Good morning, everyone, thank you for joining us here at NeoGenomics for our 2023 Investor Day. It's great to see so many faces in the audience today, and signed in online. We're looking forward to sharing some details about our mission, vision, and strategic priorities with you today. You'll be hearing from five members from our executive leadership team, and we'll conclude the day with a Q&A session. Before I turn it over to Chris Smith, our Chief Executive Officer, I want to highlight our safe harbor and non-GAAP financial measures disclosure. Before we kick it off, I would like to show a quick video of what it means to be a teammate here at NeoGenomics.
Becoming the world's best cancer testing information decision support company starts with us coming together as one Neo with this Neo spirit. You can go anywhere and get a job and make money, but there's very few places where what you get to do every day impacts someone's life. What you get to do individually is about coming together as a team to make those impacts in people's lives. The amazing thing about Neo, you get the chance every single day to wake up and change someone's life and make an impact in their life and their cancer journey. It's not only about their life, but it's about their children's lives and their parents' lives and everybody that they come in contact with. You think about yourself as one component in that whole cancer journey, that if it wasn't for you, their life could have been differently.
You literally get to change lives every single day by working for Neo. In making that difference in someone's life, you're part of us on our way to treating 1 million patients by 2028. What an amazing goal and mission for a company.
Good morning. Listen, we thank you so much for being here. I'm Chris Smith, CEO of Neo. I love that video. It was not meant to be a recruiting video for the folks in the room, but I do want to share with you that as we've kind of gone through a transformation, we'll talk a lot about that today, we really believe it starts with people and culture. One of the unique things about Neo is that we have multiple labs all over the United States, and we also have a field organization.
This was actually a video we did for the recent global sales meeting. We have this sense that people at corporate every single day are in the lab go to work for the field who supports our physicians and patients, but it only works if the field shows grace to the folks that are inside the company. That kind of brought it home. Rather than creating a whole new Investor video, we decided just to give you a taste of kind of what is going on. I get to kick off today, and I want you to know that we thought about when this meeting was gonna occur or when we wanted to have Investor Day. You know, there was a lot of discussions, let's do it in August, but we wanted people to attend.
Rather than waiting to August, we kind of tried to decide when a big northern storm would be moving across the United States, was this week. Look, again, thank you. I know it's not an easy place to get to, but we appreciate you being here, and I think we've got a nice agenda for you throughout the day. I'm gonna run through the agenda real quick as we kind of think about it. I'm gonna give a quick kickoff and just a little introduction as we start to think about this business and where it's moving. I'm gonna be able to turn it over to Warren Stone, who's really gonna talk about the commercial excellence.
I think, you know, one of the things that we believe is a huge differentiator for us is the breadth that we have, not only from a lab perspective, but a field. We're very unique in the sense that we have an oncology sales force now and really a pathology. Warren's gonna talk about that as well as the operational side of what we call our base business or our core business. We're gonna then transition to Melody Harris, who's our new President of Enterprise Operations. I think one of the things that's exciting about Melody joining the company is we've actually put IT and big data in there 'cause it is an end-to-end process when you think about lab ops. I think you'll get a great flavor for what we're doing there.
We'll then move into advanced diagnostics, which really is about innovating the future. Vishal Sikri will share that with you. If you haven't met Vishal yet, he grew up really in the oncology business and is leading that business where a lot of the R&D sits, the business units that focus on some of the new innovative technologies as well as pharma and informatics. Jeff will come back and talk a little bit about the financials and give you the five-year guardrails. I think one of the things that we talked a lot about was being able to give investors a sense of where is this business going and how we're gonna get there. I kind of joke that Jeff's one slide is probably why everybody's here.
We could have probably done a Zoom call. I think you'll get a sense of how we've started to really look at the business and think about it to be able to give you, again, and I'm calling it guardrails as you think about moving forward. One of the exciting things is that Vishal is gonna do a webcast or a Zoom with a physician who has a lot of MRD experience, being able to talk about MRD, its place in the marketplace, but more specifically, where will RaDaR's its place be. Finally, we'll come back and do an overview Q&A. Now I will say after each session, we will take a few questions, but we want to have a Q&A at the end of the day.
I think most of you know that we do have a lab tour for those that want to be able to have a chance to see our new lab. The team did a fantastic job of building this building in a state-of-the-art lab, and it'll be a great sense for you to be able to go over there and see a little bit more detail in one of our labs. I wanna start out with this slide, the mission. If you've been on our earnings calls really starting in Q3, if you've shown up at a customer presentation, or if you were at the sales meeting, the first slide that we really ever talk about is the mission slide of the company.
'Cause as you saw in that video, it's really why the people who work here come to work every single day. I joke that you can go anywhere and make money, but there's very few places where you can change the world and the chance of being a part of that. I think the second piece is this really the vision of the company, and how do we become the leading, not only, cancer testing company, but really around information and decision support. As you kinda go throughout the day and you hear these slides and you think about things, bringing this mission to life for us has really become an important part of how we think about the business going forward. Look, we are, the leading or a leading, you know, oncology diagnostic company.
When you think about what are the reasons why we are that, there's many factors that kind of go into this. Whether it's the breadth of our menu and over 600 tests, if it's the number of labs that we have across the United States, you know, we talk a lot about redundancy. I think some people don't realize how important that is, but we made the decision for good or bad to put our first, you know, our corporate office in a hurricane zone and our other big lab in an earthquake zone. For us, redundancy is really important, and we probably never saw that being as important as when the hurricane hit here. Literally within 24 hours, the ability to shift the business and keep meeting customer needs.
You know, we have over 2,200 teammates across the things. Obviously, I mentioned two distinct clinical sales forces. There are a lot of reasons why we are positioned well, including now driving innovation. This gives you a snapshot of who our leadership team is, and I do wanna take a minute just to recognize them. There's several of the execs here that show up here. To be fair, like even starting with my picture, one of the things we ask everybody to do is make sure you have a picture from 15 or 20 years ago so we can show it. For the team, actually all of management that's inside, not just the executive team.
Would you guys mind just standing up real quick so people can see who you guys are so it breaks or. Look, a round of applause. I mean, the team is. It's a great group of people. Then we're also really blessed to have four or five board members here. I think it's actually five. They're kind of sitting together in the back. Same thing, if you guys wouldn't mind just saying hello. Lynn Tetrault, who's our Chairman, is here as well. Thank you board for being here. Great to have you. Let's start to talk a little bit about how we're thinking about the business. Again, these are a lot of things, especially the group in here understands and knows. It. Obviously, cancer testing is large, underserved, and growing market.
When we look at it, I think we look at it kind of in three big buckets. We kind of look at it first in the kind of the diagnostic testing, and I would say this is where cancer testing kind of grew up, which continues to be about a $9 billion market. Now while it's only growing a couple percentage points, it is a significantly large business. Therapy selection, I think a lot of time's being spent here over the last five years, especially around NGS, and I think it's incredible that today it's less than 20% penetrated, but a lot of the statistics are talking about how by 2027, it's gonna be more than 50% penetrated, and there's that continued shift into really therapy selection. Vishal will spend more time talking about that today.
MRD, really where RaDaR fits. Really, I think the future of where testing's moving, it's only 1% penetrated. A lot of estimates, you see anywhere from $16 billion to $35 billion market opportunity. We really believe it's right now about a $20 billion market opportunity as we go out in these outlying years. It's a big, big market. When you pivot to start to think about our pharma business, you know, the top 30 companies will spend over $150 million on R&D. The opportunity is there. I kinda joke that, look, when you go to work for a business, you wanna go into an underserved growing market where you have the ability from a franchise perspective or differentiate and to make a significant impact.
I think this really brings us home. When you think about who we are, we think that we have a very unique position in the marketplace. I think there's obviously large reference labs, the Quest, the Labcorp of the world that are profitable, but they're slow growth. They do have thousands of tests, and they have a very diversified focus. On the other side, I think you have some of these niche oncology companies that really today a lot of them are unprofitable. While they're growing fast, they have a very limited menu and they spend a lot on R&D. We believe we kind of enjoy a unique position right down the middle in the marketplace, that we have the ability to have mid-teens profitability and to grow in the high single digits to low double digits.
We have over 600 tests, we continue to drive innovation into the marketplace. As you think about this big opportunity, how are we thinking about the business going forward as we kinda moved into 2023? First, it has to start with momentum. As I show their team, whether you like it or not, momentum is a very real thing. When it's going down, it's real, but when it's going up. One of the things that was really nice last year, we continued to build momentum throughout the year, really even moving into Q4, where you can see where we grew, you know, the revenue 10%, and you can see this continuous improvement in gross margin.
We have momentum kind of coming in to 2023. It's about how do we set up the organization to be able to maximize on that opportunity? As we went through the business, we really thought about there were two kind of unique kind of arms from a commercial or go-to-market perspective about driving demand or what this demand cycle is. The first one was this clinical service business. When you think about the clinical service business, this is really where I would say our core or our base business sits. Again, Warren's gonna come up and talk about this in a little more detail. What sits in there is really our ability to own kind of the distribution channel in the community hospitals, in particular, with pathologists.
That's an area where we've been strong for several years. As you guys probably know, it's kind of where Neo grew up. I will say that over the last several years, there's been a huge rise in the influence of an oncologist on being able to order and be involved in the process. I think we were a little bit behind there, candidly, as a company. If you go back and you start to think about where NGS and some of these things started to move, we were a little behind. Last year, we started in the second half of the year, starting with about 20 reps calling on the oncology side. You'll see as Warren gets up and talks, we're accelerating that to really create a one-to-one ratio or this pod effect inside the marketplace.
It's also where we have things like customer experience and all the aspects that engage with our customers every day, which we believe is a differentiator for us. Like, you can go anywhere and get a test. The question becomes: What's gonna be some of those differentiators? We think one is you have to win on customer experience, okay? You have to win eventually also with patient engagement, which also sits in here. Rachel Malmberg's not here today, but Rachel is a Stage IV cancer survivor and leads that group and has a lot of passion about how do we engage that patient early on. That's just with the launch of RaDaR, that's really where we're spending a lot of time. As we go through Warren's, he'll mention it, but maybe we'll get into more detail later today.
Finally, you heard me talk about this is decision support. How do we help clinicians or physicians decide as they're going through the process from a testing perspective, which ultimately may lead to what trials folks are going on? As you may know, we bought a company called Trapelo a couple years ago, which really is the base of how we're gonna build out that decision support. All that kind of sits over here, and think about it in this clinical business. We also have the oncology diagnostics-based business, and Marcus is in the back of the room, our SVP, who runs that business for us. That's really about how do we continually drive improvements in that base business, so flow, cyto, FISH, some of the new innovations, a lot of it focused operationally, but some of it also commercially.
As you kind of move over to the right, this is really where there was a pivot for the company. As you know that we acquired Inivata about 18 months ago, one of the things we didn't do initially was integrate that business. I'll talk later in my slide presentation about how we've now begun to integrate some of that business. The great thing about that acquisition is it gave us access to true innovation in RaDaR. When you think about RaDaR, as Vishal gets up and talks, and as you get a chance later to do some Q&A sessions with a physician, it really was, from an MRD perspective, a product that's gonna eventually make a huge difference at all stages of cancer. We had to drive innovation.
I think there was a lot of discussion when that acquisition happened. Is Neo gonna be the company that kinda is growing in the mid kinda teens profitability, or is it gonna become more like some of these niche companies that's chasing kind of R&D? We actually are technology. We actually believe you can do both, but it's about how do you balance it and how do you pace it and how do you manage it. Sitting over in Vishal's side, we took that whole Inivata business, we carved out G&A, and we've rolled it now into the rest of the company. It really is, think about it as our R&D engine, especially in Cambridge now, where we have a lot of our innovation going on.
I see Dr. Shashi, who's in the back, who's our Chief Scientific Officer today, who really helps lead that kind of effort. It's where those business units now sit. Think about people, one of the things we've moved to is business units. We have someone that runs therapy selection and someone that runs kind of liquid biopsy or the MRD side of our business. These are folks who kind of own the business from not just marketing, but from the beginning to the end. They're involved in all aspects of driving that business. Finally, it's where we have the pharma service and informatics sales forces. I do wanna spend a minute there because I think, you know, we really view as pharma as a tip of the spear as we start to drive new innovations to market.
One of the reasons a lot of people have asked, "Why'd you have such a strong quarter in pharma in the fourth quarter where we grew 41%?" A lot of that was driven by the introduction of RaDaR to a lot of pharma companies because they move first on a lot of these innovations and products. It's important that that business sits over in the Advanced Diagnostics because they're sitting right on the front side of the business with innovation and R&D in those perspectives. The other one that sits over there is informatics, which we think is a huge opportunity long term as we continue to work on big data.
We capture a lot of data points every year, but it's about how do you package that data and then sell it back to pharma companies so they can utilize it when they think about the business. We felt really strong from a kind of a demand cycle perspective, but the problem was kind of underneath it. How do you support that growth? Look, we used to run the business strictly with lab ops. It kind of sat in its area and was, I would say, very siloed, candidly. IT was over, you know, kind of in a different group. As we thought about the business and as you get to know Melody, we really felt like we had to have that end-to-end process.
What we did is we created Enterprise Operations with the ability to support both those two business units. If you look at it, just so they own the end-to-end process and really focused on turnaround time. Even our medical group sits in there, over there, so the physicians that do the final end of our process, because if you think about that, it's hard to own turnaround time if you don't have the final component of turnaround time, because that used to be a group that wasn't in the lab ops, so we pulled that in as well. Also where we have the data infrastructure and the strategy, and then it's where we're gonna focus on, obviously, driving operating leverage.
As you think about our business, when you look at the five-year guardrails, when you look at what happened in the fourth quarter, you really start to see our ability to get leverage on this business. Now it is how do you do it, right? We set up the organization, we did this reorganization, which I'll talk about. You probably saw us talk about that in the earnings, where we did this reorganization in Q1 to put these business units in place. Now it's about how do you think about the business? The way that we really think about it when we get into these four strategic pillars, it's all around the patient. We're serving about 540,000 patients a year.
We really felt that, by the way, if we do the things that need to be done, that by the end of 2028, in that calendar year, we could treat 1 million patients. Look, when you think about a business and you think about a mission-driven company, it's not about what the share price is, right? I mean, I can tell you that you walk through the lab today, ask anybody what our share price is, no one knows what it is. Matter of fact, we took it off the internet site last year. Like, we used to have it on there, we don't have it. What we do have there now is a counter of the number of patients that we're helping every single day. That's what really helps the organization think about why they come to work every day.
You probably read the book by Simon Sinek, it's all about the why. People don't buy what you do, they buy why you do it. One of the great things here is that that mission is really here. It really starts with how do we treat these patients. Then it's about setting the mission and the vision to get to long-term sustainable, profitable growth. It's not about one quarter, but how do we consistently, brick on brick, deliver results to our shareholders that continually improves the business. We started with what we're calling four strategic pillars, and I think the way you want to think about this is really for the next three to five years, this is how we're thinking about the business going forward.
The first thing we have to do is we have to grow the core business, but we can't just grow it. We got to grow it profitably. That's that business, that base business or that core business that has been here. That's the first pillar. How do we profitably grow that? The second one was, look, we were probably behind a little bit from a technology perspective. You have to accelerate advanced diagnostics. You have to have new products coming to market. Now that being said, we're not going to be the company that goes and spends $100 million on R&D, right? Just because we think eventually there'll be an opportunity. It's about how do we utilize the resources and better invest in what those opportunities are. Vishal will talk to you a little bit about that.
The third one is all around our people and culture. Again, I think they're the greatest asset of the company, is the team, is our people. How do we make sure from a culture and a people perspective that we recruit the best people, that we retain them, that we train them, occur career opportunities? Culturally, how do we get rid of silos? This is a company that used to have silos, partly because we did four acquisitions in about five or six years, so it was natural. How do you create this one Neo? Finally, it's about driving value creation. Candidly, we don't talk about it just driving shareholder value creation. We talk about stakeholders. How do we drive value creation for teammates, for customers, but absolutely shareholders?
I can tell you, our belief is we obviously go to work for shareholders every day and our patients, but we start with our patients. Our belief is if we do the right things in a, in an underserved growing market, we ultimately are going to create shareholder value. It starts with these kind of four pillars, and as you think about the business going forward, as we think about in presenting to you over the next probably 3-5 years, these pillars won't change, okay? It's really kind of how do you execute on the current mission and the vision of the company. Then what you do is you start to break it down into bite sizes, okay? Now we're moving into 2023.
As we moved into 2023, and you know that you have these four strategic pillars, what is it that you have to do from an execution perspective? 'Cause to be fair, when you look at Neo and some of the challenges that we went through for a couple years, the strategy was pretty right. A lot of it came down around the execution. It really becomes about execution. The first one is around how do we, you know, profitably grow that core business. This is where you'll see the time spent really in 2023 and 2024. First of all, we have to grow volume. As most of you know, we lost market share really kind of in 2021 and early 2022. How do we get back to that?
Warren will talk about this, but in Q4 was the first quarter in probably 24 months we won more than we lost on accounts, right? First of all, it's okay to bring in new accounts, but you can't have a hole in the bucket and have it go out the other side. The way you grow volume is you grow market share. How do we get back to growing market share? How do we drive the NGS mix? Because remember, it's that $9 billion market that's growing very rapidly. Really, you could argue the growth rate, but let's say 20%-30%, and it's only 20% penetrated, and it's going to move to 50% penetration. How do we as a company drive that NGS adoption? That's a huge initiative in the field.
The second one is about, look, we didn't have enough field people. I'm not saying that we want to be like some companies that have 300 people out there, but to be fair, we probably had about 70. We needed to add people. We're going through a rapid expansion of adding commercial people in the field and really in these two field organizations. Finally, it's about, look, you got to improve turnaround time. If you're in a service business, we talk about here, if it's one day, it matters to that patient and their family. If we tell somebody we're going to deliver, and Warren will talk about this, our new Neo Comprehensive, if it's a 10-day turnaround time, you know what? It's never 11, and eight's better than nine. I...
The way we really start to talk about it is if it's you or if it's your family member, you're literally sitting on pins and needles till you get those results. How do we constantly improve turnaround time? Fortunately, you'll see when Melody gets up and talks about that, because that was an area that we were challenged with, and we were able to make quick gains, and it's one of the reasons, candidly, we had a very good, I think Q4, because we started winning on turnaround time. I think it's the reason that we gave you very good guidance, I think for 2023, is winning on improving turnaround time. The second one is, okay, it's great. You got to accelerate advanced diagnostics.
Everybody in the industry probably knew that, How are you going to do it over this 12-24 month period? The first one is we had to launch innovative products. Well, you'll see throughout today, we launched really four products, but primarily that Neo Comprehensive, which got us competitive in the NGS in solid tumors. Remember, we are probably still the market share leader in heme NGS, that was an area we continue to have a strong position, we were behind in tumor. We didn't have a product that was competitive, we had to bring out a competitive product, and we just launched that product in Q1. The second thing is there was a lot of debate in this industry that you wait till you get MolDX to launch RaDaR.
I'm sure today there's gonna be some questions about that, right? What are you gonna do? How are you gonna grow market share? We felt that there was so much demand, especially from clinicians because of the sensitivity of RaDaR, especially in things like breast cancer, that it was, like, wrong to not launch it. Now, I can tell you, a lot of you follow companies in medical device, and I kinda grew up there. I've never waited to get CMS approval to launch a product, right? Get the product on the market, get it into people's hands, get early adopters to use it, create a third-party payer strategy, and start knocking down lives, right? It's not just about wait for Medicare. That's how we pivoted that strategy. Let's get it out on the market.
Vishal will give you some good insight today on what are you doing with MolDX or Medicare, but you had to launch that product. The second big bullet, and again, Vishal will talk about this, was the pharma business we had lost profitability on that. We had to rethink about how do we do that pharma business. We wanna grow it, but we wanna grow it profitably. How do you do that? The pharma business, incredibly important. The final one was begin to think about this whole data strategy. You may be collecting more data than anybody in the industry. What are you gonna do with it, right? How are you gonna package it? How are you gonna extrapolate it? What's the data sciences thing about?
Developing that plan and beginning to implement that really in the latter part of 2023 as we move into 2024. Then it was about driving value creation. These, I think, are really key points. Like, look, we had to improve productivity efficiency. I think the Catalyst program, which was introduced in June of last year, was really that first step. It's had a lot of impact on improving operating efficiencies. The second one is, look, we had to manage the G&A spend. It was just too big. As you probably know, and I'll talk about this in my first quarter takeaways, look, we reorganized and took out about $25 million of annualized costs. Like, we had to consolidate some of these businesses we'd acquired from a G&A perspective.
Rather than just dropping it to the bottom line, which we could have done, then we would've been sitting here in three years talking to you about, "Hey, where's the growth?" What we decided to do is very strategically reinvest a lot of it. When we talk about expanding the commercial sales force, when you really think about where we were with the long-term Medicare strategy from a clinical trial, it was RaDaR, right? You gotta keep working on clinical trials to bring it. A lot of it, that was reinvested there. That's how we set up this kind of brick-on-brick growth process. We had to get better at automation. I would say that we do automation in a lot of areas, but we feel like there's a significant opportunity for us, so how do we enhance automation in digital?
That, again, when I talk about what these strategic focuses are for 2023, it really is like when you come back and see us next year, some of these may stay, but you'll start to see some new initiatives as we start to execute on these. The last one, which is one of the biggest opportunities that I saw when I came in, was this whole thing around revenue cycle management. How do you get paid for the work you do? I can tell you, for us as a company, I think that has to be a core competency of... if you're in this industry. You have to think about payer relations. How do you get paid for the work you do? How do you manage revenue cycle management?
That is a key initiative to drive profitability because if you've already done the work, guess how profitable capturing that is? 100%. Pretty good profit. We had to do that. We've laid these out. What happened in Q1? Now I wish we were sharing earnings today. I'm sure that a lot of you will be dialing in in a couple weeks as we talk about Q1 earnings. I did want to give you some non-financial things that we can talk about from a business. The first thing is we did launch those pro-products, it's going incredibly well. The other thing is we continue to have good turnaround time improvement. We improved 17% turnaround time in Q1.
You may think that that's not a lot, but that was on the back of 36% improvement in turnaround time in Q4. We are improving that turnaround time. Obviously, as we get higher, it's gonna be harder to get big numbers, but it's important that we see this consistent improvement in turnaround time. One of the things I was excited about, look, this weekend we hosted, you know, Relay For Life here for the county. Again, this is back to that mission and bringing the community into the partnership. Warren and the team grew the sales force by 22%, so we're starting to get that expansion. Finally, and I mentioned this, we went ahead and we were able to identify and eliminate about $25 million of annualized costs.
The key takeaways to think about as we kinda go throughout the day, look, I think we're incredibly well positioned to capitalize on this market opportunity. We do have a very, I think, a winning strategy and a very unique position in the marketplace. We've now been able over the last six months to assemble a world-class team, but we also have 2,200 teammates that are truly committed to the mission, and that goes a long way. Look, I think we're well on our way to serving 1 million patients. I'm not gonna do a Q&A on my portion. We're gonna go ahead and move to Warren, and then we'll start with Q&A following Warren. Thanks for your time, and Warren, come on up.
Thank you, Chris.
You're welcome.
Good morning, everybody, and thank you, Chris. Thanks for the opportunity to talk to you about delivering operational and commercial excellence within the Clinical Services division. Chris did a nice job sort of teeing up a little bit of what I'm gonna talk about and also maybe what the responsibilities are from a Clinical Services division perspective. Fundamentally, there are two things that ultimately we look at. It's really around portfolio management of the core. And secondly, it's around patients, customer, and commercial execution with regards to the Clinical Services business. That's really the scope and what a lot of my presentation today will cover. The priorities for 2023, there's four of them that we're looking at. First of all, it's around commercial execution. Secondly, it's portfolio optimization. Thirdly, customer experience. And lastly, revenue cycle management.
I'll take a few minutes today to go through each of those in a slightly more deeper dive. Starting firstly with the commercial execution side of things. As we look at the market, and Chris touched on this, we look at the market from a segmentation perspective in two ways. We've got the hospital and academic centers. There's roughly 6,000 of them in the U.S., of which 1,000 of them are teaching hospitals. This is an area where Neo has traditionally been very strong. We've also got the community oncologist practices. There's about 950 of them in the U.S. and roughly 5,000 oncologists. This is ultimately where there is an area of opportunity.
You know, we've looked at these two segments very clearly, and what we've come to notice is that the buying drivers or the pain points, the needs of these customers actually differ. Because they differ, we've taken the decision to have two distinctly separate sales organizations. One sales organization, which supports the hospitals and the academic centers, and the other sales organization that supports the oncology practices. In terms of the hospitals and academic centers, we have what we call a territory business manager, a TBM. This is a geographically based sales resource, which ultimately calls on your pathologists, your oncologists, your lab directors, and they sell the entire portfolio that Neo has available. The 600+ products that Chris was referencing. That's their focus.
The community oncologist side of things, which is the area of growth for us, and we'll touch on it as we go through the presentation, this is where we have the precision medicine manager. Ultimately, they're an overlay in terms of the deployment of the TBMs. They really call on the oncologists, the pathologists, the interventional radiologists within these community oncology settings. From a portfolio point of view, they largely focus on precision medicine portfolio. Things like NGS would fall within. The InVisionFirst-Lung RaDaR would fall to their focus. They also have the opportunity to sell the entire portfolio. There's certain parts of the portfolio that are more relevant than others. For instance, our proprietary COMPASS offering, which is ultimately, it's a comprehensive single order requisition to diagnosis solution for difficult to diagnose heme malignancies.
It's something that crosses very nicely between the two segments. Very clearly, because of the different needs around these two segmentations, we have two separate sales teams, which are basically skilled in terms of the specific needs of those customer sets. We bring this together in sort of a pod structure, and Chris mentioned this as well, and really the regional director is kind of the glue that brings this pod together. They have numerous PMMs and TBMs within their region, and their role is to actually ensure that these resources put the correct sort of regional and account plans in place, that they've got the right territory tactics, and they maximize the opportunity within their region and ensure cross-collaboration between these resources and other resources that are available within the Neo organization to execute the strategy.
I think very importantly, you know, these are resources that are out in the field, but we can't do it without really strong support from a back-office perspective within Neo. We have two key functions here. The first one is what we'll call client success or customer success. This is really a team that's focused on ensuring the effective onboarding of new clients. They also help us to address clients which we deem as highly vulnerable, and I'll talk about this in a moment, to help them through sort of some difficult service patches and also to reduce the administrative burden. Then we have customer service. This team is really, it's a back-office function that offers both proactive and reactive to support to our target customers. From a strategy perspective, you know, how do we execute?
I think this is important, Chris touched on the bucket analogy, and I'm gonna use it again. First and foremost, there are three pillars to our growth strategy from a commercial execution point of view. First and foremost, it's around protecting existing customers. Certainly in the hospital setting, we have a large number of customers that we have, and what's imperative is we protect them and retain them within our organization. We have various levers and tactics that we use. One of the most effective is by setting up interfaces between ourselves and the clients because that creates stickiness. The second area is around expand, and this is around expanding share of wallet. It's going to existing customers that already have relationships with Neo and enhancing the amount of actual revenue or tests that they send to Neo.
We do that by obviously making use of our broad portfolio of over 600 products, but also seeding the new products that we've launched in Q1 of this year to these existing customers. It creates another form of revenue stream. Lastly, it's around winning new customers. Obviously, this is the area that's harder. There's a higher expense associated with winning new customers. But ultimately, it's obviously a strong way for us to effectively grow as well. If you think of the strategy as sort of a bucket which is filled with water, ultimately, there is a hole in the bottom of the bucket. It's difficult to ensure that we retain all customers. The idea is to retain as many customers as you can, so you restrict the size of the hole in the bottom of the bucket.
You continue to fill the bucket by expanding your share of wallet with our broad portfolio, as well as winning new clients. That's sort of the inflow in the bucket. As long as the inflow into the bucket is greater than the outflow, you grow. Chris said, you know, volume growth is critical because we have a very large fixed cost leverage in our operations. The more volume we can grow drives more revenue, and it ultimately drives more profit. One of the reasons we saw a strong turnaround in Q4 was because of an effective execution of the strategy. Ultimately, we lost fewer clients in Q4, and we did a good job of executing against the expand and the win part of the strategy. Chris mentioned the resource investment.
Ultimately, we've already invested about 22% from an incremental resource perspective. By the end of the year, it'll be 32% increase in resources from a commercial perspective. That's really around expanding coverage and enhancing execution. This is our sort of commercial flywheel. I wanna take you through the sort of four elements that make up this flywheel. First and foremost, it's around downstream marketing. This is a team of people that's really there to establish campaigns, around our strategic areas of, protect, expand, and win, so that our commercial resources in the field can actually execute against that strategy. Developing a strong set of campaigns. The second area that they would look at is around creating demand, and this is through generation of leads.
It can be through traditional means, like going to a trade show like ASCO or COA, but it can also be through new digital means, leveraging the website, EDMs, web calls, et cetera, that generates a rich source of leads. What's important here, it's not about dumping a large volume of leads on the commercial organization. It's establishing marketing qualified leads so that when that lead arrives with the sales organization, it's already warmed, so to speak. Ultimately, what that does is it helps us to fill the pipeline. It helps us with pipeline velocity, which ultimately helps us to grow faster as well. The second area is investment in physical, on-the-ground field sales resources. Chris said by the end of the year, our target is to get to a 1-to-1 ratio between our TBMs and our PMMs.
Ultimately, this is gonna increase coverage, particularly in the community oncology setting. Really the goal is around competitive takeaways. We wanna execute the third pillar of our strategy, which is around winning new clients, because that's where we get the accelerated growth from. That's where we drive incremental volume, and that's where we get the fixed cost leverage from. The third area is around client success and client services. The one thing I'll just touch on here for. Which is very important is historically, we've seen that we haven't done a sufficient enough job in terms of offering that premium first experience to new clients. As a result, the stickiness was lacking.
That's why we actually introduced client success as a new function within the organization to ensure that any new clients that join us actually have a fantastic first experience with Neo. That first experience then drives kind of loyalty and stickiness, and they tend to stay with us. The last area where we are making a significant amount of investments is around commercial operations. This is really a team who is fundamentally charged with driving productivity of our commercial organization. That's ultimately how they're measured, is how much more productive is our commercial organization today than a quarter ago, a year ago. How do we do this? We do this by enabling our commercial team with digital tools and analytics.
You know, today, what you would find is many of the sales organization is out there. They're identifying their own prospects. They're qualifying their own leads. They're sifting through data to find their biggest opportunities. And we can automate that through a rich data set, which we have available internally because of our experience within the marketplace, our large portfolio, and our large customer base. But we can also augment that with a data set that are available externally. And the combination of those two can provide very targeted analytics to our commercial team, which will help drive their effectiveness. It'll ensure better use of time, and it'll ultimately increase their win rates. Moving on to portfolio optimization.
Just again, from a portfolio perspective, we look at it across two areas, from a heme point of view and from a solid tumor perspective. From a heme side of things, this is traditionally where Neo has been really, really strong. Ultimately, we are the market leader within the heme side of the business, both in terms of some of the traditional modalities like flow and FISH, et cetera, but also from an NGS perspective, where we have more than a 25% share. You know, if you think about that from a strategy perspective, our strategy is we wanna protect those customers, and we wanna expand share of wallet.
That's ultimately what we're gonna do, and we're gonna do that by leveraging the one lab value proposition in terms of our very broad portfolio, and then this proprietary COMPASS offering that I spoke about earlier. Naturally, a continued focus on NGS, because I think it's clear to all of us that that's where a major growth opportunity is for us in the future. The right-hand side, it's really on the solid tumor side of things. You know, it's not like we don't have access at all. If we exclude NGS, this is an area where we are still one of the leaders from a solid tumor perspective. We recognize that this space is moving very quickly in terms of an NGS perspective. Up until recently, it's been an area of weakness from a portfolio point of view.
We've spoken to the oncologist in the community oncologist setting. I've gone to see many, it's unusual that you go and see a number of clients, and they all provide you with very similar feedback in terms of what's important to them. You know, outside of clinical utility, which is a given, it's kinda table stakes, what they're asking for is a fast turnaround time, and I think that's intuitive because they wanna provide patient care as quickly as possible. They're looking and ultimately for a frictionless experience, an easy ordering interface and a really intuitive report. This is what they're looking for, and those are key sort of, I'm gonna call them buying drivers or decision drivers in terms of where they send their tests to.
With that in mind, what our strategy is really to expand and also to win. We do this in two ways. Leveraging the additional resources that we're investing in already and will invest by the end of the year, particularly in the community oncology space, which is largely a solid tumor market, as well as leveraging our new NGS solution. Chris touched on this that we launched in March of this year. Talking about that solution. Here it is. Ultimately, it's two products. We launched this in the middle of March, so just over two weeks ago. Two products that we have available from a solid tumor perspective. First and foremost, Neo Comprehensive. It offers a very competitive 10-day turnaround time. It's a pan-cancer product. It's got 517 genes in its DNA and RNA.
In addition to that, we've got DNA/RNA lung. What's critical about this product is it has a reduced sample specimen need, and this is critical from a lung perspective 'cause very often it's difficult to get sufficient tumor. The less tumor you can actually need to run the analysis, the more important. Here we actually need as few as 10 slides to be able to do this. Fast turnaround time, that's critical. We believe what we've created here is more than a product. It's actually a solution. We developed this based on feedback from the oncologist community. It starts with a very simple and easy ordering interface. Here we've leveraged the Trapelo technology that we acquired two years ago, and we've created an oncology specific ordering interface, which has been designed by voice of customer.
It's very slick, it's simple, it's clean, and it's really focused on solid tumor NGS. It also, using NCCN guidelines and FDA guidelines, it's also got sort of test requisition support. It actually prompts the oncologist what would be the right test to order in a certain situation. We've also created a streamlined report, and ultimately this is again based on voice of customer feedback. The critical information around diagnosis and treatment is above the fold. It's in the first half of the page. You know, it sounds kind of intuitive to do something like that, but I tell you it's not common practice to be doing those types of things from a report perspective. We've tailored this report around the needs of our oncologists, and that report is also available in this ordering platform, the NeoAccess.
Largely, we've also created NeoSeek, and this is another unique opportunity for oncologists, which allows them to interrogate their patient set to really identify potentially new treatments or clinical trials that have come available that are relevant to their patients since they've offered the treatment program previously. It allows them to kind of self-serve and be empowered. We feel that this is a very competitive offering that we've brought to market, and it really does go a long way to deliver a simpler, better, and faster solution for solid tumor NGS. Continuing down the portfolio optimization side of things, we have, again, more than 600 products, and it represents a huge opportunity for us in terms of driving growth, both on the top line and the bottom line. We've identified four areas that we're going to focus on.
First and foremost, it is really around doing a gap analysis and filling some gaps. Secondly, it's about identifying opportunities to improve margins. Thirdly, we wanna rationalize portfolio, and largely, we wanna look at targeted opportunities. Maybe just looking at some use cases, et cetera, for each of these to try and make it tangible. In 2022, we identified a few gaps within our portfolio that we've brought to market, and these are on non-NGS solutions. Two, for example, FOLR1 and PD-L1 are two products that we brought to market in 2022, which helped to fill some gaps. We also wanna improve margins, and we do this by upgrading older products. We have a number of products that we run today or a number of tests that we run today, which run on a Sanger technology.
It's an older technology. We can upgrade those tests to a PCR-based technology, which will increase clinical utility, it'll reduce turnaround time, it'll reduce dependency in the lab, and ultimately with that, it will help to drive improved margins. Again, some examples here, EGFR, which is a fairly substantial one. BRAF, KRAS are some examples which are taking place as we speak. Rationalizing portfolio, I think this is maybe an area which hasn't got as much focus in the past because I don't think anybody likes to eliminate portfolio because it has a volume and revenue impact. The reality is we have some products which are carrying a lot of weight. It's driving operational complexity for Melody Harris, and we believe by addressing those products, it'll actually allow for greater operational efficiency, and therefore, it will help to drive improvement across the entire business.
The other area is we have a lot of bespoke solutions, whether it be a total test or maybe some of the documentation, et cetera, that we make available around a test. What we've seen is volumes decline against these bespoke solutions over time, and really we're faced with the opportunity of either eliminating that product or substantially increasing the price to make that economically viable. These are the trade-offs that we're going through. Lastly, we wanna target new opportunities. Again, we've got a number of things that we're evaluating at the moment. International sponsored testing programs is one of them, and in the process of putting one together as we speak. Enhanced germline testing is another area that we wanna focus on. Lastly, pediatric oncology is another space which offers attractive potential.
Moving into customer experience, Chris said we'll win on customer experience, and it's something that is really close to my heart as well. The fascinating thing as I've gone out to see customers, whether it be in the hospital setting or the community oncology setting, world-class sort of customer experience within the oncology space actually hasn't been determined yet. You know, there's different peers out there that do certain elements well, but there isn't a holistic solution that people kind of see as the North Star. From a Neo perspective, we're gonna create that North Star. It's so much more than turnaround time. Turnaround time is critically important. It's an operational criteria.
In order to ensure that experience, that stickiness, and leverage that as a mechanism to win new customers to execute on our strategy, we need to differentiate on customer experience. We're gonna do it across a number of pillars. First and foremost, it is around customer service and customer success. Strong back-office functions. As Chris said, this is a differentiator for us. Not all of our peers have this available. We're shifting more from a reactive mindset here to a much more proactive. Understanding the needs of our clients, anticipating their needs, and proactively providing them with the information in order for them to effectively run their practices.
Online sample tracking, their ability to track the status of their samples, so their registered nurses or their admin staff can make informed decisions in terms of scheduling around when patients should come back in. Portals. We have so much information available for our customers today, we don't have an effective means to make it available to them other than dumping a whole lot of information on them which they wouldn't know what to do with. We are in the process of establishing portals because this is a way for us to structure this data around the specific needs of the customer and allow them access to this valued information so that they can run their practices much more efficiently. When you do this in a portals environment, you can really tailor it to individual customer needs, which will become...
Is an increasing ask that we're faced with today. Secondly, it opens up another sort of channel of communication between ourselves and our customers. Decision support. Very clearly, when we speak to our oncologists in particular, the feedback that we get from them is that this space is moving really, really quickly. They cannot keep abreast with all the different treatments that are available, the different clinical trials that are available, and they need help and support from a decision perspective. We're gonna make that available using our Trapelo technology. Lastly, it's around self-service. Eight out of 10 clients that I see talk to me about the need for self-service. It's a wonderful opportunity for us because clients want a self-service, which is great for us.
We need to make it available to us, to these clients, and that will create a massive efficiency and reduce our cost to serve within our organization, and therefore, it'll improve our profitability. Lastly, I wanna talk to you about revenue cycle management because this represents a significant opportunity for us, and it's largely a bottom-line opportunity. We're focusing on three core areas here from a revenue cycle management perspective. First of all, it's around denials and patient concessions. In the past, our billing process was at the back end. A sample would arrive, and we would run the sample, and then we would go through a sort of missing information billing process. The reality by then is the ship has sort of sailed. We've already incurred the cost.
We've already used the capacity. If there is any kind of missing information or anything, we've probably lost the leverage through that process. We've actually already moved that up front to ensure that we can address any missing information, and if we want to, we have the opportunity to pause testing until we have that detail. The second is we are in the process of partnering with providers to try and ensure we have pre-authorization, again, to do this prior to running the sample, so that if we're not gonna get authorization on this particular test, we can take a decision as to whether we continue to run it or we hold the sample. Again, a practice we weren't doing up until very recently. Lastly, we wanna enhance our online ordering capabilities.
Roughly 50% of the test requisitions we get today are digital or online through different platforms. Unfortunately, those platforms don't ensure that all of the patients and billing information is complete before it's submitted. That's a change that we're driving to ensure that any electronic requisitions that we receive actually are complete. That significantly increases the probability of getting paid and reimbursed when we have complete information. We wanna improve reimbursements. One of the biggest areas where we wanna improve reimbursement is around our molecular testing. Today, third-party payers, unfortunately, do not reimburse molecular and NGS well, which is somewhat of a contradiction because that's the space which is growing the fastest.
We have to be working in this space using, you know, health economics to prove to these third party payers that it is the right thing to do to reimburse for molecular and NGS. That's really a big focus. We also have many opportunities in terms of to reposition with third party payers in terms of how they reimburse for tests. A lot of the strategy in the past has been around what does Medicare pay, and that becomes the benchmark. We believe through health economics and clinical utility, we are able to prove that certain of these tests actually command a higher value, and we're systematically moving through a menu of tests to do that today.
Although we have a very, very strong in-network, third party payer, regime, there are still, third party payers which, are not within network. Obviously, this is leakage from a reimbursement perspective. We're continuing to contract with these out-of-network third party payers. The more we bring under contract, that'll increase reimbursement. Lastly, around strategic pricing. This is, again, an area that, wasn't necessarily well, utilized in the past, and it's something that we started to do much more readily in 2022 and continued in 2023. Ultimately, we wanna enhance the pricing for non-covered tests and uninsured patients. Kind of what's our strategy? How do we position ourselves?
We are in the process and have deployed annual price increases for our products, and we've seen good stickiness and uptake here. We have pricing leverage. Lastly, we're increasing our analytics from a pricing perspective to understand how we're positioned in the market relative to our competitors and relative to reimbursement rates so that we can increase pricing leverage. In summary, I'd like to leave you with these four takeaways. First and foremost, sales and commercial investments, analytics, and execution will drive continuous and sustainable growth. New products and portfolio optimization offer a meaningful upside potential for us, both on the top line and the bottom line. Neo will define what best-in-class service is within the oncology space with NeoExperience. Lastly, revenue cycle management will offer significant bottom line leverage. Thanks for your attention this morning.
As Chris said, we'll take a couple of questions if there are any, and there will be a larger Q&A session at the end as well.
Yeah. Great job.
Thanks.
Yeah, so let's kinda focus a little bit on mine, but on Warren's presentation. We'll take maybe 10, 15 minutes worth of questions, and then we'll kinda continue to move on. We have a roving mic if you just wanna raise your hand, and Warren and I will work through these.
Yeah, Chris, Puneet Souda, SVB Securities. Thanks for taking the question. You know, great presentation. Overall, you know, when you think about the 2028 number at $1 million, can you sort of talk about, you know, how much of that is share gain versus product, you know, indication expansion, cancer population? Obviously, new drugs are coming on the market, so that expands indication. Maybe just talk to us about sort of how do you know, sort of get there. Seems like there's a lot of market share taking here that you're implying.
Well, I think, and again, obviously, I mean, you guys can think about how to work back, I think into that number. I think that it started probably with a point in time of what was important to this company, and also I think what was the opportunity in the market. I would say it's the sum of the parts. You know, Jeff will give you some guidance or some guardrails on the five-year plan, but it really includes all aspects of that. I think, listen, we had to start winning on share. I think, look, we grew 10%, for example, in Q4, right? We grew above, like, what I would say kind of that market. I think if you think about it, we think the market's probably around 8%.
You gotta grow faster than the market. I would say some of it's moving share. I think some of it's bringing new innovations to market. For example, RaDaR, we think that's a huge opportunity for us. Remember, that's continually testing a patient. I think one of the nice thing is, you know, we really have not looked at this business probably as lifetime patient value. Like, if patients continue to come to get tested, MRD opens up that huge opportunity. Now we're obviously as a whole industry learning as we go through that, but I think it's bringing new innovations to share, bringing new innovations to market. I think revenue cycle doesn't help with the patients, but it obviously helps with revenue. Again, I think the way to think about it is the sum of the parts.
Jeff will give you a little bit more on the guardrails.
Okay, great. Just a quick follow-up on the reimbursement and the payment side, the mix is heavily towards hospital payments today. Just remind me what the mix is today versus commercial payers?
Yeah.
Versus Medicare, sort of how does that change as you work towards this plan?
As over time. Yeah. We don't disclose, I don't think, specifics on that. I don't know Jeff, how we have talked about that. I want to be sensitive to what we've talked about in the marketplace. Yeah.
It's over 50% on the hospital side.
Yeah. In our models, we've built it kinda decreasing. A little bit of decreasing over time and more going to sort of some third party.
More third party than Medicare?
No, I said a little bit over time, moving to third party, I think. Think about Medicare or third party as opposed to billing the hospital. One of the things about our business, we bill the hospital directly. They pay us as opposed to us having to go through the billing process.
Got it. Yeah. Thanks.
You guys are already starting to work models. Thought you'd wait till the end of the day. Hey. Hey, Tejas.
Hey, guys.
Good to see you, man.
Thanks.
First time to see you, I think, live, not on a Zoom call.
I know.
It's good to see that you are who you are.
Thanks for hosting all of us today. Maybe one for Warren here on the turnaround time, you know, big point of focus in your remarks.
Mm-hmm.
When we talk to sort of some of these other, you know, comprehensive sort of, testing providers, you know, Guardant, for example, talks of six days, Foundation is around 10-12, Caris is probably a little bit sort of over that. 10 seems to be sort of in line with all of those, you know, other competitors, the entrenched sort of incumbents on the, on the NGS side of things. How do you view that in terms of the differentiation? Is there anything you're doing on, the time required to acquire the sample? Because that seems to be the larger sort of like bottleneck in the workflow.
Yeah. I think that's spot on. I think your assessment in terms of market landscape is probably fairly accurate. It's not a constant, though. It tends to move. We're 10 days, and ultimately our strategy is to sort of underpromise and overdeliver on that. That'll be the first comment that I would make there. Secondly, you're absolutely right, though. One of the biggest challenges with regards to solid tumor is acquisition of the tumor, and that's, in many cases, it's third-party retrieval. We have enhanced. We did have the sort of third-party tumor collection process in place. We've actually enhanced that and actually baked this into our CRM, the SFDC tool, to actually enhance that and track it.
We've actually in this year seen a 1-day improvement, which doesn't seem like a lot, but it's, as a percentage, it's significant in terms of our specimen retrieval speed. That is as important as actually the cycle time of the actual test because you could see up to 10 days in some cases with regards to the specimen retrieval.
I think Warren talks about the 10 days, but I mean, underpromise and overdeliver. I'll say with two weeks on the market, three weeks on the market, but we're beating that number, so.
We're beating that number meaningfully.
Yeah. Probably more of some of the competitiveness you're talking about.
I think we our strategy is really to try and publish turnaround times as this is our kind of worst-case scenario that we're looking to achieve. Let's like we said, underpromise, overdeliver.
Okay. Any another question? I saw a lot of hands a second ago.
Hey, guys.
How you doing?
Thanks for the great analyst day. Mark Massaro, BTIG. A couple questions. The first is on the Salesforce. I heard congrats on the 22% increase. Just to clarify, was the baseline 70 reps? 'Cause, like, I think over the years, I think I've heard 90, 100, maybe you had some attrition. There's some management turnover. Is that right that the 22% lifted off of 70?
Yeah. I think the way to think about it, we need to get to about 100 by the, by the end of the year. I think you can think about that. I mean, I think, you know, you take 100 and you split it by two, figure out pretty quick what there was on the TBMs, right? That's kind of been the way we've run the business in the past. I think I've publicly disclosed we did 20 really in the second half of the year, so you can figure out how many we wanted to add on the oncology side. I will say one of the great things right now on our commercial side, a lot of companies are laying off reps.
I think we have a huge opportunity to be incredibly selective with people that already know the sector and already have the relationships but change. I feel pretty good. I don't know if you have anything else to add.
I'll add to it. I think obviously a number is one aspect, how many do we have? I think the other thing to think about is how effective are they. It's, you know, it's of no value having a large sales team which is only 20% productive. I didn't actually mention this, but we ran a study with regards to our organization, and it's a study that Gartner kind of has publicized, which is around commercial maturity index.
Do you wanna talk about maybe when you ran that?
Yeah.
Yeah.
We ran that, as I started within the organization in Q4. Ultimately, on a five-point scale, we came in around a two. We have a lot of room to sort of grow from a commercial maturity perspective, which really speaks to the use of digitalization, targeting, and driving efficiency. I think you're gonna see a meaningful increase, as I said, 32% by the end of the year in terms of heads. What you're also gonna see is a massive increase in productivity by us more effectively targeting those resources to where the biggest opportunity is on what work needs to be done.
Yeah. I think the last piece around the sales is I think it's also what's the perfect number. And look, as you go out to the five years, how do you split territories? When do you split territories? The Guardant belief is, most of our competitors call on both call points. We think, look, you have to go deep in these relationships, and it's much harder to go deep when you're in two different complete. Look, being in purchasing in a hospital is very different than being in an oncologist office. We believe that the two distinct field organizations allow us to go significantly deeper on relationships. I think a lot of people underestimate the importance of the oncologist, especially in MRD, where you gotta get, still gotta get the tumor. Where's your relationship with the oncologist?
How are you gonna get the tumor? For some of these companies, they're very oncology-focused. We believe that's... As we get more and more effective, that's gonna be a big differentiator.
One last quick one. congrats on the launch of Neo Comprehensive. which I believe is a tissue panel. and I haven't heard anything about a blood panel. maybe can you clarify if that is something in development? Obviously, we've seen blood CGP grow, I believe, faster than tissue. just curious, what timing might look like and/or if it's on your RaDaR. with respect to RaDaR, obviously, it's a blood-based MRD test, so I'm just curious where the blood CGP would come in.
One of the what-.
I was gonna say, you're setting up Vishal.
Let me set up Vishal nicely.
Yeah. Yeah.
He's gonna answer. I think one of the other products that we did launch of the four that Chris mentioned was a myeloid 2 panel. That was also launched in the 1st quarter of this year. That's already started to address that. That tees up Vishal really nicely, so maybe we'll pause that question for a little later.
Yeah. Go do one more. Thanks.
Great. Alex Nowak from Craig-Hallum.
To expand on the oncology and pathology side of the business, you know, you're expanding the sales force. You both opened up talking about how the oncologist is becoming a lot more important. I was hoping you can kinda ground it a little bit. Like, let's take Southwest Florida. How is the sales force being changed here in this field, where you now have this new sales team calling on the oncologist, you're calling on the pathologist historically. Let's take a stage three cancer patient, breast cancer patient. How do they now flow through the channel? How do they go through the oncologist, work with the pathologist to get the sample, get RaDaR, et cetera, et cetera?
Yeah. I think South Florida's a great one, a model as a, as a little case study. Warren, you wanna walk them through what you guys have done recently here?
Certainly. I think, prior to the end of 2022, the way we would operate is we would had a relatively small precision medicine team, and that it would have a separate regional director. In Southwest Florida, we probably would've had one. Actually, no, probably would've had one precision medicine specialist that would cover the entire geography. Big concentration. Some of our largest customers are in Southwest Florida, to be specific. It was just really a demonstration of under-penetration. Today, as I stand here, we have three precision medicine oncologists. We've significantly increased our penetration with regards to the PMMs who are targeting the. Getting an echo here. Sorry, let me stand here. Targeting the oncologist. I think that's the first very clear delineation.
Something that I haven't spoken about here is we've also introduced an ASR, which is an associate sales rep. I don't wanna go into too much comp complication, you know, this is kind of an overflow capacity. Where we see more work coming in, and Southwest Florida is an excellent example in terms of growth, where we supplement or augment resources with this developmental role that we have within the team. Southwest Florida, again, one of the unique opportunities that we offer is our own logistics fleet here as well. Maybe when we do the tour, you won't see them 'cause they'll be out on the road, I guess. We have our own logistic fleet that actually collect samples in, across Florida. We're the same in California, where our AV site is, as an example.
That allows for an additional sort of intimacy and stickiness with our customers as well. That's really how we're building our strategy. It's around increasing the touch points, it's increasing the intimacy with our clients in Southwest Florida. At the same time, the territory business manager, which has been calling on the hospitals and the academias, that team hasn't reduced in size. That's being sustained. Both of these teams now, the PMM and the TBM, are now under one leadership. We have our regional director that lives up in the Tampa area for Southwest Florida that's actually coordinating this sort of playbook for Southwest Florida. Where are we targeting? What are the activities that we're focusing in on, et cetera.
I do want to make one clear. That would probably be South Florida when we talked about three.
Sorry, yeah.
Think of Orlando-
Yeah
-south. There's not three-
Sorry.
-precisions.
Good point.
Just the Southwest and Fort Myers. The business opportunity is there, it's not...
Sorry. It's a good catch.
Yeah.
Thank you, Chris.
It's not that big.
I was stretching. I was thinking Florida's all.
I don't know that we got... Did we get all the way to your question or did we?
Maybe how the oncologist and the pathologist-
Yeah. I think that's what he's-
I think, yeah, again, it depends on what the situation is. Are we in a hospital setting, or is this an independent oncologist, et cetera? You know, it definitely, it varies. If you're in a hospital setting, there's a very strong collaboration between the pathologist and the oncologist, and they pretty much work seamlessly. Today, our primary point of contact would still be the pathologist in that particular setting. A lot of the coordination actually is driven between the pathologist and the oncologist. If you're in the community setting, it's very different.
This is where our interface is with the oncologist, we would then interface to the hospital pathologist to collect the sample in the case of solid tumor, this is the sample retrieval process that we spoke about leveraging, our internal resources and our Salesforce platform.
Yeah. I think two things on that. One is collecting the sample. We do believe one day is huge, and I wanna come back to it. We have to, every single day, think it's someone who's been told, "I will have your results in X," right? You can't miss that. That's table stakes. You can't, I think, miss that day. The second thing we really haven't talked about, they share a number. They're... This collaboration of partnering together, they share a number, and they're paid on... You know, so RaDaR, if you're a pathology rep in the hospital, you're also getting paid on RaDaR, even though the primary salesperson is the oncologist, to create this flow because there's so much cross-selling opportunity, so.
Thank you.
I think I'm getting pulled with Kendra. Yes?
Yeah.
Okay. If you got a question that's kinda focused on, we'll come back at the end. We'll still have time for Q&A. We're gonna turn it over to Melody.
Good morning. I'm Melody Harris. I'm President of Enterprise Operations. Tomorrow is my 4-month anniversary here at Neo, pretty new. Not quite the newest, though. You'll get to talk to him later. I was really brought in, as Chris talked about, lab operations. I had been in operations before coming to Neo. When Chris and I started talking about the role, I thought, you know, lab operations seems a little siloed. Separate from me, Chris and the team were really thinking about how to bring that together and have someone really responsible for driving turnaround time and really owning costs behind the operations. You had to really bring all of that together, that's what I was really brought in to do.
As we think about the approach that we're now taking, the integrated approach, obviously starts up front with procurement and inventory. We have our equipment that we need to purchase. We have our reagents that we need to manage. We need to be doing that in a discounted volume sort of way. The heart and soul of our operations remains the lab. That's certainly what we focus a lot of our effort on every day. Bringing in the medical services piece, because as Chris mentioned, that's the back end. These are the folks that are really touching our customers, our pathologists who are talking with other pathologists and oncologists and really interpreting those results and helping them serve the patient. Underneath that is a lot of foundation that makes all of this tick and move.
One of the new things that we've brought in is an operational strategic agility group, which is really think about continuous improvement. I'll talk about them a little bit more. Instead of thinking of just IT as an underpinning, our IT groups were also fairly siloed. We had all of these acquisitions that had come in. We have some amazing technology. It was siloed and not talking to each other. We're really now thinking about that. It's not IT, it's really technology and digital services that underpins the entire operation and really sets the stage for us for the future. We've brought in quality and regulatory. We're working hard. Those two were separate. We had separate groups that were living in these different acquisitions.
We're now bringing that together into a single system and driving lean methodology into our quality system as well and really adopting agile development so that we can move more quickly. Facilities obviously underpins all of it, where we are, and making sure that we're getting capacity and leverage off of our footprint. Where are we focusing for 2023? We're really looking at optimizing the lab. We're really looking at optimizing our workflows in the lab and across other aspects of operations, focusing on our people, as Chris mentioned. One I personally get very excited about is around digital transformation. Starting with lab optimization, I was lucky to inherit momentum. Chris had talked about momentum, and the folks here before me, primarily led by Lynn Tetrault, who's our Board Chair, really started Project Catalyst that some of you have heard of.
While we're not reporting on that separately anymore, it gave me initiatives coming into this job that really delivered some momentum coming into Q4 and now into Q1. We've focused on things around automating and digitizing the lab. We've had productivity increase in some of our networked analysis. We're digitizing our stains, and we're uploading to our network, which I'll talk about in a moment. We started optimizing our footprint, and we are working on our equipment capacity strategy. Chris talked about the hurricane that hit here in Fort Myers, so redundancy is incredibly critical to what we're doing, and we've really started to plan for that redundancy. Redundancy reduces our downtime so that we're able to pivot and move.
One of those important advantages that we have when we have a hurricane in Fort Myers, we can pivot and move so quickly because we've built our system on a network basis, and I will come back to that in a minute. Importantly, these initiatives really gave us momentum in NGS, and I'm thrilled that it continued into Q1. Q1 year-over-year in our NeoTYPE NGS, we had a 46% improvement in our turnaround time, and we've had improvement of 22% for our other NGS. Overall, as Chris mentioned, we had 36% for fourth quarter improvement year-over-year in turnaround time and carrying 17% into the first quarter. In 2023, we're going to continue that momentum and really focus on automating and digitizing the lab.
A couple of examples that we've got here, and you'll see some of these on our tour today. We've started with an AI application around automated karyotyping, which allows us then to take analysts' time out of their day. Previously, they would circle it, move it manually, and organize the chromosomes themselves. Now, with the touch of a button, we're actually able to do that through AI with human QC on the back end of that. We've experienced a 29% increase in productivity in cytogenetics as a result of this digitization. It also then, by digitizing, it's allowing us to upload to our network, and I'll come back and talk about the network more in a bit. You're gonna see on the tour that we're using automated liquid handling that we're bringing into our molecular business.
In our California labs, we've actually started validating for 2D barcoding, which allows us to be even more hands-off with these machines. That's obviously improving turnaround time and increasing our productivity. By doing these efforts through the year, we're really increasing our throughput, we're importantly improving quality and safety for our patients, and we're getting that operational leverage that we've talked about. We're also really seeding, and this network strategy is incredibly important for us. Let's talk about our network. I don't know that my map is showing well there. Imagine a map of the United States up there. It's showing on my screen. I don't know why it's not showing on that one. We have the dark blue ones are where we have our networked labs. We use the word lab because there is work going on there.
They are CLIA certified. This is really analysis that is done and enabled because we have a network strategy. This differentiates us in the marketplace because most people just build all of their employees around their production lab itself. We were able to pivot so quickly from the Fort Myers hurricane because we were able to shift the actual spot of the sample processing, but keep all of our employees who were doing the analysis in Nashville or in Chicago or in Tampa, who were unaffected by the storm. The network strategy is incredibly important for us. The light blue are where we have now our full production labs, our wet labs, and that's where we run the sample itself. Here in Fort Myers, that's our headquarters.
Because it's a new lab, you'll see that we're actually just validating much of our automation here in this lab. In order to increase that operational leverage that we talked about and better use our network, we actually consolidated wet labs as well. We consolidated into Fort Myers, the portion of our Nashville operation. We moved the wet lab here to Fort Myers. We keep it as a dry lab or an analysis lab, that's why you see it as a dark blue. Singapore was a wet lab, Rolle, Switzerland, we have a wet lab. We're consolidating all of that into our U.K. lab. Better leveraging that footprint. Moving to workflow optimization, I think if you did a word cloud for us today after you hear all of us speak, I think one of the larger words in your word cloud would be data.
We really are leaning into this and really modernizing not only how we're delivering for customers, but how we're running our own business. We've started this group of operational strategic agility here in the operations team, and it's really incorporated a Six Sigma team into the operations group. We're driving continuous improvement. We're holding people accountable through metrics. We've developed real-time dashboards for purposes of managing the business. It's giving us insights into understanding how we can simplify and standardize our business so that we can continue to operate in that network function. If I'm doing things differently in Fort Myers, it makes it very hard to pivot that work to Houston or to California.
If I standardize that through my metrics and analysis, I can understand that I do it the same way everywhere, that we are better able to leverage our entire footprint. We are also using our metrics to understand our staffing and our capacity to really meet the needs of the customers at the time that they need it. If they're taking a biopsy and that hits us at 4:30 P.M. on a Friday, we can look at where that volume's coming in, and we're actually making staffing changes to meet that volume, regularly analyzing that volume, and regularly updating our staffing accordingly. Turning then to our talent, our most important asset are our people, and we're really going with a three pronged strategy.
You guys are pretty steeped in this sector, and so you know, I'm sure you hear this from most folks in the sector. COVID made the competition for talent in this space really hot, and that continues. We've had to be strategic about recruiting, developing, and retaining our talent because it is very competitive out there. From a recruiting perspective, we've partnered proactively with local universities around our three major wet labs. That would be, in Houston, we've partnered with MD Anderson. In California, we've partnered with Mount San Antonio College. Here in Fort Myers, we've partnered with Florida Gulf Coast and Keiser University. That we're helping, we're partnering with them in order to create content for that training.
It gives us a flow of candidates, and it's also certifying our employees as they come in the door. It's been a great partnership. When we do the tour a little bit later, you'll see some of our training areas. Some of that is for our own employees and then in those partnerships. Training, training is critical to getting these folks in the door. We're also conducting a large company-wide market compensation analysis to make sure that we're staying competitive in salaries. From a development perspective, back to training, many of our lab ops employees go through our continuing education program. We've got our own internal group called Neo U.
We do our own certifications, in-house certifications with our employees so that we can move them through and really foster their careers because a good leader, a good manager always wants their employee to grow and succeed. Neo as a company has actually taken that on, and we're helping our employees grow, get those certifications, and hopefully stay here at Neo. We're also undertaking serious leadership development because as you can imagine, when companies grow quickly, people get thrown into new managerial roles or jobs they don't necessarily have the skill set to be able to handle that. We are actively, proactively helping those employees really develop those leadership skills. That all then leads to the third point, which is retention. Growing them is important, but to do it in a method that they know where they're going.
We're developing individual tailored career plans for our employees, so that if you come in the door in logistics in NeoGenomics, your manager will be helping you understand that you could then move to accessioning, and then you can then move into FISH and start getting your certification as a technologist in FISH, and you could continue to then move up the chain. We've seen that over and over again from our employee surveys, that this is what they need and this is what they want for us in order to stay with Neo. We're seeing as a result, consistent and continuous improvement in our turnover in the last 12 months. That's come down, and we're very pleased to see that.
The last thing we're working on, and you're sitting in a prime example of it right now, is that we're modernizing our facilities to provide better space for our employees so that it just brings a healthier and happier working environment. This is the part that, you know, I can geek out on and I can spend a lot of time talking about. Everybody on the team knows I get excited and I'll talk on forever and ever and ever about digital transformation. Really to bring the lab forward, to do the workflow improvement that we've talked about, to enable Warren and his customer experience, to enable Shashi and the innovation engine that you're gonna hear about, it requires digital transformation. I talked about how we've really been siloed. Importantly, our data is siloed.
We have systems that don't talk to each other. How are we tackling this digital transformation? We're really putting it in four different buckets. First and foremost is we have to stand back. We have been firefighters, really good firefighters actually, and we develop a piece of software in a very quick period of time in order to solve a problem. One year later, we find out that that software then needs to talk to another piece of equipment that we've just brought into the lab, and they don't have common data structures, and so they can't talk to each other. We're standing back and saying, "All right, let's imagine the lab of the future, and let's imagine what we need all of that data to do, and let's design those blueprints.
Let's make that." We've started that process of full end-to-end enterprise architecture, fully modern tech stacks in order to start rebuilding the plane while we're flying it. We'll be building end-to-end data connectivity from Salesforce at the opportunity layer all the way to payment, EMR connectivity, and all things in between. This is what we're building and designing. This is the backbone for automation and making sure that we have modern technology that can work with all of this automation and bring all of that data in so that we can leverage it both for our own analytics, but eventually for either monetization through our informatics group and later and importantly, product development. This system will be agnostic to data inputs because you guys are very smart about this space. You know where it's going.
Today it's taking all of our H&E data, it's taking our NGS data, it's now taking our Neo Comprehensive data, and tomorrow it will take whole exome data and whole genome data and then proteomic data and then single-cell data. We're making this agnostic so that we're future-proofing and being ready for what that data future is coming. The next stack is really around data and analytics. It's a simple thing, but if one system has date of birth that starts with month and then date and then year, or you have another system that works on the English system and it goes with day and month and year, you've just created a data disconnect. That's one really simple example.
We have hundreds of thousands of data disconnects that we are now working and re-architecting that so that all those data definitions are common, so that our database is truly a connected, powerful database. We're enhancing sample tracking, as Warren mentioned, this is gonna help us in so many ways because we are then able to use that for analytics to drive efficiency and to serve the customer. We're getting better insight into our supply chain, we're obviously driving better cost transparency. We're moving to broader and wider cloud deployment. This is going to reduce costs for us. Importantly, it reduces security risks and disaster recovery and business continuity risks.
It gives us the better opportunity for quicker new deployment as we move to a new site, either a dry lab or a production lab, and importantly, as we start thinking about moving international and the data restrictions that we have in various international markets. Then all of the big boys in the cloud world, they have wonderful tools and analytics that then we're gonna be able to bring to our business. Finally, we're really focusing in the same vein that Warren talked about on the enhanced customer experience. We're improving online ordering with portals. We're bringing in expanded user platforms, and you'll be seeing that we're finally architecting mobile strategies so that our customers can access this information on an iPad or a phone. We're improving the reporting as Warren mentioned.
We're enhancing the user interfaces for the customers, we're enabling that customer self-service. This digital transformation is more than just about fixing the lab, improving the lab, or improving customer service. It's also really about the future. This is really basic, what I would call big animal pictures for you guys. You guys understand this really well. These are sort of the basic components and building blocks of what a big data precision oncology company needs to be thinking about. First, you have to have access to the samples, obviously, Neo has that. Then you need to be thinking about a high throughput data source. Today, that's an NGS service, again, tomorrow that's gonna be a multiomic assay. You have your AI ML layer, where you're applying artificial intelligence and machine learning.
Ultimately, you've got precision decision support tools that sit on top of that. All of that feeds your database. You have a basic biobanking strategy in order to layer your data over time, that you can rerun those samples as the new technology comes out. Your database just continues to get richer and richer and richer. We're really building this infrastructure, but it's not just infrastructure. I really wanna focus on the AI piece for just a minute. We have started to employ AI strategies in our lab, and we continue to pilot those on a regular basis. You can't really be in this space and not see AI pop up all over the place.
We've got some cutting-edge folks who are really doing some cutting-edge decision support and other things, that's obviously where we're gonna move in the future. Artificial intelligence needs something in order to not be, well, artificial, and that is data. This is where when I thought about coming to Neo, this is where I got so excited because Neo has the data. If you think about what Chris said about the number of patients that we're serving, but you think about it in the context of data, we generate on a really conservative basis, super conservative basis, hundreds of clinically relevant data points per patient. You start adding whole genome to that, you're talking at least 20,000 data points per patient per sample that you run. Hundreds is conservative, right?
These numbers and where we're serving patients today, that's 100 million clinically relevant data points on an annual basis. We grow our database faster than anybody. Not only are we growing it, and RaDaR continues to help us grow it, but RaDaR brings a new dimension to our data that artificial intelligence loves, and that is longitudinal data with relevant outcomes that we can tie to those longitudinal spots. The advantages that this is bringing us and what Neo has as a competitive advantage is our data. What do we do with our data today? As you know, we have an informatics business. Vishal's gonna go into that more in depth. We're enabling pharma research and development with our data today. This is real use of our database today. We're licensing that data for algorithm training.
We are part of the creation of the AI frontier because they come to us because we have the data. We're also doing clinical trial matching, and we are realizing that competitive advantage that we have in just the way we conduct our operations because we can upload things and do it on a network basis instead of having to have pathologists and analysts around the wet lab itself. In the future then, as we continue to build out this architecture that I talked about, as we connect all of the data better, as we grow the database, and as we get more longitudinal effect of our data, we also then can start monetizing that data for more use with pharma, for real-world evidence generation. Vishal's gonna talk a bit about product innovation.
There's lots of product innovation that we're gonna be able to do off of this. Product innovation then leads to IP generation and ultimately creating data standards that are out there in the way oncology data is reported and thought about, and Neo can be at the center of that. Key takeaways for today. We've really worked hard to integrate our operations end to end because it's all connected. Lab operations to IT, to software, to facilities, it's all connected, and we're now thinking about it and running it in an integrated fashion. We've already started to see strong results from those Catalyst projects and from the momentum that that gave us and the continued automation and digitization that we're doing in the lab. We're gonna continue to focus on lab automation, workflow analysis, and really focus on our talent recruitment and retention.
Importantly, we're working on that digital transformation to really leverage our data advantage into the future. Thanks.
Okay. I, a couple of just quick housekeeping before we jump into questions. We're not gonna take a formal break because the physician we're bringing in is in surgery, we're trying to do a time. If you need a break, bathrooms are right there. Just ask you to kinda get up and go, or during the Q&A session. Just to let you know, we're not gonna take a formal break. Let's take a few questions. I can bring up the mics.
Everyone, good morning. Andrew Brackmann, William Blair. Melody, great overview, great presentation. I think it hits the mark on sort of where the puck is headed in terms of lab and AI sort of infrastructure here. I guess, as we sort of sit here today, can you maybe just sort of talk about what Neo needs in their own infrastructure in order to sort of drive those future uses of that data? What's in your control, and how do you sort of think about those timelines to get to those future uses?
Yeah. I think first, what I felt when I walked in the door, what we needed was really that end-to-end enterprise architecture. We were really missing that global plan of where we wanted it to go, where we thought the puck was gonna be. That's a big piece, and that's wholly in our control. I think another piece that I would like to add to the team over time to help me both operationally, and then I know Vishal and Shashi are working on it from the R&D side, is really around more bioinformatics, and being able to either bring that in or partner with someone to make sure that we're doing that analysis on our data ourselves. I would love to have that just operationally to be able to deliver that a little bit better.
That's mostly in our control, but frankly, that's a relatively competitive space to get good bioinformaticians. Partnering may be the stronger strategy for us there. Other than that, you know, it's a matter of timing and planning and controlling our cost spend around this. I think building that data future is really all within our control.
Yeah. Maybe, Andrew, another way to think about it, you heard me talk about, like, that $25 million when we went through the reorg, and we're reinvesting it. I would say the way that we're thinking about it, the folks you're seeing today as a team, and strategically together, we make where are we putting those investments. Like, one of the things that came up, but commercially you're behind, right? Melody and finance look hold hands and say, "Okay, rather than doing this today, let's add the field." Second point is, I will say, Inivata, we actually got some of that bioinformatics.
Mm-hmm.
The challenge was it was just in Cambridge and focused very much on RaDaR.
On RaDaR.
It really wasn't a Neo. I think how do we expand that.
Yeah.
Is gonna be a key one.
Yeah.
Okay. Sure . I don't know. Oh, she has a mic, sorry. This room is getting this side of the room is getting cheated. We'll have to listen in. We're gonna change seats in about 15 minutes. We'll just.
Great. Alex Nowak from Craig-Hallum again. First of all, when you think about lab consolidation, You mentioned the three that you consolidated this time. Is there any additional consolidation you'd plan on in the future? A second question is really around enterprise operations is now its own segment. How are operations handled prior to Project Catalyst? If you maybe walk through where the organization was, how it was set up, how it was managed previously-
Yeah.
Versus where we are now.
Yeah. Maybe take a couple of that, and then I'll have Melody follow, kinda come in behind that. Look, I think we announced that we closed Singapore and our lab in Switzerland. I think that was a pretty quick consolidation because I think we had labs really probably prematurely, so we pulled the European into Cambridge. Cambridge is getting expanded. I think, you know, we have a couple of things about Cambridge, great talent pool. Inivata or now Neo has a good brand. In Cambridge, we have a great relationship with the university, so I think pulling Europe into Cambridge was a key strategy. We continue to believe Asia, and especially China, is a big growth opportunity, but I think it's how do you do it. I would say, look, I would look there.
You know, I think it, as you saw on the map, a lot of dry and wet labs. I think, there's a reason why all those were put in place, and Melody will talk about the network. I'd say there's nothing right now on the kind of on the footprint or the plans. I will say Houston expansion would be almost more than the consolidation and how do we expand in Houston. If you go back, I think, look, one of the challenges, you acquire Clarient, you acquire Genoptix, you acquire Inivata, a lot of those labs were kinda created and run very siloed. I wouldn't say there was this integrated approach from an enterprise operations perspective, and I think that's what put a lot of pressure on the P&L, candidly, is just the cost infrastructure, right.
You can't have, and we talked a lot about this when we did the G&A change, you can't have. You know, it didn't make sense to have accounts payable in Cambridge if we have an infrastructure here. I think you saw a lot of that, I would say, on the operation side is procurement. If you think about things like procurement, individual site director. I think pulling it all under one umbrella and creating kind of this five-year plan as we start to think about it, really became kinda key for where we wanted to get. You know, Melody, if you have anything else.
Yeah. I neglected on my map slide that didn't show the map, to really talk about the Houston expansion, we're really excited about that. We're focusing a lot on our molecular business in Houston. Houston's a great market for us because it's a nice intersection of, obviously, where the customers are, 'cause you have so many major cancer centers there. Then we also have a really nice, talent pool there, that's at a lower cost of living structure than, say, in Southern California. Houston expansion is a big piece and a change of where we're moving.
Hey, thanks, Melody. Puneet here. Just wanted to clarify. As we think about Houston, other sites, Southern California here.
Would you have, you know, NGS and the sequencing, you know, how are you distributing that versus FISH versus cytogenetics versus Heme versus other products?
Yeah.
Traditional, sort of when you bring about operational efficiency through that sort of there's the turnaround time factor because of geographical location, but at the same time, operational efficiencies because you have...
Yeah.
the right people in one group. Help me understand-
Yeah.
how you're doing that.
I'll give you an example. One thing to think about is we want to do things in two places, right? From a redundancy perspective. Today, we only do RaDaR in Raleigh-Durham. The reality is that RaDaR will be brought up in Houston, right? We have a second site. I think we take a lot of that from a redundancy perspective. I'd say the other thing is cost of tests and profitability. If you think about some of these older generation tests that are less profitable, doing those in California doesn't make as much sense as doing those in Houston, Texas, where we get arbitrage, when you think about it. I would say a lot of that piece has gone into planning and expansion in Houston.
Houston has primarily been a pharma site, not really worried about reimbursement, you know, with pharma. That being said, because it was really large clinically, we were leaning heavily on here and on the West Coast from a clinical perspective. Having that site in the middle part of the United States, I think is gonna make a big difference on the clinical side for the business as well. I don't know. I think I got to your question.
Yeah. It's really dependent on where you're getting the most operational efficiencies.
And-
Geographically just approaching that.
Being close to the customer. Like a lot of people could argue, why don't you just do it one place? Look, it does cost more, but I think in this business, and especially where we are, I think we get a benefit. You pick up a day or two just even with a FedEx overnight, right?
Mm-hmm.
The other thing is, I think for us, we think redundancy is important because of, again, if hurricane hits or an earthquake. Of course, we chose Houston, which is a hurricane zone. I'm trying to convince them to put one in Denver, Colorado, but no one's joined that club yet.
I'll join.
Well, Melody Harris in the club.
I'll join that club.
Yeah. yes, Tejas. Oh.
Melody, one for you on the, on the data piece. You mentioned, you know, RaDaR will obviously, you know, by definition, will be longitudinal data.
Right.
How much other longitudinal data do you have at this point in your database? I mean, presumably, the RaDaR pharma piece of it is all longitudinal. Second, Can you give us a sense for what portion of the data has outcomes associated with it as well? 'Cause that's been a huge point of focus for, you know, discovery-based use cases.
We don't disclose either of those pieces. It's pretty competitive information. We do have outcomes associated today, and we do have a limited amount of longitudinal information today. As we know, we have some repeat business on the same patient, but we don't disclose the specific amount.
Got it. Okay. Then this sort of ties to something that Warren mentioned in his presentation as well around, you know, strategic pricing, including enhanced pricing for non-covered tests on uninsured patients. You mentioned sort of cost transparency. I mean, one of the tools that's being used by a lot of these CLIA labs is capping patient out-of-pocket expenses, particularly as we get into these new indications where reimbursement can be spotty and there's buy off and whatnot.
Yeah.
Can you just talk us through that? I mean, is that a tool you'll be leaning into heavily as you launch these new tests? Or on the other hand.
You mean capping out-of-pocket?
Yeah. Yeah, exactly.
Look, I think at the end of the day, I think that in this country, in treatment of cancer, 99% of the time, there's a way to get things covered, whether it's through patient support functions or other things. I think we have to use, again, that. With RaDaR, I will say, and we're not gonna go in a lot of detail today from a competitive perspective, but Vishal is introducing a private pay price that I think is incredibly competitive for a person to pay. I kinda use the analogy, if you kinda see me walking around not looking great today, I'm not going to over too much detail into my health, but I ruptured two discs about 10 days ago, and I went to get an epidural.
The day before literally, one of these things, like you'd start crying if I told you the whole story. My physician says, "Look, here's the deal. I don't think I can get your coverage in time. It's going to be private pay." Needless to say, fortunately, he didn't say $100,000, but I was gonna write a check, you know, for that because it was a very realistic for what I needed at the time. Good story to the end. I show up at the surgery center the next day. We had gotten coverage, but I think, look, we're gonna definitely do private pay, but I think the ability to have this as a differentiator and a core competency of the company, I think people have underestimated in this industry. It.
It's. When you look at the leadership team, when we talk about it, I think one of the challenges that Neo got into, it wasn't running the company for the next 20 years. I think it was a shorter-term thing. We've intentionally, I think, brought in a team who have been there and done that. I talked about this when Jeff started. Jeff has never been with a company that made a widget, right? He came from the service industry, from payer relations and paying. I think when you think about Melody, you know, grew up at Qualcomm, which is very data specific, but then moved into molecular. I think for us, it's about how do we do, you know, kinda all those things. I don't think it's just about saying, we're gonna cap the payment.
I think, look, just like everybody, we need to be paid for the work that we're doing. It doesn't take away from our mission, but end of the day, we should be paid for the work that we're doing. That's kind of the philosophy.
Thank you.
Yeah. One more? Okay.
Maybe not.
Yeah.
Oh.
As long as the board members didn't raise a hand, we're gonna be okay. When that happens, I'm gonna be a little nervous.
Tom Stevens, TD Cowen. Just to go back to that kind of data piece, and clearly it's a big focus investment for you guys. Have you given any timelines? You know, where, when you really expect to see returns there and how much that $25 million you're already plowing into it, because it feels like the crux of your kind of operational strategy?
It, the crux? Yeah.
Yeah.
Yeah.
Yeah.
Yeah, look, I would say absolutely, a lot of time is going into that and a big investment. Is Greg in the room?
Greg Sparks, yes, he is.
Yeah. Greg Sparks, the guy sitting behind you, is our new Chief Technology Officer, starts today. Try not to grab him at the break. Look, I would say strategically, a lot of those pieces of the plan are put in place and dollars have been allocated. I think one of the ways that we think about our business is that we do not do a full allocation of the budget at the beginning of the year. We create what we call a contingency fund, and that's pulled aside, and each quarter, dollars of that contingency fund are allocated into those things. You know, Greg, we'll give him at least a week, I think part of the reason that he's here is to kind of create that.
Now, I think Melody had the early days, but I think you'll start to see some of it really in 2024. Part of it is a new LIMS system, candidly. I think the way that we were thinking about the business was very different a year ago when we were thinking about LIMS than it is today. So that's one of the reasons he's here, and I think that LIMS system will be a key component of capturing it. I don't know if, Melody, do you have anything else?
I agree with that. The first piece that we're starting with once we complete the overall architecture will be the LIMS system, and really redesigning that so that we're driving better efficiencies there, but that data, overall data end-to-end connectivity, because the LIMS system obviously sits at the heart of everything that we're doing, but it has to connect to Salesforce on the front end and our ERP system on the back end and be able to deliver data back and forth between the EMR. That LIMS system carries a lot of weight for us, and we wanna make sure that that's a investment well spent. You'll see us tranche that over time. LIMS systems are not something you spin up in just a couple of months.
That's something that we'll see spend going on that definitely into 2024 and probably even into 2025.
Yeah. I think it's then when do you get a return on that investment?
Right.
I think one of the things that we're really focused on is how do you build this to a billion-dollar business, but it's also about how do you have sustainable long-term growth brick on brick, right? Could we have invest $50 million today into that? Absolutely. Would that be the best decision for two years from now? Probably not, 'cause we need to deliver. I think for Neo right now, it's about, you heard me say something, we gotta get the house back in order and deliver. I think because of that, I think because of this collaboration and the ability to manage the operating expenses as a whole, we're able to invest in them.
Just a brief thing to that. I guess in terms of, you know, the actual redundancies you might be taking out on the operational side as a result of this new system, have you sized those at all, or is that again, an ongoing process as you build the thing out?
Yeah, I would say it's an ongoing, not reorganization, but investments.
Right. Yeah
in doing that, and especially why one of the reasons we built this thing, like I said, I call it a contingency fund, to be able to do those things.
Got it. Great.
I'm looking to Kendra. We're gonna keep going. We'll come back to some questions after Vishal. Vishal is gonna come up and do advanced diagnostics. Look, one of the things that I love about Vishal, I think having someone run this business with a deep understanding of the oncology market, not only just where it's been, but really where is it going and having a vision for how does this business be here. Vishal, I'll turn it over to you.
No worries. All right, home stretch here, so almost there. All right. I'm gonna talk to you a little bit about the Advanced Diagnostics Division and why we decided to create this division. Been at Neo now since May of last year. Background is molecular biology and worked for both IVD companies and LDT companies out there. As Chris mentioned, heavily in the oncology space. That's been my background from the start, so I love this space. Main reason why is because it keeps on changing, and that's what's really nice about it, is that we have to innovate as a company if we wanna keep abreast of anything new that's happening, and that's what's why we decided to form the Advanced Diagnostics Division. The division itself has 5, 7 major focus areas, okay?
We'll talk a little bit about each one of them, but I'm gonna focus primarily on four of the five for today's talk. You'll hear a little bit more over the next year in particular in the other ones also. The first one is on therapy selection. Mark asked the question earlier, you know, we launched Neo Comprehensive. Yes, that was in the solid tumor tissue space, but we also launched, as Warren mentioned, our myeloid panel. That all falls within our therapy selection focus area. We have a liquid biopsy MRD focus area. This looks at RaDaR as an example, would be perfectly what would fit in here, but also looking at the next generation products, more liquid biopsy-based products.
InVisionFirst-Lung is our first one that we launched last year, continuing on that journey as to what does our next product profile look like for liquid biopsies for therapy selection. Our pharma services. This, you know, Neo has had pharma services for the last 4 to 5 years, this is an area we've continued to see good growth. What's really nice about the pharma services portion of it is that we do have a commercial team that's tied to it, which actually goes out and sells services to pharma that we can take advantage of and actually look at what's happening in the pharma side because pharma usually thinks 5 to 10 years ahead for diagnostic tools that you can use as part of their drug development process, we can tie that all in into our R&D pathway.
That's why I really love the pharma area being part of this division. Melody touched on this, right? The data that we collect and we generate. There's a huge opportunity here through our informatics commercial team, packaging that data in a de-identified manner and licensing that out to pharma, and we'll touch a little bit about what we're doing on that. Altogether, you know, we put R&D here because ideally, you can take all of these other four areas and tie that back to R&D and generate our next generation products, which then feed into both our pharma customers and our clinical customers in the near future. You always see it starting off with the pharma and then moving into the clinical in the mid to long term.
Supporting all of this, for the first time ever, I think we, as somebody asked about outcome data, we actually now have a clinical programs team. This is relatively new for the company, but we felt that this is something we needed as we launch our next generation products to do clinical studies to help support the clinical generation so that we can actually use it for reimbursement purposes, guideline purposes, but also help generate outcome data, which will help support the sales and the clinical side effects. Then we have a client engagement team. The client engagement team is basically customer-facing, primarily here to the pharma side of the business for both informatics and our pharma services.
The goal of this division is to really focus on the product roadmap, not just for tomorrow, but also for the next 3 to 5 years and look at where the market is going. We have a strategic marketing team tied to this, looking at the full workflow from an operational perspective, but also from a product perspective and looking at where the market will evolve to so that we can generate those next generation products for both pharma and clinical. Let's talk a little bit about therapy selection. Warren talked about how we're the market leader in the heme side. Just to give you a subset of that, if you just look at leukemia as an example, we are the market leader in leukemia with over 52% market share.
Now, if you look on the right-hand side, what you see is that on the solid tumor side, we are behind, very behind. Okay. A lot of opportunity for growth with 4% market share right now on the solid tumor. Why is that? Chris mentioned this in his talk. NGS is something that we did not necessarily invest in in the past, and that's where a lot of the investment has gone in over the last couple of years with the launch of Neo Comprehensive that occurred in a couple of weeks ago. Our focus has been on single gene testing in the past, then we went to smaller panels, we went to smaller NGS panels as an example. Now with Neo Comprehensive launching, we basically are where we think the market is, but we're not going to just stay there.
That's the key point, is that Neo Comprehensive, with this launch, we are actually at where the oncologists felt that we had a gap in our menu. TMB is an example that which is part of the clinical guidelines, and we weren't offering it. Now we're able to go out there and sell that to oncologists and help them understand why it's needed as part of their clinical practice. We see this as a $5 billion opportunity from a market that's only 18% penetrated right now. Look at what's happening in this space with the drug approvals. You had a lot of the drugs that were being approved on the metastatic side, and now that's moving to the adjuvant setting. As these drugs get approved in the adjuvant setting, that market need for therapy selection is also going to grow.
You're going to see that NGS, which is primarily focused heavily right now on the metastatic setting, come earlier and earlier in the treatment pathway, and you'll see that expansion occur even in the therapy selection space. We do believe that our products are not just from a spec perspective, they make a lot of sense to what the oncologist needs, but how we sell it also makes a huge difference. Going back to Warren's talk, you know, the PMM team is a new investment for us as a company, but we felt that that was absolutely needed to go out there and go talk to those oncologists because it's the oncologists that are ordering these panels.
It's important that we're able to get those requisitions in and then use the PBM team who have those great relationships with the hospitals to go get the tissue from the hospitals. That's what makes us very unique in having these two sales teams out there. We're able to get the orders in, and then we're able to get the samples in at the same time and get that testing done so that Melody and her team can execute on that. With the turnaround time, obviously, 10 days is table stakes, as you know, we've already talked about. I think what you will see that the improvement that we continue to see on our turnaround time is going to matter because it does matter to cancer patients, and oncologists tell us this all the time.
I do want to touch really briefly on the clinical decision support. Oncologists are busy, you will see that, you know, we'll talk to a surgeon a little bit later today. If you go into any oncology office, you know, they have patients that are lined up, and they need to look at these reports and basically understand the report and decide how to treat their patients in the right way. Our clinical decision support tools that we have are going to help the oncologist with those case treatment decision-making that will help them guide their patient journey in the future. If you look at where we're going in this therapy selection market, we're launching Neo Comprehensive. It's a targeted panel, right? A big targeted panel, but still a targeted panel. Where we're heading to is whole exome sequencing.
You'll see that in whole transcriptome sequencing. You'll see that come out in the first half of 2024. We're also looking at whole genome sequencing. Mark, to your question on liquid biopsy, that's where I see it first. I will probably see that as more in the second half of 2024. We think that we can get a lot more with whole genome in the liquid biopsy space. And the price is coming down on whole genome in particular. We think that's the better opportunity for us to be in with the liquid biopsy side of things. Expand access. New York State approval. Obviously, New York is a huge market. We're gonna continue with our new testing to get New York Department of Health approval, but also looking at setting in processes for FDA approval for our products.
This is relatively new for Neo, going for FDA approval. This is a request we get from our pharma companies a lot with our assets like RaDaR. RaDaR was developed under design control. Okay? That allows us to partner up with the pharma companies and go out and get our FDA approval. As you guys may remember, it did have breakthrough device designation when we approached the FDA a couple of years ago with that. You know, when we look at whole exome sequencing, whole transcriptome sequencing in particular, we will develop those under design control so that we're ready if there's any changes to the regulations and anything else, we're ready to partner up with anybody that wants to in like a pharma company and take those products through the process.
Of course, increase relationships. While we've been heavily focused on community-based setting, as we go to oncologists in particular, there's a huge opportunity in the number of oncologists that we can serve in the academia setting. That is an important one because oncologists in academic setting are really interested in our next generation technologies, in particular, like whole genome, like whole transcriptome. We're in heavy discussions with that, with these people out there to set up on how can we partner up and how can we basically build our business and grow our market share accordingly. Let's talk about RaDaR. 'Cause Kit's been telling me that's all you guys wanna hear about, let's talk about RaDaR. Market size, $20 billion opportunity, growing rapidly, you know, 1% penetrated.
There's a lot of opportunity here for a number of companies that have entered this space. One of the things that I do wanna stress is that we continue to build our clinical evidence with RaDaR, and we'll go through some examples of that. We have publications on breast cancer, head and neck, lung, melanoma, bladder, and so on. You know, the approach in the past is with any new technology that you put out, with any new application that you put out, you gotta show the proof of concept first, right? That's where the emphasis has been for us, showing the proof of concept that this actually works. Now comes in, okay, great. How do you commercialize it? That's where a lot of the focus has been.
One of the things that we're really focused on is the technology itself as to it is 10 times more sensitive than majority of the other MRD tests that are on the market. I think this is really critical because what does that mean? This is from a report that came out in April of 2022. The yellow gold line is Signatera, which is Natera's assay at 16 variants. The black line is the Exact Sciences' TARDIS assay, and the green line, which I'm not sure what happened to it, but it's the Invitae's PCM test. In the light blue line, that is our LOD at 16 variants, and on the dark blue is the RaDaR sensitivity at 40 variants. What does this show? All right.
What it shows that we are able to detect much smaller amounts of DNA, tumor DNA, compared to the competition. When we did our studies, we're basically saying that we're tenfold more sensitive and with 100% specificity compared to the competition. I think this is really critical because when we talk about the sensitivity is important to detect something earlier. Specificity is important to make sure that what you're detecting is actually accurate. I think this, with 100% specificity, is absolutely critical because it reduces the chance of a false positive result. When you start to do multiple time points on the same patient to get that longitudinal data, specificity plays just as big of a role as sensitivity does in the long run. Simplistic graph, okay? Very simple, just for illustration purposes.
Imagine you have a patient coming in with curative intense therapy, like surgery as an example. You can catch it with imaging. The tumor burden is high. ctDNA levels in the blood and breast cancer are high. Let's take that as an example. You have all of this area below imaging that they cannot detect because imaging is a very insensitive method to look at small amounts of tumor burden, the sizes of the tumor that's there. One of the things that we looked at was what does a tenfold more sensitivity mean in this example? Other MRD tests with an LOD of 0.01% still would not be able to detect this patient. This patient has disease. With RaDaR, because of its tenfold below more sensitive, we are able to detect it much earlier compared to the other tests on the market.
I think that's the key point here. Do you guys like Kaplan-Meier curve? Everybody know what a Kaplan-Meier curve is? Let's go through it. Kaplan-Meier curves are basically survival curves, okay? What you have is on the blue line is ctDNA not detected with RaDaR. With the green line, the ctDNA detected with RaDaR. What you wanna see is a good separation between the two, which basically shows you that your assay is performing. If you didn't have that separation, it means that it's a really shitty test, in all honesty, okay? Sorry. In breast cancer, we have a lot of data that's been generated to show that it works really well as a risk stratification tool. This is the publications that have come out over the last couple of years. It's not just limited to breast cancer.
With LUCID, LIONESS, NABISCO, SAMBA, we've been able to show that the RaDaR test works on a pan-cancer basis. This is the data that we continue to build on, and we have a number of abstracts and publications that are coming out in 2023 that will just support this, that we are a pan-tumor test, not specific to just one type of cancer out there. Let's talk a little bit more about tenfold more sensitive. When we looked at our data, in breast cancer, we found 25% of our samples had ctDNA levels below 0.01%. Head and neck, 31% more samples that had below 0.01%. Non-small cell lung cancer, 36% of samples were below 0.01%. We were able to catch all of them with our test.
What does this mean? Whoops, wrong side. What does this mean from recurrence perspective, from a clinical perspective? That's what matters in the end. In early-stage breast cancer, we're able to detect 12.9 months before imaging. High risk early-stage hormone receptor-positive breast cancer, 12.4 months before imaging. Lung cancer, 6.6 months, and head and neck, 5.1 months. All this matters in getting that patient to the right treatment correctly the first time. The longer you wait, the more difficult it is to catch that disease and treat that patient. In 2022, we had three key studies come out. The CHiRP study was in breast cancer, the head and neck study LIONESS was in head and neck cancer, and then LUCID was in lung cancer.
The CHiRP study clearly showed that we were able to identify MRD for distant recurrence metastasis 12.4 months before imaging. The LIONESS study, which actually got an award, We were able to show that we were able to detect ctDNA with RaDaR with 100% clinical sensitivity. The LUCID study, we were able to show that we were able to detect MRD prior to clinical progression at least 215 days before imaging. All of this is building the clinical evidence that we use for reimbursement purposes, guideline purposes, and also, getting this in clinicians' hands so that they can order the test. ASCO, we have four abstracts that have been submitted and over 7+ publications that we expect to come out in 2023. You'll see that over 2023, the, when those get released.
AACR is just now coming up in two weeks, next week, two weeks. There's actually an abstract in there comparing the RaDaR technology to other MRD tests out there. Can't show you the data. It's under quarantine until the start of AACR. Once that comes out, you will have access to it on our website. We'll post it. It's very clear that the RaDaR technology does well. Commercialization. We did launch RaDaR a couple of weeks ago when we launched Neo Comprehensive. We had a very nice launch. We think it's going very well so far. We're selling directly through clinical and our pharma sales channel. We'll talk about the pharma side in a few minutes here. We do have commercial initiatives in place to drive adoption.
I want to make sure you guys understand we're not gonna be that company that's gonna give away hundreds of thousands of tests. That's not us. Okay? We have a clinical evaluation program. We have a patient self-pay price. We're gonna go with a very measured approach when we launch these products. We will take our time making sure that we're doing it the right way without just burning through. We're gonna build our clinical evidence. We continue to do that. As I mentioned, over 7+ publications, but our clinical programs group is already looking at the next 5-year pipeline as to what are the next applications that we go in, what are the other cancer types that we go in, and designing studies to help support that and working with investigators to help do that.
In 2023, we have 3+ MolDX submissions that are planned. We're also working with private payers. Some of you guys may have seen the news that Blue Cross Blue Shield of California has started to reimburse for MRD tests out there. We're in discussions also with private payers out there. We have submitted our breast cancer MolDX application to MolDX in late Q1. In 2024 and beyond, we do think the way MolDX and other reimbursement agencies will look at this is gonna be a little bit different. Right now, everything is application by application specific. I think there's an opportunity here to go for a broader pan-cancer reimbursement, and I think that's where we're seeing the shift occur now that people are getting comfortable with MRD.
Our focus is more on looking at pan-cancer approval 2024 and 2025 and beyond. Let's talk about pharma. A lot has changed in pharma. We talked about site consolidation, right? I think this is one of the biggest things that's changed within the pharma division, is that we've actually started to look at more on what are our high-growth areas and investing in those and taking into account profitability of our pharma division. If you look on the left-hand side of your screen, basically you got molecular, RaDaR, companion diagnostics, multiomics. These are all areas where we consider high growth areas for us with high margins also associated with it. Obviously, we are still gonna offer anatomical pathology, immunoassays, flow, and so on. I mean, we can't be in oncology and not offer IHC. That's just the nature of our business.
We have to offer it. We got to also make sure that we're pricing things properly to pharma. That has never been a major focus for us, so we're actually spending a lot of effort, and we started that in 2022, and we saw the value of that actually happen with improved profitability as we went into the Q4 of 2022 and again going into 2023. We're heavily focusing our attention to the top 30 pharma because we feel there's a lot of missed opportunity there that we have instead of just trying to get every single type of business out there. Also we're looking at being a lot more on our CDX opportunities because we get approached by pharma to help with companion diagnostics building.
We like that actually because what that allows us to do is that when that drug gets approved, our test is then approved, which then Warren and his team can take and then sell immediately to oncologists out there. There's a lot of opportunity for us on the companion diagnostics side that we're gonna spend efforts on. We're also rebalancing our pharma portfolio. If you look, this is like a rough chart showing you know, where phase I, phase II, phase III, and what we call validations were and how we looked at this. What happened during COVID? A lot of the phase III clinical trials shut down because the patients were not going through the oncologists and they weren't getting put on clinical trials.
What we saw is a more of a flattening effect, a moderate growth effect for phase III, but we saw increases in phase I and phase II, in which we did that a little bit on purpose too. We wanted to actually rebalance our portfolio. This is something that we're spending a lot of efforts on to make sure that we have a nice balance of phase I, phase II, and phase III. Phase III will have more, I would say, higher margins associated because we can charge a lot more, but when something like COVID occurs, you see a huge slowdown occur. There's consolidation also in the pharma side that you guys are well aware of.
We're seeing more and more samples come in right now in the phase I and phase II, which is exactly where we wanna be because one of the things that we're focusing on is what we call batch-based retrospective sample analysis. What does this mean? It means that clinical trial is already done, samples are already available, and they're looking for testing other ways, broader ways to look at getting more from that sample. As we launch our Neo Comprehensive whole exome, whole transcriptome, whole genome, that's the opportunity for us to go in and get a lot more value from that sample that's already, by the way, in our freezers from the pharma company. Or they have it in CROs that are stored, and we'll be able to go and take advantage of those samples. Focus on high-margin growth modalities.
We talked about NGS, we talked about RaDaR, multiomics. A lot of data is gonna be generated out of this too, which can be used by the informatics team. We will continue to have a broad menu. I think this is really important. I get asked the question a lot as to whether we're gonna get rid of modalities. The answer is no. I think we're gonna be very strategic about it, where we offer it from a basically a site capabilities perspective. We may consolidate those modalities in certain areas, we will continue to offer them, but make sure we're pricing them properly. Again, building our companion diagnostics launch pipeline. We get a lot of interest, Chris alluded to this already in his talk. Q4 of 2022 was a great quarter for pharma. A lot of it was driven by RaDaR.
We had huge interest from pharma. As you guys have probably seen, the FDA has come up with guidance on ctDNA testing. How we are seeing the interest from pharma right now is around three areas: clinical trial and recruitment, potential surrogate endpoints. Those are discussions that are going on with the FDA by the pharma companies also, but also looking at balancing study arms as a whole. With RaDaR, with its tenfold more sensitive compared to the competition, we do believe that we're very well-positioned out there. Again, as you'll see at AACR, one of the pharma companies did do a comparison of RaDaR versus the competition, and they're gonna show that data at that time. We have an integrated portfolio. These are examples of our customers who have used our services in the past.
If you look at the total spend that's there for an R&D by just these top 30 pharma companies, we're talking about over $152 billion. Not all in oncology, but a majority of it is oncology. That's where we believe that there's a huge opportunity for us still to offer an integrated solution to pharma in early stage, mid-stage clinical trials when then leading to commercialization after the drug is approved. Informatics. Love this area like Melody because there's so much potential for growth for informatics within the company, and we're just starting out. That's became very clear to me once informatics moved under Advanced Diagnostics. One of the things with informatics is that we're focusing heavily on growing a team, which is a small sales team, but targeting directly to pharma.
The informatics team today is focused on pharma, which is different than the pharma sales team, which is more pre-commercialization. Informatics team is post-commercialization Post-approval of the drug. It's a little bit different approach, and the reason for that is based off the product portfolio that we have and the data that we have. There's gonna be more focus on getting pharma clients right now, where right now, I would say, 15 of the top 20 pharma are using us for in one form or another with the informatics side. We of course plan to expand that. New products with expanded data. As we launch whole exome, transcriptome, even with Neo Comprehensive, we're gonna be generating a lot more additional data that we can package in a de-identified manner and license that to the pharma companies out there.
Of course, Melody said, you know, AI is gonna be key part. We work a lot with the AI companies. The example that she showed is actually one of our companies that we have worked with and have been able to use our data to help come up with the algorithms. That is something we should be able to do ourselves internally also. With the bioinformatics team that we have in Cambridge, we're able to take those resources and utilize that to come up with AI-driven algorithms that we can commercialize also, but also use them internally to improve efficiency within the company. For informatics, for the growth drivers for me, it's very clear. I mean, we were selling before to aggregators who were then selling to pharma. We've gone direct. We don't use aggregators anymore.
We've seen huge value of doing that. We're also looking at our additional product launches that are coming up and how do we utilize and package the data in the right way so that we can get more value out of it, and then expand our partnerships with both pharma and AI companies. If you look at the four areas that are there, right, pharma, for me, drives everything that helps and goes into R&D. Why pharma? Is because, as I mentioned, they're looking five years out. They're looking for technologies, for tools, and everything else five years out. We get an insight as to where the clinical world will go to. That goes into R&D.
R&D develops the products, which then goes into clinical and back to pharma, and then informatics takes all of that data and finds a way to package it all together and license it out to other companies like pharma or AI-driven companies. It's a very nice combination because each one of them feeds the other. The key takeaways from my side, we launched Neo Comprehensive in late Q1. It's going well. And with RaDaR launch also in late Q1, we're gonna see a nice uptick, not just in taking from a revenue perspective, but also from a market share perspective. The changes that we made in the pharma services division in second half 2022, we're starting to see the value of that and improve profitability for the pharma division.
We'll continue to tweak them and make those changes so that we wanna make sure that we're returning to double-digit growth within pharma. I would say Neo historically has not been known for that innovative company for developing R&D products that are more next generation. This is something that we are changing. RaDaR was just a start to that. As we look to where we feel the future in liquid biopsy and in tissue-based testing will be, we will see a lot of products that will come out in this space. I strongly believe that RaDaR will be a key differentiator. Yes, there's other MRD companies that are out there, but as we generate more data through our clinical programs, it's going to help differentiate us for longer term revenue growth. Take questions.
I think probably for this group, probably more information than we've shared with RaDaR in the past. I'm sure there's maybe a lot of questions. We'll go ahead and open it up and do some questions for a while.
Great. Thanks. Andrew Cooper from Raymond James. Vishal, just maybe quickly, you know, I think the conversation around the data you need to make MRD standard of care is sort of evolving. How has that changed? What do you think you need to show to have that happen in one cancer type, pan-cancer?
Yeah.
You know, it seems like it's more than just, "Hey, here's a lead time versus imaging.
Yeah.
What do you think about that?
I mean, it is evolving, right? I think this is the key part. In the past, I would say it's been really application by application, but we're seeing that go on a pan-cancer perspective. We're seeing that evolves, like if it works in this cancer application, we can use it for others. Like the bladder cancer publication that we just had, right? It showed that if you can actually show that you're not detecting ctDNA, you can avoid surgery. That applies, concept applies in other areas like neoadjuvant setting and other settings too. We're seeing that movement. It's gonna take time. It's not nothing happens overnight in our space, right? Especially, it depends on who you're talking to. Oncologists will take a little bit longer. Surgeons, we find the adoption rate will be a lot faster.
This is a balance that we're working with, but our clinical programs group is heavily involved in that and looking at it from a roadmap perspective. I do think that from 2024, 2025 perspective, we're gonna see more pan-cancer type approvals versus individual applications.
Yeah. I think the other thing that's helping is that there's other companies moving, right?
Right.
When I think if you look at Natera in particular, but a lot of other companies are coming here, and that's helping, I think, to build it. It's not just we're out there pioneering.
We're all doing it together.
Yeah.
I mean, this is the reality. When you are at 1% penetration, you have to do it together. Not one company can do it by themselves because that's a huge money drain. All of us are working in different ways to bring the field back up.
maybe just quick follow-up on that. You know, with that in mind, how do you work with Warren? Can you give some details on how?
That really works to
Yeah
... not having hundreds of thousands of tests that are burning when you launched in four indications and sort of the balance there between volume versus covered volume when we're sort of in this interim period.
Yeah. Yeah. The good news here is that we are all very close. Warren's team and my team works very closely. Melody's team and Warren's team and my team work very closely. As we launched RaDaR, as an example, we actually put in strategic marketing within the divisions itself. This team basically helped launch RaDaR within the Advanced Diagnostics division, and even the launch strategies, worked very closely with Warren's sales team, did all the training for Warren's sales team to basically go out and set the direction for how to position RaDaR out in the market. This is like a handoff period. Warren and I talked about, does it happen overnight? Does it happen over a month?
We see this like a 6-12 month process that will continue on, you know, as we launch new products, because that's needed, especially as we get into new areas. Our clinical programs group is also heavily involved in the training of the sales team at the same time. It's very much a partnership that we have with each other, and it works very well. We've already shown the proof of concept with the RaDaR launch.
Yeah, I was gonna say, combination of a whiteboard and boxing gloves-
Yeah.
Is a good way. Look, it is a partnership, and I think, look, iron sharpens iron. I think that our view as a leadership team is we have to push and what's the right balance, right? 'Cause you could say the salesperson is gonna say, "Look, let's just get you know, let's give it away." Is that Look, it doesn't mean that we don't do a clinical evaluation program, 'cause we are. It's that finding that happy medium and working together.
Hey, Dave Deohunt with Goldman Sachs. Good to see you guys. Thanks for getting us.
Right.
You mentioned the TAM for MRD, you see, is around $20 billion. We agree it's a really large opportunity. Some other companies have used numbers around $10 billion-$15 billion. Could you tell us more about how you get to that $20 billion number?
We looked at it from an application perspective, cancer type perspective, and the range is you can go anywhere from 10 to 35. For me, the way I look at this is that it's not well-defined yet, and because it's continuing to grow. We go into different cancer types and the value that you see, I mean, you can do it. MRD can apply neoadjuvant, adjuvant, therapy selection, surveillance. As that continues to grow, you're gonna see the TAM increase accordingly. $20 billion is based on what we know today, but I do think that it's gonna grow beyond that as the applications increase.
Yeah. I think also, look, at less than 1% penetrator, whether it's 15, whether it's 22, it's a big market that's incredibly underserved. I think having a technology that has a clear differentiator and sensitivity, especially in those type of cancers where that's important, very different than colorectal, for example, and breast. I do think that'll be key. Look, big market.
I didn't show you any colorectal data on purpose because really it's very easy to detect ctDNA in colorectal. The shedding rates are very high, where it does matter is in the other cancer types.
Sorry, Tayosa. I don't...
Hey, guys. just a quick one on kinda how you see kind of pan-cancer reimbursement evolving and kind of what do you see as the evidentiary base that's gonna be required for that? Because I mean, it's a big call. so I guess what gives you confidence that will happen in 2024, 2025? Why is RaDaR advantaged by that?
You already see it with the private payers, by the way. That helps give us confidence that they're already thinking like that. The medical directors at these private companies, insurance companies like Blue Cross Blue Shield, the press releases that are coming out are showing pan-cancer approval. That's gives us confidence that that's where the reimbursement is moving towards. We have had discussions also with, you know, the local insurance like MolDX and so on. Also, I would say from an FDA perspective, right? As we start to see these tests going through the regulatory pathway, we're gonna see more and more of this pan-cancer type of concept come out and these tests get reimbursed for it on a pan-cancer basis. Yes, I think.
Great. Alex Nowak from Craig-Hallum again. you mentioned you didn't show the CRC data, but can you expand a little bit on what the team learned going through MolDX the first time?
Yeah
MolDX coming back and denying the application, how you can take those learnings, apply it to breast, and what gives you the confidence that breast will get across the finish line?
Yeah. We did learn a lot, right? I mean, I think, going through a MolDX process, there's always learning that's associated with it. It's never a slam dunk. Let's be honest. Never a slam dunk with MolDX. We talked to a lot of advisors and who were involved in MolDX, and they go, "Okay, join the club." Right. But we do learn through every single time we do this. With colorectal, in particular, we looked at how we presented the data to them and what data we had generated also. The biggest difference between MolDX submission for colorectal versus our breast one is that the breast data is our own generated clinical data. It was at an ASCO publication, you know, ASCO poster presentation. There's a publication associated with it.
And we've had the discussions with MolDX and showed them our data and tried to explain as to where we're going to, right? In colorectal, it was a data set that we had access to, but I would say that it was strong enough, I think, to submit to MolDX, but we did learn that there were some gaps after they reviewed it, and that's why we're basically saying that we're gonna generate additional data for colorectal and come back in the second half. Yeah.
Hi. Mike Matson, Needham & Company. Apologize for my voice here, but just wanted to ask about, you know, are you definitely planning to get FDA approvals for any of the RaDaR indications, and what do you think would be needed to do that?
Then I guess second part of the question would just be, you know, how important would a sort of larger randomized controlled trials be, you know, hundreds or thousands of patients or something like that, either for the FDA or just, you're driving clinical adoption of the test?
Yeah. The way I would answer this is that we've developed the product under design control, okay? So we have the opportunity to go to the FDA and do those clinical trials ourselves. I would prefer more to do it through a partnership with a pharma company, because that's where we see a lot of interest, and pharma is really interested in these MRD tests, because if they can get the detection and the approvals for their drugs earlier. Mm-hmm. They basically then have a test that can be used immediately.
That's where the pharma partnership becomes even more critical for tests like RaDaR, and I think that's the probably the faster opportunity.
I think the other thing is for the first time, we hired a global head of regulatory and quality. Obviously, quality's always been really important, but I think the way we thought about regulatory has changed significantly. That comes very much from that background. I think there's also has been a pivot in the last six months, the person that started, actually, Sean Bundy. He's in the back of the room if you wanna grab him at the break. I think there was a big pivot there knowing that where the FDA is moving on tests and the ability for us to be able to get that done. Chaos, I know.
I'm sorry, man. Appreciate you sitting in the front row. Almost the front row. Someone's gotta do it, right? Yeah.
Vishal, one for you on that point you made on, you know, 25%-36% of samples having ctDNA levels below your limit of detection point, 0.01%, I think.
Below other competitors, below.
Yeah. Yeah. Limit of detection. That's right. Can you just give us a sense for, you know, how big and robust those studies were? I have a quick follow-up.
Yeah. Those were based off the studies that were shown. Okay. There are pretty big studies associated with them. They've been shown at conferences through posters, publications, and so on. The point being here is that the sensitivity does matter in the right cancer type.
Mm-hmm.
That's the point, right? As we look at... Everybody was asking us about colorectal. You know, colorectal has this application, for sure. As we go into breast cancer, lung cancer, head and neck, it absolutely matters to have a much more sensitive test and, you know, and that's where we think RaDaR does help identify those patients.
Got it. That is actually really helpful. Are you sort of looking to do any specific studies around establishing whether that, you know, tenfold lower limit of detection could lead to improved outcomes, particularly for these cancers? I think at some point, you know, from an investor standpoint. Mm-hmm. Or perhaps, you know, it does feel like megapixels on a digital camera.
Yeah.
You know, both from the point of view of helping you with the marketing of the test, but also in terms of, you know, physician credibility and patients, when can we expect to see that kind of data?
We're starting to roll that out already. Because of the data that's been generated, we've been getting a lot of interest from investigators and so on. We're already starting to roll those out. Again, we're gonna take a very measured approach. It can get very expensive very quickly, as you know, right? We're focusing our attention on cancer types where we feel that we can add the most immediate value to show that.
As we move from then, like a breast cancer application then to a pan-cancer, we'll be able to apply that by showing the outcome value in this. In some of the cancers, we can do it relatively quickly. If we focus on, you know, just as an example, a neoadjuvant setting, we will be able to get data much quicker than waiting five years or 10-year outcomes as an example.
Yeah, I think it's too about a rifle shot. I don't want you to think that we're, oh gosh, they're back to all they wanna do is do profit. I don't want you to think that. We're investing, but I also think it's about a rifle shot, and I don't know that we were that way. I think it was more of a shotgun.
Strategically understanding why are you doing the clinical trial? What are the outcomes you're trying to prove? Developing that rifle shot. 'Cause I think we know. Look, I think there's a lot of data that says A equals B and B equals C, so A equals C. I also believe that for longevity and sustainability, we have to have the clinical trials so then come back it up.
Thanks.
Yeah, let's do one more.
Vishal,
Hey, Puneet.
Thanks for a solid presentation. How do you think the penetration is going to sort of play out among for RaDaR among the academic medical centers versus sort of the community setting at this point of the market? Obviously, Signatera has educated some of that population base, but what is what do you think how that plays out? Then in terms of reimbursement, just wanted to make sure ultimately Medicare reimbursement, it will continue to remain the largest chunk here for some time. Is there an opportunity for ADLT through FDA route, or can sensitivity get you there?
Just, you know, I think the sensitivity point is important, but, I think as you know well, clinicians are gonna look at, you know, clinical outcomes and what that eventually yields for the patient.
Yeah. ADLT, we've looked at it too. I think there is opportunity with ADLT. We're looking at multiple options on how to get there. I think that is something that we are looking at. The differentiating factor is that will that allow us to qualify for an ADLT status? In terms of adoption rates, I mean, the reality is that Natera has done a good job at educating the market, and that's not a bad thing for us. It means that we don't have to start from scratch, right? I think the big thing is that we have to be a close follower here, and that's where we are right now with, as with our launch in particular.
If we look at our sales team, they are heavily focused right now in the community-based setting, so we will see adoption in the community-based setting because of that. We're not abandoning the academic setting also because we know that MRD, for example, is ordered in the academic setting, so in the larger hospital systems that are out there. We're taking a two-pronged approach here, but I do think that the adoption rate will probably be initially higher in the larger hospitals, but you'll see that go to the community-based setting very quickly, and we're seeing that impact. Oncologists, when we talk to them now, they are educated about MRD. They're not yet educated to the degree as to what are the differences between the MRD tests out there.
Okay. Thanks, Vishal. All right. We're gonna bring up Jeff and talk a little bit about financials, and then we'll come back with some Q&A.
Good morning, everyone. You heard Chris kind of lay out the vision and the strategy. You heard Warren talk about our commercial go-to-market approach. We're expanding the sales force. You heard Melody talk about how we're taking all the tests we're getting, we're optimizing, we're using data, and gonna be using more effectively. You heard Vishal, you know, talk about the future and what we're doing to invest and how RaDaR is gonna be a part of that. Now I want to give you kind of an overview of what we think this all means to the financial performance of the company. First, I want to just reiterate what we said for 2023. We expect to grow revenue 7%-9%. That's $545 million-$555 million.
That's gonna be driven by clinical volume, getting revenue per test increases, revenue cycle improvements, NGS revenue growth. On the advanced diagnostic side, it's legacy pharma, it's the informatics revenue growth, and it's RaDaR revenue growth. That will lead to adjusted EBITDA growth of -$27 million to -$22 million. That's a 40%-50% improvement over 2022. That's about a 500 basis point improvement in adjusted EBITDA margin, and that's after taking into account that we are reinvesting, as Chris noted, quite a bit back into the business. We're gonna see gross margins improve. We are getting operating leverage on the OpEx line as well from the costs we have taken out.
We're expecting to burn about $50 million-$60 million in cash in 2023. I'll talk about liquidity and capital structure in a few more slides. That's an improvement of roughly $34 million over 2022, if you kind of back out $12 million that we received from the sale of a building. Finally, as we said in our fourth quarter call, we do expect to deliver a positive adjusted EBITDA in the fourth quarter. A few other things for 2023. We've talked about the $25 million in annualized cost savings from the reorg that was really focused on the gene areas. We really didn't touch our lab operations. We're expanding the sales force, actually investing dollars there. Melody talked about the geographic footprint rationalization.
Warren talked about our revenue cycle initiatives that are gonna help drive revenue as well. I think there's a focus for continued productivity, you know, across the organization. One thing, I've been here probably the least of the executives that present today, almost four months as well. I think two things that the executive team bring or three things are passion, a sense of urgency, and accountability. I think the approach of we think we can grow and be profitable, in a balanced, disciplined approach with rigor is really kind of the rallying cry of the executive team. It's, as Chris said, it's not just for making profits or getting profitable in the next quarter.
It's really how do we position the company for long-term sustainable growth, and how are we taking that balanced approach? We're taking some of those cost savings, and we're investing in the business. You heard Warren talk about the Salesforce expansion, really focusing on optimizing on the oncology side, selling more of the NGS, you know, product mix, lab optimization, you know, with our Houston expansion bringing us more capacity, long-term capacity planning. Again, as this volume grows, how are we gonna manage that from an operational perspective? Workforce investments in well, how do we attract and retain staff? We are investing in 2023 for RaDaR CMS and MolDX approval. We're investing in clinical trials as Vishal just talked about.
We're continuing to invest in R&D for proteomics, multiomics, and molecular as well. Again, a focused approach, you know, how do we take that R&D, commercialize it, turn it into products that can help drive long-term sustainable growth? We're making technology investments. Those investments are focused on automation, how do we drive efficiency, and big data and analytics? Just to reiterate the operating metrics, you know, that we talk about and report. You know, we're reporting our clinical volumes, we're reporting revenue per test. You know, we have seen good consistent performance and our revenue per test increasing. We've got seven quarters in a row where that's happened. On the advanced diagnostics side, we've got pharma, we've got informatics revenue, and RaDaR revenue.
Just our margins, adjusted gross margin, adjusted EBITDA margins, and our capital investments, cash burn and cash generation. In terms, before I get to the kind of the 5-year plan, just want to tee it up a little bit. We have taken an approach of talking about kind of our base business, which includes RaDaR on the pharma side, but excludes RaDaR on the clinical side. Really the reason for that, as we've talked about today, is it's going to take time to get MolDX approval from a reimbursement perspective to get commercial reimbursement as well for RaDaR in the clinical setting. I think we'll look to refine that over time, as we get more data points and have more confidence.
We certainly think our products are very competitive, and we're gonna capture our fair share of the market, but we're not gonna be putting it into our 5-year plan today, for those reasons. Let's get into our 5-year projection. We grew 7%-9%. We're saying we're going to grow 7%-9% in 2023. We think we're gonna do that, you know, over the next five years as well. That includes NGS growing at 20%+ a year. As the market continues to move in that direction, we think we're gonna be growing and capturing 20%+ a year-over-year growth on the NGS side.
As I said, our base business is defined as our current state, which includes RaDaR and our pharma side of our business, but does not include guidance for RaDaR on the clinical side. That will be upside to our forecast over time. We're expecting inflation of 3%-4%. We do think we can offset that some by automation and operating efficiencies. There is a big focus on how do we achieve operating leverage. I think the fourth quarter was a very good example of that. You know, we saw $12 million-$13 million of revenue growth, you know, over Q4 of last year and about $9 million of adjusted EBITDA growth. Pretty strong, you know, conversion of revenue to adjusted EBITDA.
There was a lot of focus on how do we achieve operating leverage, both on the gross margin side and through OpEx and on the adjusted EBITDA side. We are expecting adjusted EBITDA to improve each year. We are expecting to achieve positive adjusted EBITDA by 2024, and we expect to achieve adjusted EBITDA margins in the mid-teens by 2026. If you go back really pre-COVID, you know, you go look at 2016 to 2019, you know, the company was achieving adjusted EBITDA margins in that range. You know, we did the acquisition of Inivata. You know, it was burning cash. You know, we had a lot of noise from COVID. We had some operating challenges and as Chris said, executional challenges.
I think now the focus for us is how do we get back, you know, to the operating model that the company used successfully in the past, but also investing for future growth. We expect to burn $30 million-$40 million in CapEx per year, and really not burn, but really investing $30 million-$40 million+ in CapEx, which will help drive, you know, innovation and growth as well. Just want to talk about liquidity for a moment. As I said, we burned roughly about $89 million in 2022, excluding the $12 million that we got in proceeds from selling one of our buildings. We ended the year at $438 million in 2022.
We expect to burn $50 million-$60 million in 2023, and we expect to achieve be cash flow positive by 2025 and thereafter. From a capital structure perspective, look, we have very good, cheap, efficient debt right now in our capital structure. I was, you know, really inherited a good capital structure as I looked at the financial profile of the company coming in. We've got $200 million of convertible notes due in 2025, and another $345 million due in 2028. I think executing our plan, you know, will give us a lot of flexibility to manage the capital structure and continue to invest for growth.
I think we feel very good about our liquidity today and looking out over the next several years. I think as we look at our plan and achieving our goals, we'll be in a very good position with a lot of flexibility to really deal with the capital structure as we see fit at the time. Key takeaways from a kind of overall financial modeling perspective. We saw improving financial trends throughout 2022. We expect those trends to continue in 2023 and beyond. Operating efficiencies are driving improved profitability. We really are focused on growing top line and making sure that we're seeing a fall through at both the adjusted gross margin and adjusted EBITDA line, and then continuing that, you know, virtuous reinvestment cycle into the business.
Those investments are also helping to fuel innovation and growth. Really the opportunities that as you look at the TAM, you know, that we saw from the clinical side and from the advanced diagnostic side and the RaDaR side, there is a significant total addressable market here. We believe we're gonna grow and capture, you know, a fair share of that market growth, and we're gonna be able to convert that revenue growth into bottom line improvements over time. Finally, clinical RaDaR at this time is really upside in terms of revenue, adjusted gross margin, and adjusted EBITDA.
As we look to refine that over time, we'll get more data points, as I think Vishal demonstrated, we believe we have a very competitive product, which is really gonna help drive future revenue growth and profitability as that adoption curve, really comes into play.
Okay. Thanks, Jeff. Hey, just, I think also a couple points. You know, it's interesting, I wanna set calibrate a little bit like I think, and you've heard this from, I think Warren, but and Jeff and I have talked about that. Look, I think we think it's important to do what you say. I think that you, as you've gotten to know us, I think the ability to promise deliver is important to us as a company. Look, we kinda talked about that in Q3 into Q4, and we kind of talked about this 8% kind of growth, and I think that's where we kind of calibrated it. I do wanna also say, look, there's no meaningful revenue in the business in this year's guidance for RaDaR.
I think everybody kinda knew that, but just wanted to circle that back. Let's take a few questions. We are in the process of trying to get Peter teed up, but, we're gonna take a couple questions and then we'll come back afterwards with Jeff.
Thanks, guys. Maybe just on a sort of top line here, that 7%-9% growth. I think you sort of hinted on it on the Q4 call, but maybe can you talk about some of the assumptions between volume and pricing here, especially as you move more into NGS, how that might impact the legacy testing menu? Any trade-offs there?
Yeah. Do you want-
Sure.
I'll.
Yeah. We clearly think moving into those higher value tests are gonna drive, you know, a component of that, of that re-revenue growth. We saw some of that actually, you know, in the fourth quarter. I think, you know, we're focused on getting pricing from our base business. I think as the mix starts moving more to higher intensity tests and NGS, that will drive some as well. We're not breaking out specifics, but it's certainly a component. We really, as we did the forecast, we did it by modality. You know, we really have a pretty good view on modality and what we see in pricing by modality as well.
I think, you know, you'll see a little bit slower pricing growth in some of the, you know, historical clinical modalities, but we still think we have opportunities there. We think we have opportunities to drive revenue cycle improvements, and in the shifting mix to the higher intensity NGS will drive some revenue as well.
Obviously, you've seen that shift in mix, right? I think, you know, we said, I think it's 7 quarters in a row compared to the prior quarter where we've seen a lift in AUP. Without question that's built into the model obviously compared to volume.
Excellent question here. Just to follow up on RaDaR. Clearly, the clinical side is out of the long-term guide. How would that impact your kind of operating leverage outlook if that is included?
Yeah.
Kind of what do you see as a mature growth margin for that business on the clinical end?
Yeah. We're not just saying what the gross margin is just in the specific RaDaR business. I think you can figure out... Like, I think Look, we've spent a ton of time on this and where to draw the line, where to count the levels. You know that we've already started to submit to MolDX for disease states. We're already starting to roll out into commercial payers. I think from a modeling perspective, I think you're going to have to take that because we're not going to go out and give any guidance around that. I think, if you look at the market, a lot of people are talking about when they get an individual disease state, they talk about X million lives in this disease state.
I think what you'll see is us talk about that when we come out with approvals, but we're not gonna give gross margins or give you, like, guidance on RaDaR. I think you've got to think about how does that impact in the business in like light of what's going on in the marketplace. We realize that that's a significant opportunity. Look, we're trying to be sensitive. We wanna give you guys. I mean, I think you're getting a lot of color today, but we're also sensitive on the things that we're gonna talk about.
Makes sense. Then just to follow up on the kind of earlier slides on revenue cycle management, I mean, how sustainable a tailwind do you see that being in kind of in dollar terms? What does that really mean for Neo, given it hasn't really been an area of focus for you guys at all?
Yeah. Look, I think it's. We see the biggest opportunity probably over the next 2 to 3 years, we do believe it's sustainable coming out of three years. Like, I would say it's. When it's listed as a 2023 focus area, we see it 2023, 2024, as we're moving into 2025, just because the way the market's moving. Think about the bigger piece of that coming probably late 2023, 2024 and early into 2025, then just getting kind of incremental from there.
I think as we increase the rigor in the business and just look at modality and product line profitability by, both by modality and by clients, I think we can refine our approach to pricing. I just think of an overall strategic approach of our costs are going up. You know, we should be getting annual price increases, is one. I think the revenue cycle initiatives, as Chris said, we believe they are multi-year, and just an area where we can continue to get better at. From a Medicare-- From a managed care pricing perspective, just having those dialogues and think talking about our value proposition as well, we think ultimately will help us in reimbursement over time.
Just a last brief one on just kind of the capital structure. Is that 2028 convert coming up? And it looks like that might get revised, you know, further down the line. How do you look at being aggressive on M&A, if at all, in the out years, as you get your kind of tech infrastructure up and running, your informatics infrastructure up and running? How much flexibility do you see in your capital structure, and kind of what would you be willing to do with it?
Yeah. I'll answer one way and then maybe have Jeff talk about. Look, I think at the end of the day, our first thing was, look, get the house in order. I do believe, look, organic growth is important, but we believe non-organic growth is important as well. I definitely think from an M&A perspective. We will be opportunistic and look for those opportunities. I think we feel pretty good about where the capital structure is gonna be coming out. I mean, we're saying that we're gonna be adjusted even positive in Q4. I think look for the right opportunities, we believe that we can do the things that need to be done. Do you wanna talk more about 2028?
Yeah. I think I would just add to that, you know, we execute on our plan, we become cash flow positive 2025 and beyond, gives us a lot of options. I think we're focused on providing ourselves options, and we'll have plenty of options to deal with both the 2025 and the 2028. I think at that point, you know, a strategic acquisition will be looked at differently and how we can add, you know, to the growth and how we can integrate it. I think we can learn. We will have some, you know, quite a bit of lessons learned on just the recent integrations we've done from the legacy acquisition.
I think all that will just give us flexibility and give us the options, to have if we see a strategic acquisition that makes sense.
Okay. Because of timing, I'm gonna turn it back to Vishal. Look, we're gonna have a lot of time for questions at the end, but I'm gonna bring Vishal back up and get Peter on the line, and we'll go from there. Thanks, Vishal.
Yeah. No worries.
You got Mike Graham apparently available again.
All right, guys. Is Peter on?
Yes.
All right. Great. Guys, it's a pleasure for me to welcome Dr. Peter Beitsch to, you know, for a short Q&A here. Peter has been using MRD tests as part of his clinical practice from the start, actually, since he is one of those clinicians that I have seen come and adopt new technologies very quickly and have utilized them as part of his clinical practice. A little bit about him. He went to medical school at UT Southwestern Medical School in Dallas, and also has been trained at MD Anderson and John Wayne Cancer Institute in California. He's been in private practice now. He's the CEO of Dallas Surgical Group, and been doing that since 1994. He treats both melanoma and breast cancer patients.
That's where his focus has been. He's held multiple positions in national surgical societies, including was the ex-president of the American Society of Breast Surgeons. One thing that he has done, which I really liked about him, is that he is the co-founder of the Targeted Medical Education group, and leads all their research efforts. What does this mean? Basically, all the clinical trials, he gets the clinicians all involved in helping with these clinical trials that help change outcomes. One of them, which was very recently was the Universal Cancer Genetic Testing Registry, led to a paper in the Journal of Clinical Oncology and helped facilitate the change in the national genetic testing guidelines.
Very well-respected out there, and we thought we would give him the opportunity, for him and I just to have a Q&A and talk a little bit about MRD testing and a little bit on RaDaR since we have just launched it. Peter, I don't think you've ordered it yet, right? We just launched it a few weeks ago, so I wasn't sure.
Yeah. No, I've ordered all the boxes and stuff that we need to ship stuff, and I've communicated with my pathologist. It'll be a bit of a change. I've been ordering MRD elsewhere, but now it's gonna be going to RaDaR. You know, just gotta get the logistics in place before you start doing it because you don't want blocks and slides going all over the place without any...
I'll drive it to you tomorrow.
Yeah. There you go. Right.
All right. Thanks, Peter, for joining us. We appreciate it very much, and this opportunity to just talk to you about MRD testing in general. you know, MRD testing is not in the guidelines yet. you know, how do you use it, and what's driving you to use it?
Yeah. I'm, I guess I am an early adopter in many things. You know, the guidelines tend to be sort of, probably rightly so. They tend to be you know, months to really years behind what's happening in the real world. I always like to say, you know, to my colleagues, you know, "Guidelines are for followers. You guys are leaders." The people that are ordering now, me in particular, I use it in a variety of settings, at the moment, mainly in neoadjuvant setting for breast cancer treatment. It's, it has several important aspects of MRD in the neoadjuvant setting. The first is whether you can find it at all in the blood before you start treatment.
There, it's not exactly clear, but there's emerging data that, even with your test, which is very sensitive, if you can't find it, that may be a good prognostic feature. There's more to come on that data. On the high-risk ones that we're really giving chemotherapy for, mostly the triple negatives and the HER2s, RaDaR is excellent at finding it. That's good right off the bat. You treat them with neoadjuvant chemotherapy, and then you wanna get a test right before you operate on them and see if there's any circulating tumor DNA at that time point. That's the prognostic time point. If you're ctDNA negative, that's an excellent prognostic factor.
In fact, even if they find a small amount of tumor in the surgical specimen at the time of lumpectomy or mastectomy, but your ctDNA is negative, those patients do just as well as if you had a pathologic complete response in the breast. That time point is very important. I like getting one in the middle, and maybe in the future, it's probably gonna be several in the middle because I think that is gonna be where we're tailoring therapy to the ctDNA.
What I mean by that is, you know, chemotherapy is fairly standardized, and I won't say cookbook, but I will say cookbook, where you get in a neoadjuvant setting for, let's say, triple-negative cancers, you give them 4 cycles of Adriamycin and Cytoxan, three weeks apart, and then 12 cycles of Taxotere one week apart. There's really, I think, excellent data out of I-SPY trial showing that if you give Adriamycin and you follow their MRD or their circulating tumor DNA, there are some patients where it doesn't go down at all.
Mm-hmm.
You give them Taxotere, and it falls to 0. There's some patients that immediately go down to 0 and it stays 0 with the treatment that follows. You can envision in both those scenarios tailoring therapy. Like if you're not responding at all to the Adriamycin/Cytoxan after, let's say, 2 cycles, you can switch to the other treatment to see if you can get a response there. Conversely, if you fall to 0, why give them another potentially toxic therapy? At least it's neurotoxic when you get neuropathy from that. I think it's going to both tailor to appropriate therapy and hopefully deescalate therapy. That's just in the neoadjuvant setting.
Immediately, if you have it, if you're ctDNA positive before surgery, you wanna check it after surgery to see if surgery fixed it. If it's still positive after surgery, then I think those people really are at high risk of recurrence, and they're definitely the ones that need adjuvant therapy. You know, that scenario where you operate on somebody and check their ctDNA post-operatively, that's really found a fertile ground in colon cancer surgery or adjuvant treatment. Whereas if you are after surgery, if you can't find ctDNA in their blood, they do not benefit from additional from chemotherapy at that point, adjuvant chemotherapy. If you find it, you do benefit.
You can envision the post-op test being very important for deciding on treatment or not in the adjuvant setting. Adjuvant means after surgery. Once you're done with all that, you know, and I'm just starting to get into this phase, which is monitoring for recurrence. I think for sure... Well, actually, I was gonna say for sure the high-risk ones, but really even the low-risk patients, ER positive that are, you know, low risk, maybe on endocrine therapy for 5 or 10 years, they still recur, in fact, but they recur late. We'll probably be monitoring them forever because they can recur 10, 20 years later. The monitoring phase is really gonna be a huge market, I think, mainly because patients wanna know. They're always waiting for the other shoe to drop.
They're always nervous that their cancer is going to come back, you can imagine. They're always saying, you know, if they're really at high risk, I tend to get imaging, although that's outside the guidelines, but it's very reassuring to patients if you have a high risk of recurrence patients. Now they always ask, "Is there not a blood test for this? I've heard of my other friends that have had breast cancer getting a blood test." Well, those are the previous tumor markers, and they're not very good at following patients over time for looking for recurrence.
Now, I tell them, "Now we have a blood test actually that's very accurate at finding whether your tumor is back or not." There's been a lot of pushback from medical oncologists, especially in this monitoring phase, because they, quote, "don't know what to do with the results." Well, you know, the data is strong that MRD testing will pick up recurrences six months, nine months, 12 months before the actual imaging recurrence occurs or clinical recurrence or symptoms recur. That's just a resolution of imaging problem, right? Our imaging is not as good as our MRD testing.
Yeah.
It can find very small amounts of disease. The medical oncologist will say, "Yeah, but why do I wanna start treating them, you know, when they have this very small volume of disease? I'll just wait for them to get larger volumes that I can see on imaging." Well, the argument that I give back to them is, regular breast cancer treatment where you go to surgery first and then you give them adjuvant chemotherapy afterwards. The only reason the moment we give adjuvant chemotherapy is these large trials that show that adjuvant chemotherapy in certain patient subgroups improve survival, and but with no evidence of disease on imaging. They have microscopic metastatic disease, i.e., they have MRD positive disease but not imaging positive disease.
We know the chemotherapy works in that patient population. I think the medical oncologists are gonna be the last to sort of come on board with this, but I think surgeons get it. I think patients get it, quite frankly. I think the patients understand this. This is not a, you know, it's not a super complicated issue for them. They get it, I think they're gonna demand it maybe before the medical oncologists are ready for it.
I think the surgeons are gonna be bringing it up, and I think the surgeons are gonna be bringing it up at tumor board. One of the reasons I like registry trials and clinical trials in general is if you say you ordered the test and you put the patient on a clinical trial, even if it's just a registry trial, then they really don't have an argument because you're gathering data on those patients. We do need more data. I'm not saying we don't. We absolutely need more data on this, and we're going to be getting it. You know, the, I think, the RaDaR MRD test already has some really strong data in the monitoring setting and metastatic setting and neoadjuvant setting, so but we're going to be gathering more and more.
Mostly small studies. Now we're going to be doing bigger and bigger studies. This is an exciting time. This is the future. You know, this is, this is revolutionary. This isn't an evolution. This is a revolution in how we care for patients.
No, I agree. I mean, you covered actually, it's interesting, all the different stages of a cancer patient's journey, from neoadjuvant to adjuvant to surveillance to monitoring, right? I think this is where the application where MRD can be used is going to just expand as we go into the different cancer types. We're going to see just like we do a typical, we used to do CEA as a typical blood draw test, this is going to be part of our clinical practice, definitely going forward. You know, there's other MRD tests, Peter, that are coming on the market. How do you see them? What do you look for when it comes to...
Right.
Other comparing one versus the other?
Yeah. There's, well, there's a big divide up front in how you actually make the test. There's a way to just take off-the-shelf bits of fragments of DNA and make a MRD test without actually looking at the patient's tumor. That's a, you know, that's a tumor uninformed-
Tumor agnostic. Yeah. Yeah.
Agnostic test. That is I don't really like those tests. Those are. They're available. They're easy, right? You can pull them off the shelf and start doing them right away. It's hard. We're going to take your tumor, and we're going to look at the DNA of your tumor, and we're going to make a fingerprint of that tumor, and then we're going to be looking for that in your blood to see if there are little fragments of tumor DNA in your blood. It's a, it's a fingerprint specific to you. People get that immediately. That it's not a hard concept, but I think that's the, that's the key. The first number one is you've got to do a tumor inform. Then it's how many fragments of DNA do you want?
There's some that are, you know, 14 or 16. And then RaDaR is, I think up to 46 or 48.
48 variants. Yeah. Yeah.
48 variants. You know, I think more, more in this case is better. It increases sensitivity. In fact, I think the data I've seen on RaDaR, it's a tenfold more sensitive test than other tests out available. That, that to me is super important. I want to know that if the tumor is still in the patient, the cancer is still in the patient, that you're going to pick it up. I also want to know that if the test is negative, it's negative. You know, there's no tumor in the patient. I think that it's really has to be tumor-informed, and then it needs to be very sensitive and specific. At least the data I've seen on RaDaR, it's, it looks pretty impressive, so.
How much do you think the patients are aware of these MRD tests, when they come and see you?
They're starting to ask about it. Now, they don't necessarily know exactly what that means, but they are seeing blood tests for cancer in the lay literature. There was just an article on, in the BBC on the colon cancer study that they're doing in the U.K.
Mm-hmm.
That, you know, that was just in the regular BBC news that I read every day. It's becoming more widespread knowledge in the general population. They are starting to ask for it. Even if they, even if they are unaware of it, which I think most patients are still unaware of it, they immediately get the concept when you talk to them about it. Then, they the, you know, I often give them a copy of the report.
Mm-hmm.
That's the... I've seen copies of your report. It looks very straightforward...
Mm-hmm.
Which is fantastic. Some reports are a little overly complicated, but I like the patients to have them. It's a very visual thing that they can, they can see. Particularly, you know, in neoadjuvant, it's wonderful to see it, you know, the ctDNA is there, and then it falls to 0 before surgery. That, that makes them super happy that chemotherapy was worth it. You know, there's not really long lines outside the medical oncologist office to get chemotherapy, not that they want surgery either. Certainly chemo is tough on people, and it's over many months.
Yeah.
It's, you know, that's a tough thing. But it's becoming more, widespread, common, commonly. Certainly among my medical colleagues, they're, they get it. They're anxious to start utilizing it, I think for the most part.
As part of the TME group, right, I mean, you obviously have interacted with a lot of other clinicians out there. What % do you feel are getting it, you know, with your interactions with the group?
Yeah. Yeah. I would say the TME investigators really fall into two groups. There are tip-of-the-spear early adopters, and they're already doing it, and they're doing it on everybody, all their patients. There are some that in the investigator group that wanna start a study or registry, and then that gives them cover.
Mm-hmm.
These are all kind of, local political issues. All politics is local. You know, you have to deal with the system that you're in and the medical oncologist that you deal with and the patient population, I guess, has some influence on that too. There's really two groups. I would say at the moment, MRD is still woefully underutilized, and it's really just the early adopters that have really taken it on. That's probably 5% of people, you know, that are investigators that are widely using it. That's, that's called opportunity.
Mm-hmm.
I think this is an open ocean of opportunity for companies to fill in the MRD space. It's good that you're launched and get some kits. Let's get going.
Yeah. I'm gonna open up for questions if you guys have any for Peter to ask.
I'm not hearing anything.
I'll repeat the question. Go ahead.
Okay.
Yeah.
The question is really, you know, on your comment on tumor agnostic versus tumor-informed. Can you just elaborate on? Is it sort of, do you expect better sensitivity from tumor-informed versus tumor agnostic? Is that why you prefer the tumor-informed approach? Secondly, in terms of the comment you made around a broader panel being better than a narrower panel, well, I mean, there are others out there who are talking of perhaps a 1,000 low side panel as well. How would you sort of stack that up versus 48, just trying to get some sense around why 48 is enough, yet broad enough in your mind?
Well, it makes common sense to me that if you're gonna make a fingerprint of a patient's tumor, use their tumor. That is more laborious, takes longer, but to me it's gonna be better because it's the patient's tumor and more sensitive. Now is 16 as good as 48? I think the data shows that it's probably not. I think more data will be coming, but it seems fairly clear to me that it's not as sensitive as it should be. Now would 1,000 be better than 48? Well, at some point, the number is somewhere in between 16 and 1,000. I think at...
I don't know the basic science of this, which maybe Vishal does, but, you know, you sort of. Adding more doesn't add any more sensitivity to it, but it adds more complexity to it, the test. I think 48 is probably the sweet spot. You know, other companies are using that number right around 50. I know there is some data out of the U.K. again that 50 is just as good as 200. Where it's gonna settle, I think it's probably gonna settle right around, you know, 48, 50, 46, some, right at that seems to be the sweet spot. It'll.
It's also a cost issue, right? I think how far do you go, right? I mean, I think that's just gonna be balanced out. We'll have to see how that plays out. Mark.
Hi. Thanks very much for your presentation. I have two questions for you. First is on test interval. I think I heard you describe at least three or four tests that you would like to use. Can you maybe repeat the particular instances where you would want to see an MRD result? Does that differ from colorectal to breast? 'Cause I know in colorectal we have CEA, and that's four times a year, but maybe in breast it's another interval. My second question is, there's been a test on the market for a long time. This is the Oncotype DX breast test, commercialized by Genomic Health initially.
Yeah.
Do you see MRD testing potentially being competitive to the Oncotype test to determine likelihood of chemo benefit in for breast cancer?
That's a great question. I'll answer number two first because that's a fascinating question. I hadn't even thought of that. But yes, absolutely. You know, if you operate, let's say you operate on a patient first and then do an MRD and it's 0, it seems like you'd be fairly hard pressed to give them chemotherapy, right? Even if your Oncotype DX is over 25. So I'd never really considered that a competitive test, but I think you're right. If you look at the colorectal space like you did, colon, generally nowadays, vast majority, almost all get operated on first, and then you do a MRD test, a ctDNA test, and if it's there, they benefit from chemotherapy, and if it's not there, they don't benefit from chemotherapy.
That's sort of analogous to the Oncotype DX, right? but colon started that way and Oncotype DX started a different way. it's I think it'll be a long time before it supplants it. That's a great question. That'd be very interesting to study that. Now let's go to interval. let's look at two of them. We'll talk about breast. For breast, the if you're gonna get chemotherapy, the momentum is to give it up front. in a neoadjuvant setting before you operate. The time points there at the moment, the most important one before treatment, before surgery. I think we will be tailoring neoadjuvant chemotherapy to the MRD test very soon.
I'm hearing that that is MedOncs, that may be one place where they will change the cookbook earlier. You're gonna be getting it. I think the bare minimum would be after 2 cycles of each of whatever you're giving them. It'd be nice after every cycle, right? If you don't respond after 1 cycle, you would give them another cycle. If the MRD is still positive, there's still ctDNA there, why keep knocking your head against the wall? Switch them to a different chemotherapy and see if that takes the ctDNA to 0.
I think we haven't figured out the interval in neoadjuvant setting, but I think bare minimum before treatment, after 2 cycles, midpoint when you switch between AC and Taxotere and then pre-surgery and then after surgery. In the you could also envision like you brought up in the if the patient has residual tumor when you operate, then the surgical path specimen, they tend to get additional treatment, which is called adjuvant treatment, after surgery treatment. You can envision that ctDNA monitoring, and if they're positive after surgery, then you monitor that during adjuvant therapy because you're not gonna have imaging to monitor.
Mm-hmm.
Right? Because it's just not gonna be sensitive enough. The MRD probably is sensitive enough, and you can envision tailoring adjuvant therapy instead of what you do now, which is you give them one year of treatment or you give them two years of capecitabine or if it's triple negative. You may tailor it to the ctDNA. You know, if it's positive after surgery, you start the adjuvant chemotherapy, and when it goes to 0, you stop, right? I think de-escalation is a great thing, and it's the very, everybody wants... That's a thing right now. Everybody wants to deescalate. What that really means is treat properly when you need it and don't treat when you don't need it. Trying to figure that out is not always easy.
You know, we set a treatment of a year after surgery for chemotherapy or two years for capecitabine oral chemotherapy in a study. That's a study of 1,000 people on this arm, 1,000 people on this arm. That's not individualized. We will be more individualizing treatment based on things like ctDNA or MRD testing. That I think that's fantastic, and that's the way it should be. It's an N of 1. You know, 1 equals 1. Not population-based treatment, but individualized treatment. Okay, interval for testing. For I think, you know, it's based on Zero Science, it's gonna be probably every three months in the monitoring for adjuvant chemotherapy phase, and then probably every three months for the next two years after that.
Three years total in the high-risk patients, which are HER2/ neu positive and triple negatives and maybe luminal Bs. The ER-positive patients. Well, you're gonna follow the other ones for a long time too, but you probably stretch the ER-positive patients out to every six months, and hope that you're, you know, you pick it up early enough that it's still micrometastatic and you're treating a small volume of disease. If you ask most medical oncologists, they would agree with the phrase, it's easier to treat small volumes of disease than larger volumes of disease. That's a tenet of oncologic care.
Finding MRD positive patients that you treat when they don't have imaging positive, which isn't the standard right now, but that's the way I would want to be treated, is gonna be the future. I don't think it's too far off. That's a long-winded answer of saying it. We're gonna be doing it a bunch in the neoadjuvant phase, and we're gonna be doing it every three months after surgery, and then maybe that stretches out to six months at, say, three years or so. Does that answer your question?
It did, Peter. Thanks. I know we got one more question, and I know you have to jump, so.
Peter-
He's in between surgeries. That's why, so
Yeah, I'm in throughout the day, so yeah.
Peter, one simple question. What matters most to you in CGP side or therapy management? Is it the, you know, the data, the ease of use of ordering, reimbursement, sales rep access? Clearly, data matters more to you right now for MRD, but what matters to you more on the CGP side, when do you think that dynamic then plays out for MRD? Thank you.
That's complete genomic profiling, so you're looking at all the genes of the tumor. Is that what you mean?
Mm-hmm.
I love the concept of finding how to treat a tumor by looking at the tumor, the genes that are driving it. That makes common sense to me, and it, we're not quite there yet. We have good treatments in most cancers, but we don't necessarily need that yet. You're gonna, you know, if you're getting an MRD test, the NeoGenomics is gonna have the tumor there, and they can do a CGP. You know, if you look at a competitor, when I first started ordering ctDNA. It was check that box and then, oh, do you want germline? Check that box. Oh, you want, you know, complete genomic analysis, check that box. Ease of ordering was super simple, and they used the same tissue for all that.
You maybe I don't know, I think it's still just 10 slides at 4 or 5 microns a slide. It's ease of ordering, logistical ease at MyPath Lab, and then a report that's readable and the data showing preferably tumor, you know, targets that are either well-established or that there's a trial associated with. It's more that's sort of more in the metastatic world at the moment, stage 4 patients. I think it's coming for earlier stage patients, and ultimately, we're gonna be it's gonna be an N of 1.
You're gonna take biopsy of the tumor, and you're gonna make a fingerprint of it for ctDNA monitoring, and you're gonna be looking at the drivers in the tumor itself, and you're gonna be treating based on those drivers.
Thanks. We have one more?
I got time.
Okay. All good? All right. Thanks, Peter. Appreciate it. Thank you.
Well, this was fun.
Yeah. Talk soon. All right.
Thanks.
Bye.
Bye.
All right. Hopefully, that gave you guys a snapshot of an actual user. Been ordering MRD now for the last year and a half, two years out there. We've been talking about the report. That was one of the things that we learned. When we looked at the competition, in particular, the report makes such a huge difference, not just from a CGP perspective, but also then with an MRD perspective. What do these guys want to see on the report? We actually designed a report with a lot of input from the field. That's what we've released now. We kind of see the value of doing it that way.
Okay. Thanks, Vishal. Obviously, Peter got the memo about a little bit younger picture. Hey, so what we're gonna do for about... I think we've got about 20... I'm gonna pull this aside because if I do this, I'm not gonna sit, I'm gonna stand. We've got about 20-25 minutes, I think, before we schedule the tour. What we thought we'd do is just kind of go to general Q&A, making sure we get all your questions. When we get to about 12, there's two options. One is taking a tour. There's also boxed lunches in the back. If you go on the tour, don't worry, you can still get a Panera box when you come back.
I also just want to share, we have a lot of leadership team here, I'd love for you to meet the team. I will tell you that we feel incredibly blessed with the team that we have. I'm going to ask you, especially, you know, from an analyst perspective, to be sensitive on what you ask. If there's a specific question, please come to myself. If it's financial, to Jeff. Priya is back there, who's the guru of building the financial model. Do not ask her a question. She's off-limits. If you want to ask her about MRD, that's great. I would love for you guys to have a chance to meet the team. We're going to stay around with lunch and the board and stuff if you want to do that.
I do want to let you just kind of calibrate your mind on what you're thinking. We want to be a little flexible whether you want to go on the tour or not, okay? The tour, I think we're shooting for around 12-ish. Okay. On that, we'll open it up.
All right. Great. I was hoping to continue the financial discussion, Jeff. With regards to the base business, it was mentioned that, I think in a prior presentation, that the core cancer market is growing in this 5-ish % range. You have NGS in your financial model growing 20%+ plus, and that's due to whether you're moving from single gene testing to NGS or converting tests to NGS. Am I correct in saying that that 7% and 9%, when you put it all together, that doesn't include any sort of market share gains? Or how to think about market share gains in the financial model out 5 years?
No. I think, you know, we are thinking about, you know, seeing volumes improve over time as well. I think it's a combination of volumes improving, and we looked at it by modality. Again, you'll see some potentially slowing or, and then you'll see NGS, you know, growing as well. We did it from a revenue perspective, a price per modality as well, and what we thought was gonna happen there. You will see. I mean, there are still some pressures on pricing from a CMS perspective, you know, as well. You'll see that's factored in as well. There's pluses and minuses. I think it is.
It's a fairly detailed approach by modality, trying to take into account all those factors.
Yeah. I think if you look at that diagnostic business or kind of that older, like a business, I mean, there is data out there that talks about it going 1%-2%, right? I do think we got to move share there as well, right? There's a lot of accounts that we're not doing what I would call the general run-of-the-mill cancer testing. I think that's one. Two is the percentage of business of NGS inside the company. Look, we've never gone out and kind of disclosed what % that was. Look, I think we're very strong on heme. We were behind on solid, and you can kind of get your arms around how much runway do you have as that starts to grow as a larger percentage of a business if the...
Picking number 1 to 3 or whatever that base business is. NGS is growing at a much more rapid rate. That's why I think we've talked about this on the earnings call, whether we gave an NGS number or not, to be fair. Look, in our view, we have to grow that number beyond 20% every year. I think that's something we'll continue to talk about because we believe that that's where the opportunity is. We internally have to do that.
Thank you. Just one, I want to make sure we're sort of crystal clear on the LRP as well. Just in terms of RaDaR, you know, not including clinical makes sense, I think, on the revenue side. But in terms of the OpEx, when it's the R&D, the PMMs that you've talked about hiring, just want to make sure we know what's included there in the LRP. If you could give us a sense for sort of the ramp and the contribution margins we think about year-to-year to get to the out year. Is it pretty ratably over the course of the period? Just how do we think about what you're assuming in that?
Yeah, I think it'll be reasonably ratably over the period. I think we'll see improvements each year. We'll continue to invest each year as well, as we go, you know, as we go through the process. I'm sorry, the first part was?
The first part was just in terms of RaDaR OpEx, the PMMs you're adding-
Yeah.
The R&D that's necessary to support the clinical launch, even if the revenues are not in that base number.
Yeah. I would say it's in our base in 2023. We said we're investing in MolDX. I'd say most of that investment, you know, is gonna be in our base number. We will have some incremental investment, you know, over time as well as we get out, get in the out years, but we will start having some revenue coming in from those as well. I wouldn't see it being hugely material to the bottom line perspective as this increases over time from our base model.
Yeah. I think the other thing to think about is having a dual sales force in every territory. I think the question mark is what is N on the territory?
Mm-hmm.
I will tell you by the end of the year, the OpEx is built support 100 people, 50/50. If our revenue opportunity is growing at a faster rate, we will absolutely increase our spend in adding field people. I will say that that modeling has occurred. I think the question becomes, as we start to understand the impact on two very separate sales forces in a territory. Use South Florida, right? One PMM was covering it, now three. Like, who's to say that number is not six? I think at the end of the day, we're gonna base that on the ability of dollars generated by new sales reps and how long it takes them to be running. I think in this business, look, there's two models. One is you could argue it's six months.
I would argue it's faster if you're coming out of that industry in that same territory. I would tell you that that's kind of our goal. We're not gonna hire someone not in the industry and move them to a territory that they never lived in, right? I mean, then the end is three years, hopefully, right? I think there is this modeling on splitting territories and accelerating revenue group. Look, we have to prove that in the model, and we'll come out and be pretty transparent. I will say that's one of our goals, is how do we be as transparent with our investment community as possible, knowing at the same time we gotta keep running the business. I think that's gonna be the real question mark.
I would say additional clinical trials, how broad you go, right? What's the end of the trial? How many patients? What's the cost per patient? How many sites, IRBs, et cetera, on RaDaR?
On the 7%-9% and the NGS growth of 20%, if you could qualify, what is the AUP growth that you're assuming in the long range plan or anything?
Yeah. We're not putting that out. Look, I gotta. You guys got to do some of the work. I mean, otherwise, I'll just have you guys all grab three in the elevator with. You know, I think, look, you've got to do some of the modeling. We have to run our business. We're in a highly competitive world, but I do think you've got to. We're trying to give you guardrails to give you some indication, but I think you got to model it.
Okay.
We're gonna improve gross margin. We're gonna get leverage on the business. We're telling you we're gonna be in the mid-teens in 2026 in the base business, right? Let's jump into 2026. What's happening with RaDaR? What's happening with MRD? We have a lot of Peters out there. You can get pretty excited.
Got it. Just overall, if, you know, when we think about, sort of, Jeff, when we think about 9% or just slightly north of 9%, sort of, when do, you know, what takes you there and versus the 7% number, what doesn't happen that you end up at 7% just, given the number of forces in this market?
Yeah, I think I'll start, and Warren and Chris and Vishal can jump in as well. I think, you know, we're adding sales reps, right? It's effectiveness and what's the ramp on the sales reps that we're adding, I would say is one point. The effectiveness of our pricing strategies would be another. The effectiveness of our revenue cycle, you know, and are we really capturing more of that revenue for the work we're doing and not being paid on? I think there's upsides, you know, on all of those. Then capturing market share. It's effectiveness of the rep. Are we capturing market share as well?
I think, you know, on the lower end, it would be kind of the reverse of some of those things. You know, maybe not as much pricing, maybe not as slow a ramp or maybe not capturing as much market share, you know, as we expect. As I said, I think there's a lot of rigor and discipline, you know, among the executive team, and holding each other accountable to achieve those results. If we're investing the money, if we're gonna expand, you know, the sales force, then we wanna see the payoff from that. I think we're investing in pharma-advanced diagnostics. We wanna see the payoff on that. We're investing in automation and efficiency. You know, how are we tracking that?
I think that, you know, holding each other accountable and, you know, making those investments and then tracking the results is the rigor I think we'll continue to deploy as we look at how we're, you know, spending our money.
Yeah. I think from a team perspective, look, I think the worst thing you can do is underestimate your ability to drive revenue because you won't invest, right? That's something we've talked a lot about, like, when do you invest? If the opportunity is there, let's use the field. I think the opportunity is there to continue to expand the field, candidly. If you don't believe in the opportunity or see it there, then you're going to be slow to invest because you're going to try to manage the EBITDA. I think that's where we believe that this pulling of the levers. Jeff talks about the rigor of the team building and understanding that or understanding when you split territories and, look, how much market share do you need in Melody? How good is the product, right?
Where are we on turnaround time? I think Warren talked a lot about the things that his team has done to make it the best delivery experience. If that's going well, we're going to be moving share. I don't know if you want to-
I think you covered all the key points. I mean, I think the only element that's out there that also maybe wasn't mentioned, just what happens from a reimbursement perspective in that sort of window, and particularly as it relates to molecular NGS. As I said earlier, the third-party reimbursement is not great yet with regards to NGS. The more work we can do with those payers to improve reimbursement, the closer we get it to the 9%.
Just one more around the build out of the labs for Houston, for example. Is that going to have all the same testing capabilities that the Florida and the California labs have? What's the CapEx requirement to build that out? Is that a big chunk of the $30 million-$40 million? A final question is just on MolDX. They're obviously, or molecular reimbursement in general is much more favorable in certain geographies. How are you thinking about where to position your molecular tests across the three different big labs that you have?
I'll start on the CapEx maybe. We did. You know, we spent about $29 million-$30 million last year in CapEx. We did say for this year, we're going to spend $30 million-$40 million. Certainly, a big piece of that increase in CapEx that we're expecting in 2023 relates to Houston build out, so.
Yes, we will be duplicating our test menu in Houston over time. It will take us into 2024 before all of that is live. That is our plan.
Yeah. Look, I think if you're offering it in two locations, you are being strategic in which location are you offering it in first. The reason that we went to MolDX is 'cause that product is in Raleigh, North Carolina, and not today in Houston, Texas. Once a reimbursement's established in Houston, Texas, we can manage through it. Look, I think there is some strategy in that.
Thanks. I wanted to ask about the international opportunity. You kind of mentioned in passing a few times, but, just wondering if you could talk about, you know, what markets you could potentially go into and, you know...
Yeah.
What the business model would look like. You know, is any of that included in the five-year plan?
Yeah. I think it's a really good catch. Look, I will tell you that the 5-year plan has a business where it is today, so it does not include international expansion. We do believe there's a huge opportunity for us as a company. I smile because it's a daily conversation with Vishal and Warren. I think the opportunity in this country right now is so great that I think a focus becomes an issue. I think for us as a new management team, I think the idea is, look, let's start executing here. We do think that there's a big opportunity from an international perspective. We have not... That's not in the base number.
Would that be sort of with the same type of model, lab-based, you know, where you do the testing yourselves or?
Yeah. Look, I think there's two categories. One, in pharma, we're kind of already there internationally, but not... I would say that we're very limited at that. Look, I think in clinical, that would be our goal, right? To control kind of the experience as opposed to partnerships. I think it depends on the countries, whether we're in emerging markets or developed markets. What's the reimbursement? Do you acquire your way in? I would say we're very early days in having some of those discussions, but we think that's an opportunity.
Thanks, guys. It's great to see the MRD business boost pharma services in Q4. I know you've alluded to how it drove what I perceive to be the majority of the growth. That's great. I would love for you to comment about what the pharma services growth rate is without RaDaR. And as I look back over the years, you know, from 2018 to 2021, you grew between 28% and 37% annually in pharma services. That was, like, growing like clockwork. I'm just curious if you've done a postmortem on 2022 'cause, you know, there were quarters where, you know, we heard different inputs, like taking longer to convert the backlog or retrospective sample changes or pharma pressures with biotech. You know.
Yeah.
Frankly, it's hard for us to understand what that underlying pharma services growth is in the next couple of years. Do you think that we can kind of go back to the good old years where we're growing, you know, 25%-30% plus?
See, I'll take a quick one, and then I'll have Vishal tell you. Look, I think some of that business was not profitable. You heard Vishal talk about profitability. I think there was a very deep focus on bookings, whether we were ever gonna recognize that revenue or not. That's why we stopped reporting bookings in Q3. I'll let Vishal talk specifically about Q4 'cause it wasn't just RaDaR. But I think part of that was right-sizing that business with the right leaders in place. Maybe you can take it from there, Vishal, and talk specifically.
Yeah.
I think you made a huge impact on that business as you've come in and picked it up.
I mean, wwe looked at that business as a whole, right? I think to Chris's point, yeah, we can definitely go to 28%-30% year-on-year, but a lot of it was not profitable.
When we looked at 2022 in particular, we wanted to make sure that we had a menu that would be profitable in the short to mid-term and long-term in particular. I think for me, it's not just growing 30% year-on-year, it's to make sure that we're doing it in the right way. You know, I, without RaDaR itself, I mean, I'm very comfortable that it will be in double digits, right. Single, double, high single, low double at that point where we are right now. But I do wanna make sure that as we've consolidated our sites in particular, there is gonna be some impact of that. A lot of those international sites were not profitable.
Gotcha.
It's gonna be this balance in the short term.
Yeah, short term for loss, potentially for a long-term gain.
Exactly.
Yeah. you wanna talk about fourth quarter 'cause I don't think it was just RaDaR. Do you wanna?
No, fourth quarter was not just RaDaR. I mean, what we saw was a heavy uptake by pharma on RaDaR in fourth quarter. Actually, I would say the fourth quarter for the numbers that we had, lot of it was not RaDaR, but it was driven by showing the value of RaDaR coming out, which we'll see obviously in 2023.
Yeah, we said RaDaR was over 300% year-over-year, obviously.
Yeah.
Informatics was over 40% as well.
Right.
It was really strong across the board in Q4.
Board.
Yeah, even some of our other tests, you had a good board.
Yeah. We had good NGS uptake also from pharma in the fourth quarter.
Okay, great. A couple of quick ones, I promise I'll stop. I heard an interesting comment from Jeff, I think you used the word proteomics, which I thought was interesting. You've got Melody sitting next to you, I guess. Can you elaborate here? 'Cause obviously, you know, there's a lot of interesting stuff going on with big data in the proteome. Is there... Am I maybe over interpreting?
I wouldn't have said that without posing with Vishal and Melody on both my sides, so it just.
Yeah. Is there an opportunity for you to kinda dig into this database that you've collected and maybe, you know, Melody, some of your experience at SomaLogic, perhaps looking at the proteome to try to monetize, some of your big data assets.
You want me to take it?
Yes, please.
Um, so-
For whatever reason, you can.
This is part of the thinking that I have around our biobank strategy, right? If we are keeping the right samples, because of course, the proteome is a very fussy little molecule. We have to keep the right samples and not go crazy with cost. That's exactly the thought. I don't think it's just proteomics, despite my old company who believes proteomics was all things. I think that it's a multi-omic approach, and then we're gonna be looking at single cell and spatial and other things along the way, right? Michelle and Shashi are really driving that. I think Jeff's comment was driven more to what are we doing on the R&D front of that.
Mm-hmm.
This is not in commercial planning at all. There's nothing around a proteomic strategy that's in the five-year plan. This is really around the research strategy that we're taking.
We see interest coming from pharma right now.
Mm.
What's nice about it is that we're getting that interest from pharma, so we'll evaluate that and see how we build it out.
Hey, guys. You know, obviously, pre the management team, you know, Lincoln Instruments and that, I was wondering how you guys incentivized and how that's maybe changed since the last management team.
Yeah. Look, I, Ali, I think I can disclose that, can't I? I wanna make sure. About how we went from what the percentage was in performance.
You have to
Can I disclose it or not?
Sure.
Okay. I think I'm okay here. Look, I will say,
Take a risk.
By the way, Ali is our GC and is amazing. She's more than GC, she does a lot. Look, I think the way to think is. I can be direct. There was not a performance hurdle in equity, just to be straight up. I will tell you that we and the board felt that that was not appropriate, and that's changing kinda going forward. When we all came in, we knew we were signing up to deliver performance. I think that's probably the biggest component that I would say is a difference, is adding a performance hurdle into equity. Okay. I got a yes. All right. Thank you.
I would just add, it's more financial metric.
Yeah.
A greater proportion on the management incentive plan towards financial metrics versus personal goals, personal performance.
Yeah. Okay. This is kind of our last time together, so any questions? Look at how we are in timing. I see Felix back there, so I know that at least you have a tour guide. Okay. Look, I really wanna thank everyone for taking the time to come down and spend some time. Hopefully, you've got at least some more insight into the company. We do Q1 on May eighth. On May eighth, obviously, we'll give you some more insight. Look, obviously, we're incredibly excited about the opportunity. It's like a...
A lot of this is why we're here and, hopefully, you get a sense for that and you get a sense for the teammates as you kinda walk around what we get to do every day. Felix, do you wanna come up and introduce yourself and kinda... Since you're gonna be spending a little time with this group, come on up. I am gonna ask you guys to stay in a group, and don't kinda wander off. It's not because we're worried about your safety. It's just, you know, we...
We do worry about their safety.
We do worry about their safety.
There's a full production lab and everything.
We worry about your safety. Hey, Felix, do you wanna come up and just introduce yourself and talk a little bit about your role and, like, how you got here. Because I think it's great.
Yeah. Great story.
Would you mind just for two minutes? I didn't mean to put you on the spot.
No problem. All right. Hello, everybody. My name is Felix De La Cruz. I'm the site director of the headquarters facility here. How I came to NeoGenomics, I started here about 13.5 years ago. I actually went through the training program that we have. I'm a graduate of the university that's right down the street here, Florida Gulf Coast University, and I went through the cytogenetics and FISH training program, and I've been blessed enough to work my way up through the NeoGenomics organization, and now I'm the site director.
Thanks for joining us today and being with the group. We're gonna take a break here. Felix is tall, he can identify. If you wanna be going on a tour, I'm gonna ask that group to go first towards the back, towards the elevator. I think a couple of our execs are gonna go with you guys, have a wonderful tour. You're more than welcome to grab your lunch before you go if you need to do it. For folks that are not going on the tour, there's boxed lunches in the back. Again, look, we just thank you guys for being here and spending time with us. Wish safe travels to everybody, we look forward to seeing you soon. Be well.