive to what others are doing.

Great. And if I can sneak maybe just one more in quickly for Bill. You mentioned some of the reimbursement initiatives driving the ASPs in the fourth quarter. Can you give us a sense for how much of that was sort of true prior period makeup versus -- or maybe relative to the $370 you talked about for the full year?

Yes. Of course, again, because looking forward, we would expect the AUP to be in the range of $370 to slightly higher. I think you could assume that most of the benefit in Q4 was being able to realize revenue that we had not previously anticipated. And that's through a number of different initiatives that allow us to get paid in terms of working through denials, et cetera. Again, the proactive opportunities going forward would -- a number of them would drive ongoing and permanent increases in reimbursement if we're successful.

Your next question is coming from Derik De Bruin.

It's Derik De Bruin from Bank of America. So I got a few short ones. First of all, can you update us on the regulatory matter and sort of what are the incremental costs associated with that? That's one. Just list pricing for RaDaR and your anticipation for reimbursement levels. That's #2. And then assumptions for amortization, depreciation in '22?

Thanks, Derik. I'll take the first question. I'll let Clive answer the question on pricing for Inivata and then I'll let Bill come back to your question on amortization. Basically, we don't have a significant update to give on the submission that we made on the self-disclosure around the compliance matter. Our investigation continues, although a large part of it is complete. We've taken all the necessary remediation actions and continue to do everything we can to meet any of the needs of the government through this self-reporting process.

We did -- you will see in the 10-K, a slight increase in the amount accrued for this, I think, of about $700,000, just up from $10.5 million to a bit more than $11 million, so not a significant change. And really, we've got everything we need to do and continue to do to meet the expectations of the government in the submission. We now -- the timing of additional news is going to be largely driven by feedback from the government, which is just hard to predict. As I was when I came here and through the past 10 months and looking forward, I have high confidence in the values and commitment to the clients that this organization has.

We've handled this exactly the way you would want this organization to do that. We've taken the remediation steps needed, and we're focused on driving the business going forward. Clive, do you want to talk about pricing for RaDaR?

Sure, certainly. We haven't disclosed list pricing at this point, but I think the best way to think of it is broadly consistent with what you've seen sort of across the market for high-quality, high sensitive, high specificity tests like RaDaR. Clearly, it's tissue informed. There's the whole exome component and then the blood. So I think you've probably got good analogs out there in the market.

Clearly, we will establish pricing as the reimbursement comes through. So once we get the indication, our first one is through, we'll share further details on that. But initially, that will be through the MolDX pathway. We do see the potential for ADLT sort of status and reimbursement in the future. That's on the back of the initial Medicare coverage, of course. That's something that can be worked through.

And of course, at this point, nobody really has any private payer coverage, but that's something that we'll get negotiated with the commercial payers and building on that as the data sort of comes on board, and of course, the Medicare reimbursement, but that's something that builds over the next few years. So hopefully, that gives you some color on how to think about it.

And Derik, in terms of amortization, our guidance assumes an amortization amount of about $34 million for 2022. In case people wonder, we're assuming about $38 million of depreciation. Amortization was about $23 million in 2021. The reason that you see such a big uptick is because of the timing of the Inivata acquisition and the amortization of the developed technology intangible assets.

So we have a full year of that in 2022 instead of a partial year of that. And there is -- if anyone is curious, we do include a table on Page 13 in our press release that gets you from net income to adjusted EBITDA, and we give our guidance for items such as amortization and depreciation.

Your next question is coming from Matt Sykes.

Matt Sykes from Goldman Sachs. Bill, maybe just on the gross margins, you kind of outlined a sort of aspirational goal of 50% over time. And maybe just help us kind of walk through the progression to that number, maybe over the course of '22 and beyond? And how much is that leverage from the fixed cost leverage in clinical and pharma versus cost actions you might take? Just want to get a sense for where you see the biggest levers are to get that gross margin up to that goal level.

Matt, thanks a lot for that question. It will be a gradual progression back up to that 50% level. I think it will be driven by a series of factors. A big part of it will be leverage of the existing fixed cost structure as revenue rebounds, and we emerge out of the COVID environment. And as we have a larger sales force that is hopefully generating revenue across that fixed COGS structure as well. So that will be the immediate driver.

The longer-term driver on gross margin will be efforts to drive continuous improvement in productivity and efficiency across the laboratory. And those are things such as automation, process improvement. We will also target selective pricing increases, the reimbursement initiatives that I talked about. And those are all things that take a while. They don't happen overnight. They happen over a period of time.

The one other factor over time that will drive gross margin is our product mix as well as we continue to see mix shift to higher gross margin products, and that will be particularly true as we secure better reimbursement on our NGS assays and over time as we ramp up on RaDaR. So all of those factors will be drivers over time.

Your next question for today is coming from Mason Carrico.

Mason Carrico from Stephens. Maybe similar to the last question, could you provide some commentary on your expectations for how Pharma Services gross margins trend in 2022? And maybe what the drivers are there? Is it just filling up capacity? Is there a shift to higher-value projects? Or any color on the expansion opportunities there would be great.

I'm going to ask George maybe to talk about the gross margin and then maybe Gina can talk about our priorities for growth in the year.

Yes. Certainly, as Mark mentioned, one of our goals on the international side, we're thrilled that China is open now, but with operations in the United States with operations in Switzerland, Singapore and China, we really believe that the footprint is just -- and certainly, we have capacity at those international labs. And one of the main focuses of our commercial team is going to be to fill those laboratories up.

So again, we've got the infrastructure cost and we have significant gross margin opportunity as we move revenue into those sites and fill those up, certainly. So that's a big part of it. So obviously, we continue to expect to have 20% plus growth in the pharma services sector, which also fills up capacity. We are looking at some cost actions as Phil said, and we even implemented a pricing increase earlier this year to impact our clients.

So certainly, there's a lot of new things that are happening, but we believe the infrastructure is largely built and certainly, our expectations of the pharma business is going to continue to grow rapidly and then we'll fill that up. Gina, do you want to talk about some of the commercial initiatives?

Yes, absolutely. Thank you for the question, Jason. So we have a terrific sales team that's really created a strong backlog with a diverse portfolio of both clients and project type. And this includes the ex-U.S. sales team has really taken off in 2021 despite obstacles that COVID has presented. So we feel very confident that we are going to fill up those international labs and the investments that we've made really set us up for growth with the strong backlog that we currently have.

Your next question for today is coming from Mike Matson.

Mike Matson from Needham & Company. So we've heard a lot about patients deferring care, and there's probably some cancer patients out there that have progressed to later stages. And so I understand the whole concept of a backlog of testing and whatnot. But I guess I'm wondering if there's any kind of second order effect of these kind of later-stage patients. Do they -- do you have any feel for whether they'd require more tests per patient, maybe more expensive test? Or maybe the opposite of that is that a positive or a negative for your business? I guess if you have any feel for that?

So Mike, thanks for your question. I think theoretically and unfortunately, you could imagine that people getting diagnosed later are already going to be -- will be further progressed and may have more complex complexities or complications and that could lead to some incremental testing request.

I think it's really too early to say that for sure. But I think we can say is, at least in our business, with cancer testing is that when the COVID levels recede, the patients do get back into the offices. We do see steady rebound and significant rebound in testing volumes. And I think we expect that we will continue to see that.

And I think the other thing that adds to that effect is of course as opposed to our sales teams can get back in and have direct interactions with customers that helps existing accounts to get them to order additional business. But importantly, it really helps in adding new accounts, which has been historically a strong part of our growth.

And we expect that -- we still see lots of opportunities to add new accounts. It's a very fragmented and big market, even though we're the largest player. So it's really hard to say what's going to happen in terms of those that delayed getting diagnosis. But I think overall, we could expect a volume to show a strong rebound.

Your next question is coming from Tejas Savant.

Just a quick cleanup first on informatics and then I have a follow-up on biopharma. So on informatics, I think you'd said in the past that you plan to launch a clinical product on the Trapelo side by year-end. Could you just like talk to whether this happened and what the early traction looks like over there?

And then on biopharma, you spoke of delays last quarter, but I think this quarter, you flagged some elevated cancels here driven by a few large projects, which I guess, drove your backlog to be flat sequentially. Just some color on sort of what's driving that. And I'm trying to sort of juxtapose it with comments from some CROs talking of RFPs being down significantly in January and so on because of perhaps a near-term breather and funding, especially for smaller biopharma customers. So I'm just trying to juxtapose what you guys are seeing there with the elevated cancels versus some of that commentary.

So I'm going to ask Clynt to take the first question and can give an update on how Trapelo's decision support services and some of the improvements that we're putting in place, how that's progressing. And then I'll ask Gina to make a comment on the project cancellations.

And I'll just say upfront, what's impressive again is that despite those cancellations, we did see an increase in the backlog from $2.61 to $2.67. So the strength of the underlying demand for our services still comes through, but Gina will say a word about the cancellations. But let's -- Clynt, do you want to start and give an update on Trapelo's decision support services.

Sure, sure. Happy to. So we are in the process of launching, and I say that because we have kind of a soft launch that's already happened for a configuration of Trapelo called Quick Start. What we learned in the past year or so is that when groups look at the -- at Trapelo and they think about immediately an integration, it becomes -- it looks daunting.

So we created a configuration of Trapelo that makes it much quicker and much easier to implement within a couple of weeks. And you asked about the response to it. It's been very positive. In fact, we have our first contract already this year. We have another one that's in the works and several more in the pipeline. It's been really well received. That's not the only reason someone makes a decision to do something, but this certainly takes a lot of the friction out of doing something new in a group like this.

Thanks, Clynt. Gina, do you want to comment on the cancellations?

Yes, absolutely. And thank you for the question. We always expect some portion of our backlog to experience a cancellation. And that's when the program at our clients is no longer going to be supported because of some data they've gotten. So this quarter, we had some cancellations that were larger in dollar value, but definitely, we expect that. And we've also heard of some changes in demand from pharma, but we haven't experienced this ourselves.

And I think that's a testament to our sales who has seen this and refocused on different types of clients and projects. As I mentioned before, we have a diverse portfolio in our backlog of projects, consisting of earlier phase research all the way to Phase III pivotal clinical trials. And it reflects the diverse product offerings that we have to support all phases of clinical research for our clients. So we feel very optimistic about that even though we have been hearing of these changes.

There are no further questions in queue. I would now like to turn the floor back over to Mark for any closing comments.

Okay. Thanks, everybody for participating in this call. I'd like to close, as we always do, is on behalf of the NeoGenomics leadership team to just say thank you to all of you, but importantly, to also say thank you to all our employees and all the great work that they do. I also want to say to those of you listening that are investors or considering an investment in NeoGenomics, we thank you for your support and interest in our company, and we look forward to continuing our dialogues through the course of the quarter. And look forward to talking to all of you soon. Thanks so much.

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