All right. Good morning. We have the whole crew from NeoGenomics. I'm just going to go with, anyway, I'm David Westenberg, the Life Science Tools analyst here. And we'll just kick it off with something a little bit more on the high level here. What does it mean to be a one-stop oncology shop?
I think more and more, especially when you think about the cancer care continuum, it really is a life journey for patients. And I think when you think about clinicians, there's multiple things that they have to do along that kind of journey of treatment. And they're looking, the customers are looking for one company that can do all the testing. And I think one of the things is you look at this market. I think you have the big reference labs that do thousands of tests. But even in those specific companies, we probably have a broader cancer portfolio. We have about 600 tests for cancer. And then if you look at what we call the onco-techs, there are generally four or five tests. And the challenge with those companies, why they have some innovation, you have to go to multiple vendors, including us, to get that.
I think by kind of saying that you have the full continuum, it allows us to service customers for all their needs from a cancer testing perspective. And I think that allows us to kind of become the market leader. We were already the market leader in heme, and I think more and more we're seeing that across multiple disease states.
Gotcha. So I think you have a different target oncologist relative to a lot of the pure-play esoteric companies, oncologists in the community. You have a different payer mix. So can you speak to some of the differences relative to the ones that we all know, like Guardant, Tempus?
Yeah. So if you think about those companies, the majority of their time or a lot of their revenue comes out of what we call the community oncology practice. And if you look at our business, a majority of our revenue comes out of the community hospital. And the difference with that is interesting. From a payer perspective, about two-thirds of our revenue is billed directly to the hospital. So we don't have issues potentially with contracts or long lead times. That's a very different world. So we like that model. We love that about a third of our business comes out of the community oncology piece. That being said, the big growth area is the community oncology practices. So more and more, if you look at our field expansion, all the things that we're talking about with new products coming to market, it's very focused on that group.
But you really have a pathology group and an oncology group. And really, in the treatment for a cancer patient, you have to have the ability to deal with both. And one of the things that we love about our business that's in the hospital, where we're a market leader, is we have deep relationships with pathologists. And that's a very sticky business. And especially in solid tumors, the block of tissue is with the pathologist. So I think having that relationship with pathologists has served us well even as we build up this community oncology practice.
Yeah. And so that's interesting. My next question was, can you talk about the sales force focus on pathologists? But maybe drive down a little bit. How does that drive IVD volumes?
Yeah. And just so everybody knows, I'm Chris Smith, CEO.
Oh, sorry.
No, it's okay. Jeff Sherman, CFO, and Warren Stone, Chief Commercial Officer. And it's a great question for Warren. And I'm just going to kind of throw the ball, if that's okay, over to Warren and let him talk a little bit about that and the commercial side.
So I think maybe over the last years, we've made some meaningful investments into our commercial sales team. And I think there's been two areas of investment. The first one has been we've strengthened our position within the community hospital setting. And that strategy is very much around selling our broad portfolio. We have more than 500 different tests which target both in terms of diagnosis and therapy selection. And really, when those team members go into those hospitals, it's around securing all of their oncology send-out work. That's the strategy. And that drives overarching volumes across those 500 or 600 tests that we have in our portfolio. In the last sort of 18 months, as we've brought out more tests, particularly in the solid tumor therapy selection side of things, we've had to invest into what we call our oncology sales specialists.
This is a sales team that is dedicated towards focusing on the oncologist. Whether they have a private practice, they're affiliated, or they are part of a hospital system, we target the oncologists with our therapy selection portfolio, either within heme or within solid tumor. So there's principally two strategies. The TBMs, the territory business managers, they're core within the hospitals. They're driving volumes in general across our portfolio, whilst our oncology sales specialists are focused much more on therapy selection, NGS, and driving those higher value modalities.
Gotcha. Now, let's talk about TAM and market growth and how should we think about that? I mean, it's kind of interesting here because we have a lot of the specialty oncology players, and they have giant TAMs because you're looking at markets like minimal residual disease profiling, all that. But you have even more than that. So maybe if you can frame all the different pieces of market that you can go after?
Yeah. Look, I think everybody.
Growth rate.
Yeah. Look, I think everybody is excited about the MRD space because of what the future holds. It's very early days in that space. But people have that at 20. I'm trying to come back to your recent notes. Was it 40? $40 billion?
I'm the highest.
Yeah. Eventually, $40 billion.
I have 18 million cancer survivors times 3-4 tests a year at $3,000 for multiple years.
Yeah. It's a big, big market, right? Very, very.
Tens of billions.
Growing well, but small penetration. But it will be a big market. I think if you come to the next really, I think, attractive market is really what we call that NGS market, which we have probably all the market data has it around a $13 or $14 billion market. It has a growing 15%+, but only 30% penetrated. And we're 10 years into that market. And that's what's really interesting about the cancer market is that you go to MRD or you even go to NGS, it takes a long time to develop those markets. If you come over to the other side, really where a lot of our bread and butter is, is kind of around diagnostics. And that's even a several billion-dollar market. Now, it's not growing. It's growing 5%-4% a year. But it's about 70% penetrated.
So I think if you look in the markets that we compete in, you're talking billions of dollars in significant market growth opportunities. And the whole cancer market, we would have probably growing anywhere from, on a revenue perspective, 8%-10+%. And so I think if you're able to manage your portfolio, which is what our strategy is, you really can have the ability to grow with market. Our public strategy that we've talked about is we want to grow faster than the market in all our modalities. And I think if you look on our last earnings call, we're continuing to do that. So we feel really good about kind of our position there.
Now, you have a pretty big share in the heme market. So why is that? And is the market share gains or the high market share there sustainable?
Yeah. I think that it is. And we probably have a 25% market. But do you want to talk more to that, Warren?
Yeah. So yeah, we estimate sort of 25%+. And it's a market that is growing really rapidly for us. We still see it growing sort of high single, low double digits. And that is as more people get access to care. And secondly, we're starting to see more and more pharma companies invest in therapeutics for heme cancers. That's a trend that was obviously very robust on the solid tumor side of things. But heme cancers are catching up really quickly. So as you start to see therapeutics come through, that drives demand for more testing. So we anticipate that market that will continue to grow at this, as I said, high single, low double digits in the future. And we feel with our position, we can capitalize on that.
That's a great segue into the next one, which is about percent of NGS testing in heme versus solid tumor. Now, you already have 25% share in heme. So what percentage of that is NGS? And has that been kind of the lowest hanging fruit to get you into the more higher value, higher revenue tests?
Today, if you look at it from a kind of a volume perspective, it's sort of a 60-40 split on the NGS side of things, 60 heme, 40 solid tumor. We're catching up quickly on the solid tumor side of things. Certainly, as we've developed our technologies, NGS has been a key focus both on solid tumor and on heme. We kind of our sales strategy to our customers is somewhat agnostic. We don't have a dedicated heme sales force or a dedicated solid tumor sales force. It's really around understanding the needs of our customers and ultimately the patients and positioning our portfolio accordingly. Clearly, we have a lower share on the solid tumor NGS. Therefore, that's growing from a percentage perspective at a higher rate.
Yeah. We would be very low on the solid. I think the other thing Warren mentioned is that we focus our sales organization on the call point. So rather than heme or solid, we have a sales organization that's very focused on the hospital, which is primarily the pathologist, and then a sales force that's focused on the community oncologist, which is kind of a more clinic-type place.
Gotcha. Maybe we can dive into that in terms of NGS. Is NGS helping you grow? Because that's a 40-60 split that you have there with 40% being solid tumor. Has that been a good way to segue into selling other products into the solid tumor? Medical oncologists?
I think our portfolio helps a lot, right? So I would say almost the opposite that we get help from our traditional portfolio to get the NGS business. Because normally, you would have been maybe getting five, six, 13 tests from us. But you weren't getting your solid tumor from us. You were going to another competitor. I think as we launched that product last year, which was a 500+ gene panel, it was a very competitive product. And it's helped us, I think, pull through the solid tumor.
I echo that. It's the other way around. I'd say our heme is a little bit of our Trojan horse. We leverage that as a mechanism to actually sell through in terms of solid tumor. And again, because of the strong relationships that we have with pathology, which is often where the solid tumor sample is housed, the block, we're able to access those blocks more readily, turn those around significantly quicker than what we think some of our peers can. And from just an overall turnaround time perspective, which is a key sort of test provider selector criteria, we feel we have a competitive advantage there.
Gotcha. Let's stick to the NGS theme. I mean, I think you stated 30% growth earlier in the year. It's a pretty high growth rate to sustain. So are you still there, and let's just think about lapping that next year. I mean, it's a pretty lofty number to kind of lap.
Do you want to talk about how we talked about it in the last quarter results and how we're?
Yeah. We grew 26% Q3, 50% Q1, 40 in the 40s in Q2. And we expected the growth rate to slow as we introduced new products in 2023. And they started picking up in the second and third quarter. But we still think we're going to be growing above market in NGS. And so as Chris said, if it's 15%-18%, our expectation is we're going to continue to grow faster than that. New products will help drive that as well. And so as we think about new product introductions as well as expansion of the sales force, we certainly think we can continue to grow faster than the market.
Those are two important levers maybe just to point out. I think PanTracer Liquid that will launch in the first half of next year is going to be a key catalyst to maintain that growth rate. Plus, sometimes difficult to believe, but 85% of patients are still served in the community. So many people just still don't have access to care. There's a lot of opportunity to grow within the community. The combination of additional products, and particularly PanTracer Liquid, as I said earlier, and the investment in the sales team, sort of a 30% increase in sales resources targeting that community oncology in 2025 is really what's going to continue to fuel that growth well above markets.
Perfect. Now, just switching to MRD, you mentioned earlier in the year maybe leaning on partnerships or licensing agreements or things like that or some sort of strategic arrangement. So what would that look like in your mind?
Yeah. Look, I think you have to start with kind of the basis that MRD is going to be here, and it's going to be real, and it's going to be big. And so our view is, look, we have to be in MRD. But we don't think it's one product that's going to serve all the needs. So our strategy has been kind of a multi-pronged. I mean, one is we've been going through, as you know, there's been legal. We had a RaDaR product on the market that we took off the market through an injunction. And we've been going through settlement and legal to free that up. I'd say the second one is really organically developed. So the two big things that we're working on organically is that we're very good around tumor-informed technology because of the Inivata acquisition and the R&D capabilities there.
And there's two products. One is 1.1, which is, think about it, from a clinical effectiveness or at least from an equivalency to 1.0 from a clinical outcomes perspective. That product will clear clinical validation in H1 of next year. So that's kind of our ability to get that product back on the market. We think it'll be highly competitive. And I think we have a very good MolDX strategy that's tied to the products that we had already had on the market. And we've continued to run all those clinical trials to get reimbursement. And then I'd say the second one is we're kind of in the middle stages of developing our 2.0, which will be significantly more sensitive. So that's, I think, in tumor form.
When you get to the place where you brought up the question is that, look, I think there's a lot of innovative companies out there that are developing both tumor-informed and tumor-naive that are different than our technologies that we think will have a place in the market. A lot of these innovative companies do not have a commercial way to get the product to market. And look, I talk more about strategic partnerships and licensing as opposed to going out and buying something that's burning $50 million a year and not going to see the market for three years. And so we built out our BD department really in the second half of last year. And one of their big mantras is about getting out and developing relationships and getting these kind of technologies that we think we'll see.
If you get 1.1 next year, you get 2.0 in two and a half years. It's really what's going to be the thing that comes in four and five years. And a lot of those are in the early stages. And so that's kind of where we are. We haven't disclosed any specific relationships. But there's a lot of work going on behind the scenes.
Great. Now, MRD, can you talk about what you're doing in the pharma services business, whether or not some of the IP stuff has impacted that at all? And just as we think about the long term or a little bit more long term in pharma services and minimal residual disease, I mean, already on the heme side, you've seen it being called a primary endpoint with clonoSEQ. And I think there was just a revised thing from the FDA talking about this is definitely a marker here to stay. So I mean, how do you see that as a growth engine in the pharma business?
Yeah. I'll take maybe the first part of that question and then let Warren take it b ecause since the pharma business report's up to him, look, without question, when we had the injunction occur on RaDaR, we were precluded from selling any new clinical trials. But we were able to finish off the clinical trials that we already had underway. And so without question, not having that RaDaR product on the market for the last 12 months has an impact on the pharma business. So that would definitely be there. But do you want to talk more about kind of longevity and?
Yeah. So I think just maybe building on that, that our sort of sense in terms of engaging with pharma companies on the solid tumor side in particular was that they see the value. And they see the utility in this as a solution. And certainly, not having RaDaR available to them has been impactful. But they certainly see the value in us as an MRD company. And I feel confident that we're able to reengage them again as soon as we have a product on the market. heme, we're the heme leader. And we continue to look at different options in terms of MRD at a heme level.
And I think the sentiment, and you touched on some of the recent sort of feedback around regulations and sort of user sentiment, that the feedback has been very positive about how heme MRD can be used as a mechanism for pharma. So it's an area that we're looking at as well, either through partnership or potentially some of our own activities.
Moving on to Jeff on EBITDA here. You're on pace for $40 million now. How are the different frameworks to think about EBITDA growth next year or maybe even over the longer term in relation to revenue growth or any kind of framework that you would give us in terms of how to think about that?
Yeah. I mean, our higher level framework, I think, remains intact, which is we're going to grow revenue fast, grow gross margins faster, and grow just a little bit the fastest. And I think as we think about the drivers of the business, we're investing a lot in the sales force to drive top-line growth. We still think we have a lot of operating leverage we can get in the business on both a gross margin and an EBITDA margin perspective. And so as we think about the next couple of years driving that top-line growth, we've said we'll give an update on our long-range planning here at the end of the year as we either at JPMorgan is where we report our fourth quarter results. But investing in operating efficiencies, investing in our LIMS as well is going to drive gross margin improvement.
And we think we're going to continue to get operating leverage on our OpEx and overhead costs as well. So we think there's a clear pathway to continue that march to get the company back to the mid-teen, adjusted EBITDA margins that we talked about last year.
Great. Well, actually, maybe we can focus on one key area, which is growing the NGS volume. It is a higher margin test. It has a higher contribution margin. I mean, you're probably likely to be able to invest in the operating line and still kind of get that operating leverage, right? So is hiring more reps something you could consider? And how much ROI are you seeing on reps in terms of getting market share gains? And who would you be getting market share gains from? And you can speak at a high level.
I'll put you against.
It's a different company.
Yeah. I mean, I'll start. So we have clearly, we've been investing in sales force expansion. And we clearly have seen that be a driver of top-line growth. And it's been a major contributor to both gross margin and earnings growth. We said in the last quarter, we still expect another roughly 30-plus% increase in the sales force in the first half of Q4 and in the first half of next year. And looking at a ramp of anywhere between six to nine months plus for the sales force, that's going to be a driver as we get into the back half of next year on volume. But we have clearly seen a correlation between market share gains, top-line volume growth, and our investment in sales. And we'll continue to invest there where it makes sense.
But I mean, maybe just to build on, it hasn't just been a case of, OK, let's invest in commercial salespeople. It's been in conjunction with our portfolio launches as well. So as we've launched portfolios and really started quarter one of 2023 and fairly regular intervals, lots of those portfolio items have been targeted towards that community. And it's around the therapy selection. And we've augmented and added to our commercial resources to actually ensure that we have the presence, the reach, the frequency into those core points that we can drive adoption of those tests. And we can look at the volume ramps of our new products as one of the metrics to determine success, which has been very favorable. And obviously, the revenue is a second.
And I think that's the reason why we, one of the reasons why we've elected to invest again going into 2025 because of the launch of Pan-Cancer Liquid that'll take place in the first half.
Yeah. And equally important, we'll continue to invest in operational execution. So I mean, our turnaround times continue to improve. And that has helped us both maintain and capture market share as well. So our operational efficiency, turnaround time, getting results back faster, that kind of white glove service has been really done hand in hand with the sales force expansion and has allowed us to continue to grab market share as well.
Gotcha. Let's maybe talk about the guide. You did raise it net of the beat, implying that there is a second half growth or higher than your expectations. Can you help us frame what might be happening in the second half? Were there any products that were going as just continued momentum? Any kind of thoughts there?
Yeah. I'll start. And then maybe one. So I would say the continued maturation of the Salesforce growth that we had done earlier in the year has certainly been a driver. We talked about in the third quarter call some new client wins as well being a driver in Q4, particularly on the hospital side. And then I think just further penetration on some of our recent product introductions.
I think, Jeff, you've hit the three key areas. I can't really add to that.
Nope. All right.
Perfect. So historically, we've always thought about NeoGenomics as the company that gets volume gains. But there's always this price headwind year after year after year after year. So are there any concerns with PAMA or any other thing on the Physician Fee Schedule where we would think about that would continue to, or that might, we might see a return of that? I know right now your price has been driven by mix rather than just on a like, so like basis.
Yeah. Not totally mixed. So probably 60% of it has been mixed. So look, that's fair. I think when you talk about historically, I think that was an old Neo in the old days. I mean, I think, look, Neo was a company that didn't raise prices, for example, right, for, I don't know, six, seven, eight years. And I think in this industry, everybody's costs go up a year. So we've instituted price increases. I think we do a significantly better job of revenue cycle management than we used to do. And so we actually see price as an advantage. And I think it's how many quarters in a row that we've.
13.
13 quarters in a row where our AUP has increased, so I think we see that there is runway.
Yeah. And I think if you go back to our mix, again, 2/3s of our business being direct client bill, we're getting annual price increases there. I'm not saying it's easy. But I do think there's a realization from our hospital partners that their costs are going up. They're getting price increases in their business from Medicare and managed care companies. And that remaining mix of our business, we are getting managed care pricing increases as well. And so where you will have some Physician Fee Schedule compression, it's going to be clearly much more overridden by increases that we're seeing in the other parts of the business. So I would say even if mix was flat, we still think we'd see we'd be a net price gainer in our current business model. That's great. And maybe stick with the stuff outside of the mix.
So how are the products outside of NGS growing? What's the strategy to continue growth there? I mean, maybe even throw in PCR, which is kind of in between the basic and the NGS.
So look, I think most of those modalities, the market has them growing anywhere from 2% to 4%, 2% to 5%, and we've historically been growing faster than market in every one of those modalities, so if you think about FISH, flow, cyto, and so I think our goal is to continue to grow those. I think the reason being, we believe there's a lot of share movement that's occurring for us in a positive, but still a very big market and relatively low share, so a lot of places to move on that.
And maybe just I'll build on that. And that comes back to the commercial strategy and our territory business managers that are in the hospital. That strategy is to sell our entire portfolio and really convince a hospital to send all of their oncologists and that work to us. So that's really what's driving that growth. We did invest earlier on 2023 and early parts of this year into a few more resources that are focusing on that. But it's the execution of what we call the protect our existing business but expand share of wallet that's driving that volume growth. And we believe there is still good opportunity to continue that growth within the hospitals. Your question on sort of PCR, et cetera, we do look at our portfolio and look to sort of identify where some economies of scale lie.
But we also acutely focused on sample input and turnaround time. And PCR has some great utility with regards to very small sample input and incredibly fast turnaround times. So there are certain tests where we actually, it may be marginally more expensive for us to run on PCR. But we choose to do so because of the smaller input requirements and the faster turnaround. And we can then charge a premium back to that fee schedule to the client for that service. So we look at it, our strategy is not to just consolidate onto a single platform and run as much volume as we can. We're very focused on the different tests and ensuring that we can also meet sort of guideline requirements because that also helps from a reimbursement perspective when we have to go to third parties.
Got it. Well, that's all the time we have for today. Thank you.
Thanks, Dave. Appreciate it.
Thank you.