Good day, ladies and gentlemen, and welcome to the NeoGenomics second quarter 2019 earnings call. All lines have been placed in the listen-only mode, and there will be a question- and- answer session after the presentation. If you should require assistance during the call, please press star zero and an operator will assist you. At this time, it's my pleasure to turn the floor over to Mr. Doug VanOort, Chief Executive Officer. Sir, the floor is yours.
Well, thank you, Tom. Good morning, everyone. I'd like to welcome you to NeoGenomics second quarter 2019 conference call. Joining me from our Fort Myers headquarters is Sharon Virag, our Chief Financial Officer, George Cardoza, President of our Pharma Services Division, and Bill Bonello, Chief Strategy and Corporate Development Officer and Director of Investor Relations. Dr. Larry Weiss, our Chief Scientific Officer, is dialing in from California, and Rob Shovlin, President of our Clinical Services Division, is on vacation today. Before we begin our prepared remarks, Bill Bonello will read the standard language about forward-looking statements.
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 Doug, I want to let everyone know that we will be making a copy of our prepared remarks for this morning's call available on the investor relations section of our website shortly after the call is completed. We also want to let everyone know that we are going to limit the number of questions to two per person in order to give more people a chance to ask questions within the one hour that has been allotted for this call. Doug?
Well, thank you, Bill. For today's call, I'll briefly review our quarter two highlights and then turn the call over to Sharon for a more detailed review of the financial results. After that financial review, I'll comment on several initiatives and investments that we're making to drive both near-term and long-term growth. We'll have time for questions and answers. Let's begin with the quarter two highlights. Our quarter two results were strong, building on the momentum that we reported in quarter one. Revenue increased 50% year-over-year to $102 million with organic growth of approximately 20%. Growth was strong in both divisions. Clinical volumes increased 34% year-over-year. Volume growth was better than expected as we continued to gain market share, particularly in next-generation sequencing testing.
We performed more than 250,000 tests during the quarter, putting us on track to perform approximately 1 million tests in 2019. Revenue per test increased 12% over the second quarter of 2018, marking the fourth straight quarter in which revenue per test has increased year-over-year. We also achieved very strong growth in our Pharma Services division, with revenue up 55% year-over-year to a record $12.7 million. We signed $20 million of new contracts during the quarter, and our backlog was up 18% year-over-year to $106 million. We drove growth across all testing platforms and are seeing an increase in phase II and phase III trials being placed with us. Adding to our global footprint, we recently opened our new lab in Singapore and are working on plans for a laboratory in China in 2020. Importantly, we continue to grow profitably.
Adjusted EBITDA increased 49% year-over-year to almost $15 million, with most of the cost synergies from the Genoptix acquisition yet to be realized. Our integration efforts are well underway and are tracking as expected. Looking forward to the rest of the year, we expect our momentum to continue. On the clinical side, we've added large hospital and oncology clients and continue to gain market share with both hospitals and community oncology practices. We also launched an important new companion diagnostic test, which only began to ramp at the end of the second quarter. Importantly, we are actively hiring, which should increase our capacity to accommodate new business at a faster pace. On the pharma side, our backlog is larger than ever, which bodes well for revenue in the second half of this year. Our pipeline is robust, and we expect to benefit from our international expansion.
While things are going well, we do have a lot on our plate. Operationally, we are accommodating significant increases in test volume while also expanding capacity, integrating Genoptix, and maintaining outstanding service. Far so good, as our most recent Clinical division customer survey results were better than ever. We have more integration activities ahead and remain laser-focused on delivering outstanding service. Strategically, we are developing and introducing new tests to strengthen our test menu. We are expanding our service offering with informatics products and other tools to improve our clients' ability to diagnose and treat patients. We're also working with pharma and biotech sponsors to identify biomarkers and companion diagnostics and provide services for the drug development process. We're confident in our competitive position, but are constantly changing and adapting to the rapidly changing competitive environment.
In summary, we feel very good about the second quarter results and remain excited about our future. I'll now turn the call over to Sharon to discuss our quarter two financial results.
Thank you, Doug. As Doug mentioned, our second quarter revenues were $102 million, a 50% increase from last year. We are very pleased with our team's execution. Clinical Services revenue increased 49% to $89 million, driven by the Genoptix acquisition and continued market share gains. Clinical volume increased 34%, while revenue per test increased 12% year-over-year to $355. Revenue per test decreased $13 or about 3% sequentially. While a good portion of this decline is attributable to test mix, which will vary from quarter-to-quarter, we did incur greater than anticipated revenue volatility from the finalization of managed care contract negotiations necessary to include Genoptix in our contract. Importantly, we feel confident that these negotiations are behind us, and we expect revenue per test to be flat to up slightly in the third quarter.
Pharma Services revenue increased 55% to almost $13 million, which is a new high watermark for the division and was ahead of our internal projections. For the first half of 2019, Pharma Services revenue is up over 50% compared with last year. We booked $20 million of new business in the second quarter and increased our backlog quarter- over- quarter to $106 million, despite reporting strong Q2 revenue performance that converted a significant chunk of backlog to revenue. Importantly, cancellations normalized from an unusually high level in Q1, and we saw broad-based growth across nearly every test modality. Combined gross profit increased by $18 million to $49 million, up 60% from the prior year. This increase represents a 54% contribution on the $34 million of revenue growth. Gross margin improved just over 300 basis points year- over- year to 48.1%.
This annual improvement was driven by the impact of volume growth, higher average revenue per test, productivity gains, and cost efficiencies. As expected, gross margin declined modestly sequentially as we continue to add employees to accommodate growth in our Clinical Services division. Notably, our Pharma Services gross margin was outstanding, reaching 50% for the first time ever. The Pharma Services business is beginning to reach the scale at which they are expected to be more in line with company gross margin. Our average cost of goods sold per clinical test, also known as our cost per test, decreased 6% year-over-year on a pro forma basis to $185, reflecting our increasing scale and focus on efficiency. Cost per test increased 2% sequentially, reflecting the impact of additional employees hired during the quarter to support our rapid growth.
General and administrative expenses increased 41% year-over-year to $30 million due to the addition of Genoptix. G&A expense decreased by $3 million sequentially due to lower transaction-related expenses, decreased professional fees, and acquisition synergies. Sales and marketing costs increased 60% year-over-year to $12 million, driven by the acquisition of Genoptix and the expanded size of our sales team. Research and development costs increased by more than 100% year-over-year, driven by continued investment in new test development, including our FDA initiative. Second quarter GAAP net income was $2 million, compared to a net loss of $380,000 in the second quarter of 2018.
We believe that in order to compare the net income related to the true operations of the company on a more consistent basis across periods, it's appropriate to adjust GAAP net income or loss available to common shareholders to exclude certain non-cash items and, if applicable, one-time costs. We refer to this measure as adjusted net income and on a per share basis, adjusted diluted earnings per share, and we have included a table with how these are calculated in our earnings release. Adjusted EBITDA increased 49% year-over-year to a record $15 million for the quarter. Adjusted net income was $7.2 million compared to $4.5 million in the prior year. Adjusted diluted EPS was $0.07 versus $0.05 in the second quarter of 2018. We exited Q2 with $167 million in cash and $110 million in debt. DSO remained healthy at 81 days.
While DSO was up three days sequentially, this increase is timing related, and we saw substantial cash inflows in the first few days of July. Before I discuss updated 2019 guidance, I want to take some time to address our Q2 operating cash flow. During the quarter, we saw a $5 million use of cash, which as many of you know, is unusual for our business. This was partially attributed to a final $7 million cash payment to HDC as we no longer use any of their technology. Another big piece is the $7 million sequential increase in accounts receivable that led to a timing-related uptick in DSO I just discussed, with the remainder due to normal fluctuations in working capital.
We continue to believe our adjusted EBITDA serves as a good proxy for the underlying profitability of our business and expect operating cash flow to improve in future quarters. We are updating our full year 2019 revenue and earnings guidance. We now expect consolidated revenue to be in the range of $388 million-$402 million versus our previous guidance of $384 million-$400 million. We now expect adjusted EBITDA to be in the range of $54 million-$58 million versus our previous guidance of $52 million-$56 million. The increase in guidance reflects better than expected second quarter results. Finally, I would like to briefly comment on the proposed physician fee schedule released last night. As a reminder, we generate less than 12% of our revenue from Medicare payments billed under the physician fee schedule.
Based on our preliminary analysis, we believe that the net impact to NeoGenomics will be neutral in 2020, with modest reductions in IHC and flow offset by modest increases in FISH. I will now turn the call over to Doug to provide some additional commentary on our key 2019 initiatives and opportunities.
Thank you, Sharon. Before opening the call for questions, I'd like to update you on a number of important developments that have transpired since our last earnings call. First, we significantly strengthened our balance sheet during the quarter. In May, we raised $161 million in net proceeds from a secondary equity offering. In June, we announced a new $250 million credit facility that provides additional borrowing capacity at a lower interest rate than our previous facility. We now have more than $250 million in available liquidity to deploy for strategic growth initiatives, including M&A. Second, in late May, we launched an important new companion diagnostic test for breast cancer, the QIAGEN therascreen PIK3CA PCR test. This test is the companion diagnostic recently approved by the FDA to aid clinicians in identifying breast cancer patients suitable for treatment with PIQRAY, a newly approved therapy developed and marketed by Novartis.
Mutations in the PIK3CA gene can act as cancer drivers and are found in approximately 40% of hormone receptor-positive and HER2- breast cancer cases. These PIK3CA mutations are the most common mutations in hormone receptor-positive breast cancer and have been associated with a poor prognosis. Until recently, there has been no targeted therapy available for patients with advanced or metastatic hormone receptor-positive, HER2- breast cancer. PIQRAY is now available as the first targeted therapy approved for advanced or metastatic HR+ , HER2- breast cancer patients who have progressed after endocrine therapy and whose tumors have a PIK3CA mutation. Only patients with a PIK3CA mutation, as detected using the FDA-approved companion diagnostic test, are eligible for Novartis PIQRAY therapy. QIAGEN 's therascreen PIK3CA PCR is the only FDA-approved companion diagnostic test for PIQRAY.
Novartis and NeoGenomics have collaborated to provide a companion diagnostic testing program designed to ensure access to testing for patients eligible for PIQRAY. Enrolled patients receive one free PIK3CA mutation test using QIAGEN therascreen PIK3CA PCR test for purposes of determining whether the patient is eligible for the PIQRAY therapy, which is FDA approved. The companion diagnostic testing program is sponsored by Novartis Pharmaceuticals Corporation and is offered exclusively through NeoGenomics. As we have discussed on previous calls, our capabilities with regard to companion diagnostics are unique and powerful. We have wide scale and scope across pharma and clinical markets, a broad reach to oncologists and pathologists, and access to a massive quantity of oncology-specific test result data. For labs, a few labs have the same ability to take an oncology companion diagnostic test across the continuum, from development through clinical trials and into the market.
This capability is clearly a synergy of operating both the Pharma Services and Clinical Services operation, and increasingly of interest to both pharma and clinical clients. We are currently winning Pharma Services business because of our companion diagnostic capabilities and boosting our clinical market share by being first to market with companion diagnostic tests. We have several companion diagnostic test launches in our pipeline. These tests have the potential to further fuel our revenue growth as we expect the pace of companion diagnostic activity to increase meaningfully over the next couple of years. More generally, we have a pipeline of opportunities to work collaboratively with pharma companies to leverage our clinical data and market position to accelerate patient access to life-saving therapies and clinical trials. The final development I'd like to discuss is our plan to build a state-of-the-art laboratory and global headquarters in Fort Myers, Florida.
The laboratory will include leading-edge molecular and next-generation sequencing capabilities, an ability to support clinical trials for new oncology therapeutics, and ample capacity for growth. We clearly need additional capacity to support our growth projections, and having a large, full-scale East Coast lab to support our clients in the Eastern U.S. will add to our ability to consistently deliver world-class service. We anticipate breaking ground before the end of the year and to open the new facility in 2021. In summary, quarter two results were extremely strong, and we feel good about our momentum heading into the rest of the year. More importantly, we have established a leading position in the market, which is proving to offer significant, sustainable competitive advantages today and in the future, and we look forward to further strengthening that position over time.
I'll now hand the call over to Bill Bonello to lead us through Q&A.
At this point, we'd like to open the call for questions. Incidentally, if you're listening to this conference call via webcast only and would like to submit a question, please feel free to email us at bill.bonello@neogenomics.com during the Q&A session and we will address your question 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'd like to ask each person to limit their questions to two so that we may hear from everyone and still keep within the hour allotted for this call. Operator, you may now open the call for questions.
Thank you, sir. The floor is now open for your questions. If you do have a question, please press star one on your telephone keypad at this time. If you're using a speakerphone, we ask that while posing your question, you pick up the handset to provide favorable sound quality. Again, ladies and gentlemen, if you do have a question or comment, please press star one on your telephone keypad at this time. We'll take our first question from Kevin Ellich with Craig-Hallum.
Good morning. Thanks for taking my questions and congrats on the nice quarter.
Thank you, Kevin.
Doug, just to start off with the companion diagnostic that you announced with PIK3CA with Novartis, wanted to see if you could provide a little bit more color as to other collaborations, partnerships with other companion diagnostics coming to market. I guess, when should we see something and how meaningful could this be for you guys?
Thanks for the question, Kevin. We do have, I think, an excellent position with respect to companion diagnostics. I believe right now we have something like 30 projects with pharma companies in our pharma pipeline for companion diagnostic tests. We're working with a wide range of pharma companies with a wide range of companion tests. One of the things that I think is attractive to pharma companies is that we can help them, as they know, with the companion diagnostic trials, including biomarker discovery, by the way, and then we can immediately have that test available commercially and accelerate the commercialization process. I think we're in very good shape in that regard. We expect companion diagnostic testing to grow, as we said in our prepared remarks, and we're looking forward to continuing to work with sponsors in this important endeavor.
Excellent. Thanks for that, Doug. As for the pharma services business, really nice growth there and good to see that. Wondering if you could give us a little bit of color on how things are going with the collaboration with PPD, and are you still on track to achieve $10 million of run rate revenue by year-end, or should we see some upside to that now?
Well, our Pharma Services division had a great quarter. The revenue is up 55%, as you saw. The backlog, importantly, is up even as we generated a lot of revenue and booked revenue from the backlog. PPD is an important partner of ours in a number of respects. One is they really helped us set up our lab in Singapore. They're helping us set up our lab in China. They have really helped us. We're working very closely with them to bid on a number of different projects. The bid process is going very well with them. I think we're gaining a lot of momentum with them. We have booked several projects with PPD. I think we've got good momentum there. They're a terrific partner.
Excellent. Just had a couple housekeeping for Sharon. First on the pricing, I think you said you expected to be flat to up slightly in Q3. Was that on a year-over-year basis sequentially?
No, we're meaning sequentially.
Sequentially. Okay. Thank you for that. R&D, higher than we expected. We saw a pretty big year-over-year increase. Is this kind of the current run rate that we should expect going forward?
Yeah, I think this is probably in line with what I would see going forward. You want to comment on that, Doug?
Yeah, Kevin, I'd just say, just to build on what Sharon said, we expect R&D expenses to grow some, particularly as we continue to invest in new assays, and particularly because of the FDA process. This is an expensive process for us in many respects, and I think you see in the quarter, some of the spending that we had was for the FDA project.
Excellent. Thanks, guys.
Thanks, Kevin.
We'll take our next question from Puneet Souda with SVB Leerink.
Yeah. Hi, Doug, Sharon. Congrats on the quarter, first of all.
Thanks, Puneet.
What I was hoping to touch on guidance raise briefly. Just wanted to understand how much contribution you expect. There are a bunch of new moving parts here, and so wanted to get a sense in terms of volume growth and reimbursement improvement overall. You had sequential decline in test for revenue. Could you elaborate a bit more on that and the confidence for that to recover and grow again?
Right. Well, maybe I'll start with the AUP thing, then we can have Bill comment on the guidance. On AUP, it was really interesting in the quarter, of course, year-over-year, it improved, but sequentially it went down $13 for the quarter on our average unit price. There's probably three things I would highlight on that. The first would be our test mix shift. It was really interesting with it leaning towards the less expensive tests on our menu, then therefore, bringing down our price per test. The second thing was, during the quarter, we've been bringing Genoptix into our managed care contracts, and as we finalized those, it pulled down our AUP a little bit more than we expected.
The third thing would be just our focus on integration and that pulling the attention of our billing leadership team to the integration activities and away from some of those reimbursement improvement projects. As we've talked about before, we have to really stay on top of those and be continuously working it to kind of fight the continued pressure from managed care to reduce those prices. We expect that to get back underway as we move forward with the integration and we have less pressure from those activities and be able to continue to work reimbursement down as possible.
In terms of guidance, Puneet, obviously we did take our guidance up for the second time this year. The quarter was a little bit better than expected. We feel very good about our pipeline of new business. Specifically to the revenue per test, Sharon mentioned in the prepared remarks that we would expect that to be flat to modestly up sequentially. That's sort of what's baked in on that front. Things are going well, but it's still early days in terms of the Genoptix integration, so, we want to be prudent with this guidance.
Okay, got it. That's helpful. Doug, a high-level question on NGS. It seems like there's quite a bit of focus here. Just wanting to understand your view longer term here and how you're positioning into the NGS offerings. You obviously had strong growth last quarter and this quarter, and sort of just give us a sense of what needs to happen next in order, and what are some of the things that are on your priority list and, overall, as you're thinking about NGS and the growth in that market.
Yeah. Thanks, Puneet. We see NGS testing as growing faster than any other test modality that we have. We're investing heavily in next-generation sequencing testing. Currently, we're hiring variant scientists, molecular sequencing experts, physicians, laboratorians. We're changing our laboratory process to be FDA compliant. We're investing in instrumentation. We've got the largest and the best sequencers from just about everyone that offers them. We're investing heavily today in the business to try to expand our offering. We're probably going to come out relatively soon with an expanded gene list for both our heme and solid tumor panels. We'll follow that with a liquid biopsy offering at some point here in the not-too-distant future.
In addition, as we mentioned, we're going to set up a molecular and next-generation sequencing lab in Fort Myers in our new facility, and we'll be able to accommodate growth and capacity through that activity as well. We're investing heavily in next-generation sequencing. It's growing very quickly for us, and we intend to maintain that growth as we go forward.
Thanks for that. Last one, if I could squeeze in, just for Sharon, maybe, just CapEx spending that you are expecting here and the timing for Fort Myers, and if you could elaborate on that? Thank you.
I think just starting with Fort Myers, I think we're not expecting to break ground until later this year, and then it won't be actually placed into service until 2020 or 2021, so two years from now. On CapEx, we are still looking at mid to high teens to low 20s. That's in line, maybe a little lower than we were expecting at the beginning of the year.
Okay, great. Thanks. Thanks again. Congrats on the quarter.
Thank you.
We'll take our next question from Brian Weinstein with William Blair.
Hey, guys. Thanks for taking the question. I cut out for a couple minutes there, so I apologize if you guys addressed this at all. Can you give a more specific update on where things are with the Genoptix integration and whether or not you're starting to see any revenue synergies between the two businesses?
Yeah. Thanks, Brian. No one asked that yet, so let me address that. The acquisition and the integration work are going exactly as we expected. We feel very good about that. The contribution, the synergy is almost exactly what we had projected. There's an awful lot of work going on in integration activities right now. I would describe the activities currently as getting prepared with systems efforts and other efforts to make sure that we replicate the Genoptix customer experience as we migrate them to the NeoGenomics platform. There's a lot of work going on. We expect that client migration process to start around in the September timeframe. It's not going to take us that long, but we've got the luxury of time on this one. We don't have anything forcing our hand, so if we run into any issues, we'll slow it down.
We feel very good about that process. I would say on the revenue synergies, it's a little early to comment on revenue synergies. Everything we're hearing in the marketplace is positive. I haven't heard one negative thing about channel conflict. On the opposite side, we're starting to see some opportunities where we can cross-sell our solid tumor menu to the community oncologists that previously only purchased heme services from Genoptix. I think so far so good. We feel very good about it. No change in any of the synergy expectations that we laid out previously.
Great. A bigger picture kind of question here is more people are getting aware and waking up to kind of what's going on inside your company. Investors continue to ask us about things like market share, and you talk a lot about taking market share, but can you update us a little bit on where you think market share stands today and what you think underlying market growth is based on the segmentation, however you guys look at it internally? I think that would be helpful to people as they're getting up to speed here.
Yeah. I would say that it's a big market. We think we're the leading player in somatic cancer testing in the market, but it's a very competitive market. We compete with the large lab companies and also with specialty companies in one testing modality. They're all very good competitors. I think our competitive advantages are that we've got a comprehensive menu, probably the most comprehensive menu available for somatic cancer testing. We tend to be a one-stop shop. We try to provide better service than our competitors, but we're in there fighting every day. In terms of the growth, I would say, we believe that the market's growing in the kind of the 7%-9% area, and that's largely next-generation sequencing bringing that number up. The more traditional kinds of tests are not growing nearly as fast.
Next-generation sequencing for sure is growing at a very fast clip. We're taking market share. There's no question about that. I think we're taking share both in the Clinical division, and I believe we're taking share in the Pharma Services division, too. There's a lot of growth in oncology clinical trials, but I don't think it's 55%.
Great. Thank you, guys.
We'll take our next question from John Hsu with Raymond James.
Great. Thanks. Maybe we could start with the revenue guidance. It appears that things are tracking pretty well. There's good momentum. Yet the updated revenue guidance does imply a back-half deceleration to the 2Q. Maybe, Doug, could you speak to your level of confidence in how the business is tracking?
Yeah. I'm very confident that the business has got great momentum. If you look at the quarter, I'll just start with pharma. There's not much not to like about the pharma numbers, including the backlog which I think suggests that maybe not 55% kind of growth, but strong growth will continue there. In the Clinical division, our volume growth continues to be very strong, better than we expected. We gave guidance at the beginning of the year, which suggested that the Genoptix additional business would come in sort of flat, that we would have growth in our core NeoGenomics clinical business that would be in the 10% to, I think, 12% range. It's a heck of a lot better than that. Our organic growth as a company was in the range of 20% for the quarter.
There's really very strong momentum, and we're trying to be prudent with our guidance. As Bill mentioned, we do have integration activities that are continuing, but I feel very good about our company.
Okay, great. Just on the physician fee schedule, it sounds like that came in a little bit better than where things shook out for last year. As we look out to 2020 and beyond, at this point, is 1%-3% still the right way to think about the typical annual pricing pressure?
I think it is. As you know, we've encountered a lot of pricing pressure in the past. We've tried to tell people over the last couple of years that we see it stabilizing. It has stabilized. One important element of that is that Medicare is only 12% or so of our total payer mix. PAMA, as you know, is affecting our whole industry, and there's some issues with PAMA that we're trying to get fixed as an industry. PAMA affects the clinical lab fee schedule, which is only 5% of our revenue. Those pressures don't impact us as much as they have in the past. We've got almost 70% of our payer mix billed directly to clients. Those are hospitals or pharma companies. We feel pretty good about the stability of our average unit price.
This is healthcare in America, so we expect that there's going to continue to be price pressure, and we're not raising prices. We're continuing to keep our prices pretty stable and, in fact, lowering them for larger hospital systems when it's appropriate. Yeah, 1%-3% decline annually, I think is okay.
Okay, great. If I could just sneak one in. Obviously, with the equity raise and amended credit facility, you have a lot of dry powder here. Just want to take your temperature. How would you characterize the deal pipeline currently in terms of size and maybe function?
Well, we're, I would say, first of all, very excited about our organic growth opportunities, as we've mentioned here. I'll say that first. Secondly, we spent a lot of time thinking about strategy, and we think M&A can be an appropriate way for us to advance those strategies. Right now, we're more focused on our M&A opportunities in the pharma business. We've got an integration going on in our clinical business, our cup is full on that one. There are some very interesting things that we're looking at on the pharma side, and we'll continue to pursue those if we can find the right opportunity with the right cultural fit and the right economics, we would be all in.
Excellent. Thank you so much.
You're welcome.
We'll take our next question from Steve Unger with Needham.
First question, just could you provide a little more color on the market share gains in NGS? I realize that you had some large customer wins last quarter, and I'm wondering if you could provide some color on customer wins this quarter and how long it takes for those new relationships to materialize into revenue?
I would say that we continue to gain market share widely in our Clinical Services division, that would include both hospitals, individual hospitals, hospital systems, divisions of hospital systems, and also large oncology groups. We did close a number of larger oncology groups during the quarter, those ramp up over time. Some start a little faster than others. Every customer is a little bit different. I would say that the NGS testing is growing apart from market share gains. It's growing because I think our offering is quite competitive, particularly with hospitals. That's because we're offering a comprehensive menu of NGS tests. We offer these very comprehensive panels, which are typically used for advanced cancer patients and cases. We also offer sort of disease-specific panels, which bundle also other test modalities.
Those, I think are seen by customers as a good economic offering, as well as a very important offering for the important driver genes and genes that lead to the right therapies. I think our offering is pretty competitive, and that's why the market share in next-generation sequencing tests for us is growing nicely. The investment that we're making in NGS should help us to continue to see growth at an outpaced pace there.
Great. That's helpful. Then, I'm sorry if I missed this, but could you provide the expected outlay for the capital outlay for the new headquarters and how you plan to finance it?
Yeah, we said that we expect that 150,000 sq ft of facility, that's about half lab and half admin, will cost in the range of $50 million-$60 million. We have a wide range of possible financing options, and we're exploring all of them. We haven't concluded on how we'll finance that. We're very confident that we can do that at a good rate. I will say one other thing, that we've announced some really nice incentives, governmental incentives from the state of Florida and in the local government here that will offset some of the cost over time and allow us to have, I think, very good economics that are, at the end, relatively comparable to the cost per square foot that we currently enjoy here.
One thing I'd add, Steve, just so everybody's clear, is it's not our intention to use the proceeds from the equity offering to fund the building. There will be separate financing available for that. As you can imagine, there's lots of options there. The capital that we've created through our credit facility and through the equity offering, that will be used for strategic purposes.
Great. That's helpful. Thank you.
We'll take our next question from Joe Munda with First Analysis.
Good morning. Can you hear me okay?
Yes, we can, Joe. Good morning.
Good morning, Doug. My first question is on the Pharma Services side, and it's a two-part question. Just curious, did Genoptix contribute any revenue to the Pharma Services business? The second part of my question is, in regards to the Pharma Services business outside of NGS, are there any testing modalities that you would potentially like to add or that pharma is coming to you and asking specifically for that you said, "If we had this, we can really push the Pharma Services business?
Let me try to address that. George Cardoza is here also, and he may build on what I say. First part of your question, Genoptix really did not contribute much at all, very small number to the Pharma Services revenue this quarter. That was pretty much all organic growth. In terms of new technologies, we offer more technologies for our Pharma Services division than we do for our Clinical division. We talk about synergy between these two divisions. One thing, Joe, is that we get to see new technologies that might be associated with new therapeutics because we have a window into that through our Pharma Services division. We do invest in new technologies there, and eventually, they may be appropriate for clinical use.
We do have technologies like Multiomyx, which is a multiplexing immunohistochemistry modality that is used well for clinical trials and for research by pharma companies. We use almost any instrumentation that is available for oncology kinds of diagnostics for pharma. I think an emerging technology might be proteomics. That's something that we're exploring. We've just really invested pretty heavily in flow cytometry for pharma, which is a little different than it is for clinical. We've got a wide range of technologies that we're using here. We'll use anything that pharma wants us to use, and I think that's one of the attributes of our business. George, you want to add anything?
No. Really, Joe, it is a matter of just listening to our customers. Certainly, Doug mentioned Multiomyx , which does have a higher price point and certainly can do We have one project that's up to 35 markers, but they had requested a multiplexing solution, even at a lower price point. We're bringing up the Vectra Polaris platform, which is better for five or six markers and a more competitive price point. We're bringing up NanoString earlier this year, the IO 360. Really, it's a matter of just listening to our customers, seeing where the technology is going. Like Doug said, it really gives us a nice window on where the trends are going.
Okay. One more, if I may. Doug, the new lab you talked about, I'm sorry, the new facility, the new HQ, 150,000 sq ft , half lab, half admin. I'm just curious if you can remind us, how much bigger is that lab going to be versus the current lab?
In Fort Myers today, Joe, we're operating five facilities, and we have about 70,000 sq ft of facility. The new lab, the new facility will be about 75,000 sq ft of lab, which is a tripling of our lab space. It's about a doubling, I guess, of our admin space, to give you some sense for it. We intend to try to hire around 300 people here in the Fort Myers area over the next several years. Part of that is growth in our whole company, but part of that is moving some business that's currently being processed in our West Coast labs and moving that to the East Coast labs in Fort Myers so that we can service our customers better. That's just a quick summary. Does that answer your question?
It does. Thank you.
We'll take our next question from Bruce Jackson with The Benchmark Company.
Hi. Thank you for taking my question. In the past with the Pharmaceutical Services business, you've talked about 70% of the backlog converting to revenue over three years and 50% during the next 18 months. Is that still how we should think about the revenue flowing into the income statement?
We do have more phase II and phase III trials, that may move the 18-month number out a bit. I still think when you get to the three-year number, you're probably directionally correct. We are getting a little bit longer projects, which believe me, is a very good thing. We want those, the phase III trials. They're typically a much higher dollar point. Those are the trials that can go out potentially three to four years.
Okay, great. Anecdotally, Genoptix has been generating some incremental revenue in solid tumor testing. How is that working out? Have you seen any solid tumor testing increase as a result of the Genoptix acquisition, and how do you see that ramping up over the course of the next several quarters?
I would say, Bruce, that we have very good interest from clients. We're starting to see some, but it's early yet. We're migrating clients. We're worried and working very hard on the integration. We haven't really yet mined that opportunity to its fullest. I expect that there will be a number of opportunities as we get our Genoptix clients migrated so that we're operating all on the same system with the same laboratory system, the same SOPs, the same billing system, and so forth. That's when we will fully explore the kind of revenue synergies that you talked about.
Okay, great. Thank you very much.
You're welcome.
That's the last question we have in the q ueue. Mr. VanOort, I'd like to turn the call back over to you for any closing comments.
Okay. Thank you, Tom. As we end this call, I'd like to recognize the approximately 1,485 NeoGenomics team members around the world for their dedication and their commitment to building a world-class oncology diagnostics company. On behalf of our NeoGenomics team, I want to thank you for your time joining us this morning. For those of you listening that are investors or are considering an investment in NeoGenomics, we thank you for your interest in our company. Goodbye.