All right. Welcome to day two of the Stephens Conference. I'm Mason Carrico. I'm the diagnostics and medtech analyst here at Stephens. Excited to have NeoGenomics joining us today. We've got Tony Zook, CEO, Jeff Sherman, CFO, and Warren Stone, COO. Thank you, guys, for joining us.
Thanks for having us.
Maybe to kick it off here before we dive into Q&A, could you just maybe run us through a quick recap of the quarter? What should investors take away? What should we focus on?
Sure. I'll kick it off. Jeff or Warren can add in. I would say, Mason, overall, it was a very strong quarter for us. Our clinical business, which you know represents well over 90% of our business, had very strong growth. Volume was up 15%. Revenue there was up 18%. That was offsetting some of the headwinds that we knew we were going to experience with pharma, which netted us out at around 12% growth on revenue for the quarter. Strong performance relative to that. When you dig within the numbers, there were some things that we really liked to see. We saw our NGS growth rate was 24% for the quarter as well. In large part, that was driven by volume, not just price. We are seeing uptake as we hoped.
We've been tracking our ongoing penetration in the NGS segment because we've made it very clear to people that we want to be more in therapy selection and solid tumor and MRD. We highlighted early on the five key products that we had launched a little while ago. That was representing now 24% of our overall clinical revenue. Those five at NGS in totality was almost a third. We are seeing the migration of the portfolio move in the right direction. We also saw for the quarter strong performance relative to AUP. Our AUP was up quarter over quarter, 3%-4% X Pathline. It was also up by 3% sequentially. Again, we saw strong movement relative to that marker for us.
I guess the big news, of course, was our ability now with the court case to be able to re-enter the MRD space with RaDaR ST. That provides us an opportunity. As you know, we're taking advantage of today in the pharma space. We look forward to a formal launch into the clinical setting next year. It gives us opportunity to see not just NGS be a growth driver for us, but now that MRD space can fuel growth for us now and into the future. I think in many ways, it was a strong quarter and evident that our focus in the community is paying off dividends for us.
That makes sense. On those five high-value NGS tests that you just mentioned, how should we be thinking about the contribution from those moving forward? They've been growing as a percentage of sales, I believe. How should we be thinking about it moving forward, particularly as the PanTracer family starts to roll out?
Sure. You want to take the lead or want me to?
Yeah. I think a couple of points that I'll say there. Certainly those five products contributing to the 24% of revenue. Both the quality and the value of those products, along with the fact that we invested in increasing our commercial organization at the end of 2020, right at the end of 2024, moving into 2025, we sort of added roughly 35 additional what we call oncology sales specialists, OSSs, that really do target the community oncologists. It's the combination of those products plus those resources sort of getting up to speed. If you think of that six to nine-month ramp and the combination of those two that you're seeing this attractive sort of growth and penetration.
On the back of those investments in OSSs who are focused on NGS, we expect that business to continue to perform really, really well because we're increasing our reach and frequency. We're bringing on new physicians sort of every week, every day. It's broadening our penetration base. The other important point that you touched on was based on feedback that we received from the market and through various advisory boards, they just felt the way we had positioned our solid tumor therapy selection portfolio was maybe a little complicated. We took the opportunity to rebrand under PanTracer family, which includes PanTracer Tissue, PanTracer Tissue + HRD, and now PanTracer LBx . Simplified the message, simplified the value proposition, and very encouraging to see the sort of lift that that category as a whole saw in quarter three.
We feel that that strong feedback, along with the fact that we will be on the market with liquid now, we expect NGS to continue to grow well above market and continue to become a more and more relevant part of the NeoGenomics story moving forward.
I do think that just speaks to the strength of our commercial channel as well because these products have just been introduced in the last two years. We were a little bit later to the market than some of our peers with these products. We have seen very good uptake. I do think it speaks to the breadth and strength of our menu. When we introduce a competitive test in the marketplace, our ability to penetrate and capture market share, I think it is good evidence with these recent product introductions.
I'd say maybe the final point there, Mason, is that I think historically, we've been driven kind of by this mindset of grow volume, grow volume, grow volume, right? I think here now we have the opportunity to be very focused and say, "Let's grow the right volume." We have the opportunity here to now say, "Do we really need to be so dependent on high-volume, low-value tests?" Or now with our penetration of NGS, now approaching a third of the portfolio and MRD coming online, I think we can be much more selective because we are seeing these really strong growth rates. When you see a 24% growth rate absent PanTracer LBx, for me at least, it says this should be a growth driver for us for the foreseeable future and well above market growth.
Maybe digging a bit deeper in the PanTracer family, starting with just tissue and tissue and HRD, could you just talk about the early adoption curve that you've seen across tumor types?
Yeah. I'd say the following. Our strategy has been very much to focus on the community, so oncologists in the community. I don't want to say that we don't have any business in academic, but it's not our primary focus. We look to develop products and solutions that really address the unmet needs or pain points of oncologists in the community. Typically, you see quite a broad variety of different sort of practices. You see those that are very generalist, and they're seeing all types of cancers. Then you see larger practices that may be cancer-specific, and you have a lung doc and a breast doc or whatever the case is. It's quite a broad gamut.
As we look to penetrate that market and look at how the volumes come in, it's becoming pretty broad-based now as well, both across the country. The sort of indication makeup is very much aligned with what we see on the national indices in terms of how cancers are manifesting, etc. We certainly, with liquid, we're starting to see more lung because it's a more typical profile based on the absence of tumor in many cases. If we look at that pie chart, it really does, it's very representative of what you see from a national incidences perspective.
Okay. On PanTracer LBx, where do discussions with MolDX stand? What assumptions should we be making, I guess, around paid volumes in 2025 and 2026?
Yeah. We've been pretty transparent on the second one. Let me start at the beginning. We're in ongoing discussions with MolDX. What we have seen, Mason, across the landscape is it's typically taking two or three turns through MolDX at 9-12 months, roughly. While we were optimistic we might secure reimbursement by the close of the year, we never planned it in our guide. Even when we gave the guide, we said that would represent upside for us, and it would not be critical for us to deliver. We still maintain that position, right? This year, it's all upside if it happens. We plan certainly to have it going into next year.
For next year, we see PanTracer LBx joining the PanTracer family and that building and ramping quarter by quarter, where you'll see the effect, obviously, more pronounced in the latter part of the year, but certainly contributing to growth for us.
Got it.
If you looked at PanTracer Tissue, which was previously Neocomp, we introduced it in the end of the first quarter of 2023, and we started seeing some build, and then we saw more growth in the first half of 2024. It will be a build over time, but we're certainly optimistic based upon the early feedback we're seeing.
Got it. On that point, I guess you extended the EAP earlier this year. You made some changes to the product. Could you maybe just, I guess, first remind us what were those changes? As you look out one to two years, what other updates do you think could be made to accelerate adoption of that offering?
Yeah. I think a couple of points to make is, I mean, again, going back to 2023, when we started to launch these therapy selection NGS assays, we started to develop this sort of launch excellence framework. One of the elements that we've built into that framework was this inclusion of an EAP program. The EAP program really serves two values for us. The first one is to get real clinical feedback from users around the assay and sort of how do we improve the assay. The second one is from an operational workflow perspective. Running water through the pipes end to end at some kind of a velocity really helps to sort of stress test the system. We wanted to do both of those. I'd say we found opportunities on both ends of that equation, and we put them in place.
I think in terms of the clinical side of things, based on the feedback from physicians, certainly in terms of cutoff levels, in terms of limit of detection, was one area that we picked up on some feedback, and we've addressed that to bring a more competitive assay to the market. That was one aspect. Secondly, the structure of the actual report. Interesting from a community perspective, the actionability of the information becomes really, really relevant. They're really interested in the actionable insights, making sure that's on the top of the reports and sort of above the fold, etc. We made adjustments there, along with further calibrations from a workflow perspective in the lab that allowed us to improve turnaround time. All of those were incorporated in the product that we launched at the end of July this year.
Got it. Understanding, I guess, we're still early in the launch here. What are you seeing in terms of typical attach rates to PanTracer Tissue? Are you seeing concurrent ordering, reflex testing? Give us a sense of, I guess, how it's being utilized.
I think all of the above. I think where we are seeing most of the concurrent testing comes in the lung space. A high portion of the lung testing that we are doing today is coming in the form of concurrent testing. We are seeing a fairly strong adoption from clients who have used the PanTracer Tissue assay previously. Actually, the reason why we introduced the liquid was the same PanTracer Tissue customers actually were asking us for a liquid solution because not only in terms of concurrent use, but also the reflex option if you get a QNS TMP was important to them. That was one of the drivers for introducing the liquid. That was obviously a natural first place to go. Somebody who's familiar with NeoGenomics understands our workflow, potentially interfaced in terms of the ordering process.
We're seeing a nice uptake there. Very importantly, one of the things that have surprised us is around net new providers using the assay. Assays that have providers that have been not familiar with NeoGenomics have actually started to use the assay as well, which I think is testimony to a sort of a new sort of targeting solution that we've actually empowered our salespeople with. Really seeing it broad-based, which is encouraging.
Got it. Maybe at a high level in liquid CGP, how do you win share from existing competitions? I mean, is it test performance, turnaround time, integration? What proof points do you think matter the most to customers evaluating these types of opportunities?
Yeah. If I take the lead and then Warren can go into more detail with it. I do think, Mason, for that question, it's important for us to step back and look at the overall strategy of Neo and where we focus our urge of energy, right? It's not to take anything away from the innovators. God love them, and they plow the field, and I think they're great companies. Our focus is in the community setting. I think not often enough do we speak to the challenges that are facing a community oncologist as they are making decisions, right? You're talking about people that are seeing 25-30 patients a day, right? To them, turnaround time isn't just an acute metric. This is how they manage their day-to-day activities and their patients' expectations. These things really matter.
How the lab reports come in, the quality of the information that's usable, that matters, right? Our stickiness comes from this ability to serve that customer across a broad range of the portfolio, right? That matters as well. Anytime that we can be of use and they can reduce friction in their own system, that creates value. That's not to say that we don't have to bring a quality test forward. We do. If you put a quality test in our hands, even if it is 24 or 36 months behind, remember the penetration rates are still relatively low. You marry that up across our continuum of service, and that starts to drive share performance. You build from the PanTracer Tissue, HRD, now you have liquid, and it just becomes a natural build, and it complements the portfolio.
We tend to look at things through a portfolio lens and the customer focal point and how it creates value and not just necessarily, "Well, I do this many genes, you do that many genes," right? Again, it has to be a practical solution. That being said, PanTracer has some unique qualities as well.
Warren, add in anything I might have.
Yeah. I think you've hit a lot of the highlights, but I think the key point to make is we service the community, and the community really focuses on actionability of results. One of the feedback we receive time and time again through advisory boards and visiting customers is typically physicians in the community struggle to actually keep pace with the developments that's happening within the industry from a diagnostic testing perspective, but also from a therapy point of view. I'll give you a small example. I was just yesterday out seeing a customer in Massachusetts, an oncologist and general oncologist, and the Association for Molecular Pathology took place in Boston over the weekend. Making small talk in the beginning, I said to him, "So did you attend AMP?" He said, "No.
Didn't have the time or the capacity. Here's a conference in their backyard, 40 mi away from where the person's practicing, couldn't find the time to go and attend. They're struggling in terms of keeping pace with what's happening. It's really around how do we make what we provide actionable and tangible. We develop tests that, A, align with guidelines, NCCN guidelines in particular, and also that align with existing and in future therapies that will be available because that's really what they're looking for. Tell me what is actionable out of the reports or the tests so that I can make a treatment decision. Is that decision chemo? Is it a therapy? Is it a combination? What is it?
The other things that may express where they're not actionable is a less of interest in the community versus obviously in academia where they're doing research and they're trying to understand the larger disease mechanism, etc. Its actionability is what we're really focused on in our value proposition at a product level. I'd say the bigger value proposition is one of a solution. We're able to go to an oncology practice and say, "We can provide you a solution across heme and solid tumor in diagnosis, therapy selection, and now with the launch of RaDaR ST in both heme and solid tumor MRD." You can standardize your workflows with a single standout vendor. We can integrate into your EMRs. We can establish care pathways.
Ultimately, we can take the friction out of the work that they do every single day, and they can focus more time on treating patients. That is a value proposition that is resonating more and more as these practices become resource-strapped.
Got it. That's really helpful. Maybe going back to the new desiloing model that you talked about, could you just give us some insights into, I guess, what exactly this model is and maybe tangible impacts it's had on win rates or anything like that?
Certainly. We for a long time have been speaking about the fact that we wanted to increase the maturity and the productivity of our sales organization. Certainly, relative to some of the peers out there, we have fewer feet on the street, and therefore we need to be smarter in terms of how we make use of our resources. We have always been focused on productivity and maturity. The desiling approach is something we have introduced to really help us with the therapy selection portfolio, and we will also use it with MRD now. What we do is we take multiple databases that some are purchased, some are freely available, and we actually triangulate the data using certain sort of models to be able to predict which physicians are actually ordering the highest number of therapy selection tests.
You can do this by triangulating back to number of therapy prescriptions that are written and those reimbursement rates and those sorts of things, all publicly freely available information. We triangulate these things, and we're then able to, by zip code, by account, actually start to see who are the larger ordering providers of certain tests. We make those available for each one of our salespeople. Through a sort of algorithm, we do not actually go after the largest typically because we actually find that the sales cycle is longer and the win rate is lower. We have actually found, just through the work that we have done, sort of decile four through seven is our sweet spot just in terms of time to win and size of win. That is how we are using this.
We have an AI algorithm as well that continues to refine this model and make it better and better. Typically, when we've run some A/B testing where we use the model and where we do not use the model, we see a 2x, at least 2x improvement in terms of how long it takes us to close and, secondly, the value of business that we get when we use the targeting or desiling approach versus where we just allow an OSS to actually follow their instincts in terms of where I need to go next.
Got it. Okay. Maybe moving to Pathline. Now that validation activities there have been progressing, maybe some completed, could you just talk about how ordering patterns have changed year to date, maybe in the Northeast? Are you starting to see more providers, or I guess, have you started to see the pull-through start to get generated there to some degree?
We principally finished the integration of the Pathline lab, which we're now branding as NeoRamsey because the lab's in Ramsey, at the end of the third quarter. Really, from then, we attracted some subsets of new business, but it wasn't that material. We were finishing the integration to allow us to represent that lab as an extension, a NeoGenomics lab. It simplified billing processes, ordering processes. We needed to put additional testing in there, which wasn't available through the Pathline organization, particularly on the flow side, which is the turnaround time sensitive assays, etc. All that's completed. Building up to this, we obviously had our sales team out there canvassing for new opportunities and building a pipeline. I would say to you that we've got a robust pipeline within the Northeast that we're now executing against, and we've seen our first wins.
I mean, as far as I'm concerned, early indications of the value that we thought we would be able to attribute through the acquisition, that premise is holding true for sure. We should, in 2026, be able to show that tangibly as well.
Got it. We said it would be dilutive in the first year, and it would be accretive starting in 2026 from an earnings perspective.
Yeah. Maybe just one final point on it, Mason, just for clarity, because I think some people, we've had follow-up conversations. This becomes not just an effectiveness stage for us for the Northeast. It's also an efficiency for the organization, right? A lot of people think we're bringing all of our tests up to NeoRamsey, and that's not the case. We want to take advantage of the NeoRamsey site for flow and the rapid turnarounds, but all of the NGS, that's still top value where we can create the most efficient use of our lab space. We see it as a win in multiple areas of business.
Yep. That makes sense. I know this is probably tough to answer or have an idea, but I mean, is there a certain time period of, I guess, when you would expect penetration in the Northeast to start to look more like penetration in Florida or California, I guess, the other areas where you have labs?
Yeah. We haven't broken out what the specific targets are by region or by state. Clearly, California and Florida have higher penetration rates because we've had years to provide these complementary services. I would say I won't hedge yet on when we'll get to those penetration rates, but certainly, it will be a growth driver, right? It'll probably have the highest growth among the regions moving forward once we've now established and created this funnel. Its growth will be more pronounced than the others. I would imagine it'll take a few years to build the business up the way we want to see penetration rates that are similar. We'll talk a little bit more about 2026 and 2026, but I think that'll probably give you a sense.
Fair enough. Maybe transitioning to MRD. Plans to launch RaDaR ST in early 2026. You bridged Medicare coverage and subsets of head and neck and breast. Can you just walk through what the go-to-market strategy looks like there? Ultimately, how big are the testing opportunities for at least just these two initial indications?
Yeah. Again, similar just as a building point, right? We look at MRD like we look at the rest of our business. That breadth and quality of portfolio matters, right? We see over time the ability for us to be a very strong player in the MRD segment. We said from day one, that's a market that we covet, and we want to further penetrate. We believe we will be in a position to offer flow MRD. We now have the ability to re-enter with RaDaR ST. We're going to continue to invest in next-generation MRD because we think the market will require ultra-sensitive in addition to outstanding tests like RaDaR ST. This portfolio and meeting multiple needs that the customer has is an imperative of ours. We believe in that very strongly.
Relative to RaDaR ST, as you say, we did the bridging work so that we can come out with the initial indications that were subsets of head and neck and breast that are similar to what we had for RaDar 1.0. Those will be the initial forays into the marketplace. We are not stopping there. We have not been idle while the court process has been going on. We are prepared to make additional submissions for indications for RaDaR ST that can give us a platform for growth long into the next few years. Expect to hear more from us on new indications for RaDaR ST. Of course, we are planning the same kind of indication build-out for next-gen MRD. We are consciously not speaking very specifically about what they are for the obvious reasons. We just spent three years about that.
I'll scratch my next question.
Yeah. We are intent in building out RaDaR ST with more than just breast and head and neck.
Okay. What's early feedback been like from clinical customers following the court's decision?
Yeah. Let me build on your prior question a little bit in terms of what Tony was talking about, and then I'll come back to early feedback as well. I'll maybe weave the two in. From a head and neck HPV negative, which is the indication that we have, sort of annual new cases are around 20,000 a year, and there's a prevalence of about 61,000 that we feel we can go after. Where on the breast, which is HER2 positive HR negative five-year removed, the annual incidence is about 210,000 and a prevalence of about 1.1 million. A larger market. The interesting aspect on the HPV negative head and neck, to our knowledge, there's no one else that has that indication. However, the attractive aspect is that there are one or two other players that have solutions for HPV positive.
Actually, indications show because one of them has a PLA code, we could actually see who's ordering and how much they're ordering. It would appear that adoption's been pretty good in terms of HPV positive. The hypothesis that we're using and the discussions that we've had is actually a lot of these physicians kind of would love to have an HPV negative solution because they've seen the value of MRD. They just haven't got a solution for HPV negative. We feel that from a targeting strategy and entry strategy, that's exactly how we're going to start this process, addressing physicians that are making use of HPV positive head and neck MRD and provide the solution for HPV negative. That's sort of a little bit in terms of the targeting aspect.
On the five-year removed, the interesting aspect there is this is the junction where a breast oncologist would be evaluating whether they should cease endocrine therapy or not. That is the relevance of the five-year mark. There are a few companies out there that actually have tests that also are utilized to help make that decision of ceasing endocrine therapy or not, where I think there is some potential partnerships that we can forge with them because same core point, same time point. Just some thoughts with regards to the entry strategy that we are looking at. I think in addition, and this is where also early feedback comes in, the injunction allowed us to continue to run time points for existing patients. We got this injunction at the end of 2023.
It was December 2023, but we had a fairly large number of patients that we had already done the initial fingerprinting and we were running the time points. We today still run well over 100 time points a month for those patients going back to 2023. We have managed to stay in contact with those physicians, and we have used them as sounding boards. Obviously, since we have got the positive feedback, we have reached back out to them, as well as done two advisory boards. The feedback remains very optimistic about RaDaR ST based on the sensitivity and the specificity of the assay. One of the biggest pain points that physicians talk about is negative predictive value or the possibility of limiting false negatives. RaDaR performs very, very well in that space. There is an excitement about us coming back to market.
Yep. That makes sense. While we're on performance there, what does RaDaR's turnaround time look like today? I mean, do you have to go through any workflow changes or anything to make sure turnaround times are adequate as that scales?
Yeah. That's a great point. I want to categorically say that we have been running the assay at scale for a while, and we just got to launch in Q1 of next year. I haven't got sort of accurate current data to point to. When we were doing this in 2023, we had already identified a series of opportunities to optimize the workflow from a turnaround time perspective. We've actually used this period to include those optimizations in the workflow. We're optimistic that we can better the turnaround times that we were offering in 2023, which was somewhere between 27-30 days for that initial setup and time point. Obviously, the subsequent time points, we've been running those all the time, as I've said. We're actually running slightly less than seven days on the follow-up time point.
We feel that the turnaround times will be very, very competitive.
Got it. Okay. Could you maybe just touch on the pilot program with Adaptive? How should we be thinking about that opportunity? I mean, do you see that as a potential material driver? Is this more of a modest tailwind? I guess, how should we be framing that?
Yeah. First and foremost, I think it serves a tremendous purpose for us strategically, right? If you just step back, I think the opportunity for us, again, to represent in that continuum an outstanding product in Compass and Chart, and then based on those findings, to be able to seamlessly provide a clonoSEQ, I think from a customer perspective, makes perfect sense, right? If you're the patient getting all this done with one test versus having to have multiple bone biopsies, it clearly is of value. For us, we are still in the kind of early stages of this with the pilots. We have a series of pilots that are up and running for both companies to step back and make sure that it's working for them end to end. I would say for us, we see it as kind of a slow build through 2026.
Not to downplay the economics, but I think it serves more of a strategic value than a big, big driver opposite some of the other opportunities in front of us in our portfolio.
Yeah. That's fair. Maybe before shifting gears, just touching on, I guess, the future evolution of your clinical portfolio. You've launched maybe one or two major new products every, let's just call it 12 months or so, 18 months or so, if not more frequently. You've got MRD now. You've got liquid CGP now. How are you thinking about what needs to be added or where you'll focus development over the next two or three years?
Yeah. Again, if I step back, I look at the portfolio. I think, first off, it's probably one of the more competitive portfolios that's out there, not just in breadth, but adding this quality component to it as well. I look at it, Mason, and then see, the plate's looking pretty full right now, right? Here we are in the early days of PanTracer and liquid biopsy that we see will be a growth driver for us for the next few years, as you say, re-entering the MRD space with RaDaR ST and then on the heels of that, next-generation MRD. I believe that it's about focused execution for us over the next few years with this portfolio. It doesn't mean that we aren't constantly in conversations and looking to complement that portfolio with the right opportunities if we see them.
Those values would have to be meaningful for us to want to misstep with the portfolio that we have in front of us because we think it's fairly robust. We think there's other ways for us to create value beyond just revenue growth that also require corporate resource and focus. I would say there's opportunities for us, but organically, we're developing next-gen MRD, and we'll probably look to partner business development just more opportunistic in the portfolio areas of proteomics or genome perhaps.
Okay. No, that makes sense. Maybe moving to the non-clinical side, specifically the pharma business. What's early market receptivity been around the launch of RaDar? How should we be thinking about potential revenue contributions there just given the time lag, I guess, between booking and when that starts to flow through?
Yeah. That's a great question. We launched RaDaR ST to the pharma market in August of this year. ESMO, which was in Berlin probably eight weeks ago now, was kind of the real launch platform. In addition to that, our strategy was to go back to past sort of RaDar 1.0 users because we had a number of users up until the end of 2023 that were very satisfied with the product. Based on those data points, our feedback has been very positive. Granted, many of those sponsors have had to look for other alternatives while we've been off the market. A number of proposals have been prepared, and many of them have been considered from a budgetary perspective. We hope to secure our first statements of work from sponsors before the end of the year or certainly early next year.
Yeah, I think the sales cycle is probably not too long, it's probably inside six months as we look at it. I think the conversion cycle, so getting the samples, because most of this work will be prospective type work. Again, getting samples, etc. Seeing those statements of work convert from sort of orders to revenue, so to speak, probably is something based on our prior experience when we were running this is sort of that 12- to 18-month sort of conversion cycle. Think about that as you put that into the model. The feedback has been very positive and bullish in terms of what it could bring for us on the pharma side.
Got it. Maybe more broadly on the pharma side, thinking about the recovery, I think you've pointed to maybe the pharma business facing headwinds throughout 2026 before recovery in 2027. I mean, what is it that gives you confidence in that business returning to growth? I guess how much of it is out of your hands to some degree and dependent on the backdrop?
I think a fair amount is still in our own hands relative to execution. When we gave the guide, we were clear that the macroeconomic issues, they were significant and not to the degree we anticipated, and that's for sure. When we gave the guide, we said we expected that erosion to continue through 2025. When asked about 2026, it's my own personal belief that because of the lead times and the cycles, it's not turning around anytime quick. I see the rate of erosion slowing in 2026, but the return to growth in my mind is still 2027. What contributes to that is RaDaR ST certainly can make a significant contribution to that. We have other products in the bag, Paletra and a few others, the PanTracer family. These things can help.
Some of it is execution, right, where we just need to really remain focused on our core customer base and execute that plan. I would think a big part of that is in our control, and it's not just macroeconomic driven point, right? Realistically, if we just retard that rate of decline, right, then our investors get the full benefit of the clinical growth that we have demonstrated quarter after quarter after quarter. Because at times, I felt at least over the last 12 months, sometimes we weren't seeing the forest for the trees because we kept talking about the rate of erosion on the pharma side, which it's mid-single-digit part of our business. That should not be the focus.
We wanted to put it in proper context for people so that they could understand what the plan was and what a realistic expectation was for that business.
I think, yeah, the data point is to maybe share to give some indication. I think this is work that Stevens says themselves, and we also use other data points. It's just number of clinical trial starts quarter over quarter in oncology. That peaked in 2022, quarter one, quarter two, and it's been on a pretty strong slide. That seems to have flattened out. I haven't seen quarter three yet, but it seems to be flattening out. I think there's a pretty strong correlation between what we see from a demand perspective relative to clinical trial starts. If that truly has flattened out and maybe starts to see some improvements now that some of the uncertainties in the macroeconomics start to settle, more reason to believe that sort of the latter part of 2026 and certainly 2027 should see upside.
Got it.
Again, coming back to sales cycles is an important aspect to the pharma.
Right. Right. Maybe moving to margins. How should we kind of think about margins trending from here? You have got the timing of the LIMS integrations. When should we start to see the margin benefit around that? Maybe outside of that, what are some of the other COGS reduction opportunities I think you guys have talked about? I mean, aside from fixed cost leverage, maybe the NovaSeq X transition, things like that.
Yeah. I think from a margin standpoint, first, just continuing to drive more NGS volume growth is going to help margins over time. I think the move to the higher value test is going to be a margin driver. I think the LIMS project, we're still in flight on the LIMS project. We would expect to start seeing some benefit in the back half of 2026 and see more of the true benefit coming in 2027 as we retire multiple LIMS systems. A lot of operational costs and IT support as a result of that will go away. We're also still in the early innings of investing in automation in our labs. A lot of our turnaround time improvements have really been more manual labor driven. We do have process opportunities to invest in our lab automation as well. Digital pathologies and other areas we're very excited about.
How do we use technology to really make our operating more efficient from an interpretation standpoint and on the medical side of our business? Great opportunity for us. Price is another area where we see margin opportunity. We have been successful in getting direct client bill pricing increases on our hospital clients. We have seen some success with managed care pricing increases just really just started showing up in the third quarter of this year. We will expect that to go into next year. As contracts come up, we think we will have opportunities there. Finally, I would say just overall RCM operations. We are also doing an RCM new platform install. We are in the final stages of that.
I think that's going to give us more visibility into our denials and actually help us reduce the gap between what we expect to get paid and what we are being paid, principally in our molecular business large panel tests where we, as others, are still challenged getting paid with the payers.
Okay. Yep. With Pathline closed, I guess, where does M&A rank now versus maybe internal R&D or Salesforce expansions or any other type of organic investment?
Yeah. I would say because of the strong work of our sales team driving the right volume and our R&D group with where we are relative to RaDaR ST and next-gen MRD, we are in a unique position to be very selective now, right? I think I'd rather focus on the opportunities in hand as a priority. Again, Kareem, his team has done a wonderful job, right? We still have opportunities that are in front of us, but I would say we will be very selective. It would still be more of the tuck-in, licensing, bolt-on. We do not see the need to do anything disruptive and overly aggressive. If it is opportunistic and it meets a gap in the portfolio, we will certainly entertain it, Mason.
We want to make sure that it has to bring value because the other areas clearly bring value in front of us.
Got it. Maybe I'll just stop here to see if there are any questions before we wrap this up. All good? Okay. We've talked through a lot at a high level in terms of drivers and margin opportunities. I guess I'd just ask as we wrap it up here, at a high level, looking ahead, what do you guys see driving momentum into 2026? How do you think about the opportunity ahead of you?
Yeah. I would say that in large part, many of the growth drivers that we saw in 2025 are being realized and will be growth drivers for us in 2026. We anticipate that we should still be able to deliver above-market growth in NGS. That will be driven in large part by the existing portfolio now being married up with PanTracer LBx or liquid biopsy. We anticipate that being a driver. I think you've touched on one with Pathline as an opportunity. We've done now all of the integration work. We've done the validation work. As Warren said, that pipeline is beginning to show promise. We see that as well as a growth driver for us. One of the biggest—bless you—one of the biggest opportunities on the plate for us will be RaDaR ST. All right.
While we have launched in the pharma space, our clinical launch starts in Q1, and that will be a ramp and a build. While it will be a foundational year, it will be an important foundational year because not only could it provide some growth for us on the back end of 2026, it really sets us up for 2027, 2028, and 2029. I look to all of those as real drivers. I look to what Jeff and Warren's team collectively have been able to do around AUP. We still believe there is opportunity there for us to grow. You just started to touch on the last round of questions. There are some efficiency plays that we have within the organization that I think we could take more complete advantage of. I would say that we feel confident going into 2026.
We're not going to get ahead of our skis. We're not going to overpromise anything. We'll talk about it in more detail in February. We see everything that we had talked about in the past is within our grasp to now deliver, and we just have to execute.
Yeah. I would add to that. We talked earlier in the year in Q1 about adding some higher volume, lower value tests. I think as we finish this year, we'll look to evaluate if that makes sense to continue those relationships as we're moving more into higher value tests and margin increasing from those tests. I think as we look into 2026, I would expect to probably see a little bit more of the revenue growth coming from the mix in the AUP side maybe versus some of the volume side as we evaluate some of those relationships.
Got it. Awesome. Thank you, guys.
Appreciate the time. Thank you.