Great. Welcome. Day three of TD Cowen global healthcare conference, forty-fourth annual. I'm Dan Brennan. I cover tools and diagnostics. Really pleased to be joined here on stage with the management team of GeneDx. To my immediate left, we have Katherine Stueland, CEO, and to her left, we have Kevin Feeley, who is the Chief Financial Officer. So, Katherine and Kev, thank you very much for being here.
Thank you so much.
Thank you.
for having us.
For sure. I mean, I, I thought it'd just be helpful, maybe just to, maybe we'll start just on, you know, 2023, 2024, you just reported the quarter. Just maybe get a little snapshot on, you know, how the year went, what you're excited about, and then maybe we can dig into, you know, the businesses.
Absolutely. So I think one of the most important things to know about GeneDx is, our distinct strength in the market is our industry-leading exome, as well as our ability to do a genome's worth of information, interpret it at scale. And so we have focused our entire company around, several key efforts in 2023, and that strategy is paying off, and it's driving utilization of our exome and genome services. And as a reminder, our exome comes in with gross margins of north of 60%, so very favorable. Happens to be one product that delivers better clinical care for patients and is a better product for us in terms of the financial health. The second area of focus for our team is continuing to drive our average reimbursement rates and improve those.
So we get paid more frequently and better, and we've made some really good progress on that. And then the third area, of course, is continuing to drive down our cash burn, so we can continue to run the business efficiently and get closer to the goalpost of being able to reach profitability in 2025. And I think what we saw, particularly in the fourth quarter, was a really nice continued trajectory of driving that exome revenue and driving product mix to be more favorable for exome than in prior quarters. We saw continued improvement on average reimbursement rates, and we've had seven straight quarters of cash burn reduction.
So, we think as we sit in Q1 today, we have a really strong foundation to continue to drive those as the key metrics for investors to look at throughout 2024.
Great. Then I thought it'd be helpful just to maybe zoom out even further and just maybe talk a little bit about the market that you're addressing, what is differentiated about your offering, in any sense on, like, what this penetration is today, and like, you know, kind of who you compete with. So just to kind of give a microcosm of like, you know, why should someone look at GeneDx? Like, what is it that you do?
Certainly. So we are aiming to diagnose rare diseases and broader conditions that affect children. So think epilepsy, autism, and other developmental and intellectual delay and disorder syndromes. So really thinking about not just rare disease, but these broader therapeutic areas that are actually quite common. And for many of them, there are drugs that are being developed, which makes it even more important to be able to get a diagnosis. You can't treat a disease unless you can diagnose it, and that's what we do best. So our focus really is in that pediatric setting. We actually invested in our exome product well ahead of the market.
We started developing our exome back in about 2013, and so we have run more than 500,000 clinical exomes, and that fuels our data asset, and that data asset is what informs our interpretation platform. So I think one way to think about it is for more and more exomes coming into the lab, that fuels our algorithm that ensures that we can deliver a more definitive diagnosis more regularly. We're able to close any sort of gaps in terms of variants of unknown significance, and that's part of the reason why clinicians have depended on GeneDx for those hard-to-diagnose cases in the pediatric setting. We've enjoyed 80% market share in the medical genetics world, but what we've seen as an industry is the utilization of testing beyond medical geneticists.
So we're seeing it more in the pediatric neurology setting, in developmental pediatric specialists. And so while the core exome and genome companies include us, they include Baylor, they include Rady's, other companies in the space, Invitae, Ambry, and others, have driven utilization of panels in the rare disease space, and that has helped to open up access and get clinicians ordering who haven't been ordering genetic testing before.
When you think about, like, your relative share of however you define the pie, how would you characterize it today?
Yeah. So we think about the pediatric opportunity as a $3 billion opportunity over time, and that includes medical geneticists, pediatric neurologists, and then the broader pediatric, the general pediatrician setting. And we're only about 3% penetrated in that larger pediatric opportunity. So we're still in the early innings of being able to, help as many patients as possible, but we're in a really important sweet spot in terms of the clinical evidence that has been generated that shows that exomes are driving not only a higher diagnostic yield, but fewer variants of unknown significance in terms of exomes versus panels. So we're really in this important era in genomics where panels are really gonna be left behind, and exome and genome will be the one test that clinicians can rely on, ultimately over time, for all inherited disease.
For instance, like, what's the total number of tests in a year, like, for instance, versus what's being done today from an exome basis? If every test was done on exomes that you address, how many- like, you do what today, and what would that number be-
Yeah.
If theoretical 100% penetration?
Yeah, I mean, ultimately, as Katherine alluded to, we think nearly all inherited disease diagnosis should be run on an exome or, or a whole genome backbone. If you look at our business specifically today, only a quarter of all tests that GeneDx ran in the fourth quarter were exome and genome.
Mm-hmm.
What's interesting about the economics is twenty, so 27% of all tests we ran in the fourth quarter were exome, but that represents nearly two-thirds of our revenue, just shy of $40 million of revenue in the quarter, and 100% or just about of our gross profits, with that exome portfolio operating north of 60% gross margins. And so the opportunity in front of us, and we think for the community at large, is to cannibalize not just the rest of our test menu, but that of our competitors and the space in general, where panels are leaving patients behind, exacerbating the pursuit for an answer.
We think in large part what will have us continue our growth trajectory is expanding the use of exome and whole genome, not just where it's been reserved today, which has been in an expert medical geneticist space, which, you know, we've sort of defined as roughly 1%-2% of that $3 billion pediatric market is testing being ordered by expert geneticists. That's where we have 80% market share today, but expanding into additional call points, first, pediatric neurologists, and ultimately, the pediatrician setting. And there's a long greenfield for us to attack in that regard.
How does the Invitae bankruptcy—I mean, they're, we understand, you know, a large player in this market. You mentioned them, Katherine. Just like, any sense of like, what, you know, what kind of share they have, and, like, what have you seen as an initial fallout, or what have you contemplated as potential impact or benefit, you know, over the course of 2024 and then if we look beyond?
Yeah. So I think for starters, one thing that Invitae did very well is, as I mentioned, getting clinicians who had not been previously ordering testing, which we've always said primes the pump for our exome product. So the panels that some of these ped neuros are ordering today for patients who are presenting with a seizure, we have been focused on those pediatric neurologists and converting that panel business into exome. And we have started to see, you know, even in the fourth quarter of last year, some of those clinicians transitioning over to GeneDx. So we expect that that's gonna continue to be a migration, both by way of clinicians who are seeing the strength in our offering and in our business, as well as this is a target audience for us.
We want to focus on the exome utilization. I think that part of what Invitae's rare disease business contemplated was a broad array, not just in the pediatric neuro setting, but also in the cardiac setting.
Mm-hmm.
That business is not as gross margin favorable-
Mm-hmm.
-so that, that wouldn't be an area that we're gonna focus on. But, anything that aligns with that core strategy of, of exomes, of pediatric neurology, we're gonna continue to accelerate that. None of the Invitae business was contemplated into our guide for this year. But it certainly falls, some of that business falls right into our sweet spot.
Sizing it, like, have you guys sized it? Or someone mentioned to me they could do and it sounds like they're more panels than exomes, and someone mentioned that they do 130,000 exomes. I don't know if that's in the zip code or not, but have you guys ever sized it or a sense? I mean, 24 months from now, could suddenly GeneDx have generated 15 points of additional growth from Invitae share gains, or just any way to frame the relative benefit or opportunity?
I believe that the exome number was, is quite small-
Mm-hmm.
-at Invitae. That wasn't. It's one of the reasons why I left-
Yeah, right.
we couldn't compete there.
No.
The panel business is really the more robust side of the business that we'll focus on.
Okay. And then maybe just sticking still to this, like, view of, like, the business and the competitive landscape. So when we think about the why you have 80% share, like, just speak to when the hospital doctors are deciding to go with you, like, how much of is it, is it your diagnostic yield benefit? How much of is it your turnaround time? How much of is it services? What are the factors, you know, if you had a checklist, why you guys win, and what's the relative differentiation versus these other players?
Yeah. You're touching on all of the right aspects. It really historically has come down to product and the strength of the product. And, as other companies introduced an exome over the past five-10 years, you know, some companies were able to take some customers to, say, try us out. They all came back to GeneDx. So that's part of the reason why, the product is the real strength of the company. It's the confidence that comes from the diagnostic yield, it's the clinical expertise that is driving that, it's the continued growth of that underlying data asset and being able to upgrade or downgrade bases more rapidly than other labs. And, what we've been able to do over the past three years is continue to drive more favorable payer policy.
We've been able to ensure that we are scaling the business so we can continue to have the kind of pricing authority that we need to have, that is backed up by the clinical evidence showing our superiority to other panels. And now I would say we have a growing reputation for commercial excellence. And so as we're building the brand and really taking it out of, I would say, kind of the lab in Gaithersburg and putting it more at the forefront of many hospital systems and health systems, and in front of clinicians who did not know GeneDx before. The clinical message is what is leading, but our service and customer experience is what is continuing to drive adoption as well.
Is turnaround time a big factor or not really?
Turnaround time is really important. In fact, we recently lowered our published turnaround times. It previously had been about six-12 weeks. It's now five weeks, and usually we're beating that. So turnaround time is a continued area of focus for us as well. We want to get patients answers, answers as rapidly as possible. But again, in the outpatient setting, which is where most of our focus is, four to five weeks is absolutely where the patients and providers need it to be because they're not having a follow-up that quickly anyway. In the inpatient setting, which represents about 10% of the business, that's a really dynamic area that we want to see continue to grow. It is a baby who's in the NICU.
Being able to provide a rapid answer is an area of the business that is coming into greater focus. And that is where turnaround times matter more.
Mm-hmm. Great. Okay.
For example, there are turnaround time in that inpatient setting, less than 10 days to a final report and about five days to a verbal report. That's where speed really matters, both from a clinical and a health economic perspective for the health systems.
Okay. Maybe just one question on long-read versus short-read. I know you have the partnership with PacBio. Where does... like, where does long-read offer a better diagnostic yield? Where does it not like...? And, you know, we hosted Children's Mercy yesterday, right? And they talked about how in the outpatient setting, it's tough, like there's just not a reimbursement, there's no codes. Like, it's gonna take, you know, I don't know how long. I think inpatient much better, but just they claim there's a better diagnostic yield for what they do. So how do you think about where you are today? I think you're almost all long, all short-read. Like, what does long-read benefit do for you, if at all?
That's exactly what we're trying to figure out. So the hypothesis is we're able to provide even more information in a more robust way. But the study that we're doing is really intended to be able to provide us with a comparator to the short-read. So we're in the early days of that collaboration. We love the prospect of it-
Mm-hmm.
- and we're working with important clinical collaborators, but more to come in terms of what the data show.
Is that like a three year study, two years? I'm, I'm sure there'll be, like, segments of it. It's not like one on- and end be all, right?
Yeah. It's about 24 months.
Got it. Okay.
Yeah.
Okay, so maybe now back on, you know, kind of the business here. You know, volumes, exome volumes, fourth quarter grew 100%, right? I think greater than 60% for 2023. And I think you talked about, you may exit the year with a mix of whole genome and whole exome, right? I think you talked about it in the mid-thirties range. So, you know, working with Joe, my associate, you know, if we model to hit this mix at flat to down ASPs, you know, it would get us to kind of, you know, above the top end of your revenue guide. So, can you just unpack how we think about the guide and this mix and kind of, you know, kind of what's baked in for 2024?
Yeah, I think on the guide in general, look, exome to many physicians outside of that expert geneticist space, it's a new technology. And so, like launching any new technology into new call points, there's an education period, and we wanted to make sure that we're not getting over our skis with respect to the ramp of growth. Maybe learning some lessons from prior years-
Mm-hmm.
where we went into new call points. But if you look at the guide itself, I think one thing to acknowledge is in the non-exome portion of our portfolio, that being hereditary cancer and then panels across rare disease and other spectrums, you might expect declines in volume and revenue. We are expecting declines in the non-exome portion of the business. It's our strategy to cannibalize those tests, and we wanted to leave room in the guide to absorb any declines in the non-exome, non-genome portion of the business.
Okay, denial rates right now, I think you've talked about maybe 60% or so. Is that right? Just give us a flavor of payment, right? Such a huge factor for all the lab companies, some more than others. Just give us a sense of where you are and kind of what the strategies are to kind of improve that.
Yeah. So the fourth quarter average reimbursement rate, after all denials for exome, about $2,500 a test, and yet just shy of a 60% denial rate on those tests. The way we look at those denials is about half of them we view within our control to combat through improved operational processes, effectively matching payer-specific administrative and medical criteria. We have hundreds of payers in our universe, and ensuring that we can automate processes to match not just medical necessity, but any other administrative hurdles or requirements that each payer has defined for reimbursement on the test. The other half of the denials stem from medical necessity or lack of policy with respect to the test today. That's where we're very encouraged.
We've seen tremendous momentum over the past two to three years in not just improvements in commercial policies, but I'd call out improvements in state Medicaid programs covering exome and genome. Roughly 28, 27 or 28 states today cover the tests in the outpatient setting. Only nine cover in the inpatient setting, so that being the rapid products of rapid genome and rapid exome. But we've seen good, steady progress and expect over the next several years to chip away to see more and more states pick up coverage. If you think about our target market today in the pediatric setting, then those Medicaid programs are really important. A lot of babies and children run through those programs.
And so really encouraged that we'll see the denial rates come down, in particular, in that portion of the portfolio. But a lot of effort across the company, cross-functionally, to improve on those reimbursement rates, and are confident that there's upside available to us in that regard.
That's in the outpatient setting. In the inpatient setting, that's institutional pay. So we get paid 100% of the time, which is one reason why it's a meaningful part of the business from a financial standpoint. But as we've established an enterprise sales team to really continue to look at that market opportunity. But that's a nice way to augment the commercial payer side of the business as well.
So in terms of the inpatient and the outpatient, given that factor, like, how much of it is the inpatient obviously serving a different type of patient, right? You talked about. So, so just on the inpatient side, like, where are you with the tests that you offer, and you think the unmet need, and, do you think there's just an obvious ramp of volume that could occur there, or is there a lot of building and evidence and things like that, that, that would have to be done in order to grow that business?
So it's gonna be a longer-term market development opportunity for us, for sure. Right now, I think part of, part of the issue is, you have neonatologists who don't know when and how to order genetic testing, which is a similar, phenomenon that you see perhaps in the pediatric outpatient setting. So embedding it and making it really easy for them to identify which patient, to order the test and then to understand the results, they don't all have access to a geneticist. So there's a longer-term market development opportunity there. But we're seeing some, early wins. I would say we're scratching the surface in terms of inpatient. And the health economics benefits of that, it's about $30,000 of savings per patient.
So that is very compelling when you think about talking to the C-suite at many of these health systems. We're excited about that market in terms of the ability to impact patient care and further embed genetics into the symptomatic setting, especially as we think about a future of newborn screening, where we're starting to do screening healthy newborns at birth.
Mm-hmm. And in terms of guidelines or coverage on the inpatient side, like are those set up, right? 'Cause you talked about it's just hard for them to figure out. Maybe it's unclear, but, like, where do those sit in terms of supporting factors?
Yeah. The vast majority of guidelines today, so ACMG, NSGC, American Epilepsy Society, all of that is focused on the outpatient side of things. ACMG does have a committee that is looking at recommendations or guidelines in the inpatient and that's underway. That's something that could hit in 2025 or 2026.
Mm-hmm. So maybe one more here, and then we'll maybe go to the income statement and the cash flow statement. Just on pricing, how do we think about I mean, 'cause I think pricing in the. Yeah, I think, I think they came down a bit, but maybe realized price from $2,900 close to $2,500. Like, where do we stand in terms of as we look out the next few years, you think we've hit, like, a bottom on the realized price? I mean, again, and kind of start to tick back up, or just what's incorporated for 2024 and, you know, kind of beyond?
Yeah, I mean, first, I'd take a step back and say, even at that $2,500 dollar mark, it still offers in the fourth quarter, high 60% gross margin.
Mm-hmm. Mm-hmm.
We know with much confidence that we'll continue to drive down cost per test on exome and genome, such that there's room for margin to expand, even if that price point were to stay-
Mm-hmm
... static at that $2,500 mark. From a comp perspective, 2022 to 2023, there was a reduction. About half of that reduction, though, was unilateral on our part. We had saw, in particular, where we had long-standing contracts with hospitals, in particular, in that inpatient setting, old pricing that was set many years ago at much higher rates, and we wanted to take cost off a barrier for improving and expanding access and, and volumes, and saw great success in that, effectively lowering prices from where they were set years ago.
Mm-hmm
... but still offering really attractive pricing and margins. And so that was about half of that, that comp difference from 2022 into 2023. The other half was just some uniqueness with a couple large payers with respect to some operational requirements that they put in place, and we're well on our way to addressing and putting those behind us, and so should see some uptick in reimbursement in future quarters as a result of that.
How many salespeople do you have today?
We actually reduced the number of sales reps and territory. So, we brought in a new head of our growth strategy last September, Mel Duquette, and, she took a look at, profitability against all the territories and, made the call that there were just some regions that didn't have the right policy in place, gross margins weren't looking good, and it wasn't worth actually investing in having a sales rep there. We can have the good business covered by a sales rep that exists. So we shrunk from 66 to about 56 sales reps. They're augmented by about nine medical science liaisons who partner with them to really ensure that the clinical expertise is in the field with them as well.
Mm-hmm. Where does Quest and LabCorp stand? Like, are they a player here at all or not at all?
We don't run into them all that much, actually.
Yeah. Okay. So maybe just on the burn and kind of the balance sheet, I think you have, what, $100 million in cash, $30 million in marketable securities that you're in, so $130 million?
Yeah, $131 million combined.
Right. So talk to. You've had seven consecutive quarters of cash burn reduction. You're counting for profitability by 25. Just talk through where we are, like, so from today looking out, and you know, how you get to free cash flow positivity, you know, on this, on this existing cash balance.
Yeah, so you should expect, with each consecutive quarter here for us to chip away at that burn, pretty consistently. We have line of sight to cost reductions, putting in the past some restructuring that was done on the legacy business. That's all pretty much behind us now. And so a pretty clear path to understanding how we can take operating expense out of the business, and we're planning to do that. Within the cash burn reduction and ultimately generation coming as we see, in particular, the mix of exome take more and more share from the non-exome portfolio. As we talked about, exome representing the minority of volume today, but almost the entirety of gross profit.
Mm-hmm.
And so even at today's gross margin levels, and we expect to expand gross margin, but even if those were to stay flat, as you see the mix percentage increase from 27% in the fourth quarter to mid-30s to 40% and beyond, it's what drives us most notably towards that point of break even. We've said in the past that if all else were equal, a roughly 40% exome to non-exome mix would get us to the point of break even. At today's growth rates, we see that coming at some point in towards the end of 2024 here and into 2025, and then beyond, of course. At the same time, making good, steady progress well ahead of our plans and driving down cost per test.
And so where we're really seeing a virtuous cycle hit is in cost per test reductions, not just in things like consumables from manufacturers. That's not unique to GDX. Others in the industry will share in input cost reductions, but we're really making great progress in the wet lab labor and then most notably in what we call the dry side of the laboratory, analysis and interpretation. Some exciting opportunities ahead with respect to using machine learning, AI, to drive further efficiencies in the analysis and interpretation platform.
So, so maybe could you dig in a little bit on that then? So, so in terms of cost per test, like, what is it today? And sounds like the 40% mix is really a huge, huge driver, but on the cost per test, like, where could that go to over the next couple of years? And kind of if you separate between wet lab and dry lab, like, what, seems like dry lab is the bigger driver of that. Could you just give some color on it?
Yeah. Maybe I'd put it this way. Over the past two years, we've effectively cut the cost per test in half.
Mm-hmm.
If you were to look back two years from now and think that there's every reason to be optimistic, not necessarily built into our guide, but upside to the guide, that we could see another halving of the cost over a two-year period of time. And we have that, you know, if you think about a $2,500 price point, we're offering about 65% gross margin on that, so sub $1,000, with various price points, depending on which exome is ordered. You know, about two-thirds of all of our volume today is what we call a trio, so that's where we get the base patient plus mom and dad.
There's some incremental cost to get those comparator samples of mom and dad, but the price point and cost for a single exome, hovering closer to $500. So there's a mixed component in there, but on balance, it's sub $1,000 today.
Mm-hmm.
We're confident we can continue to drive that down.
Like, where do you stand with the sequencing backbone. Are you on the X right now? Are you on the NovaSeq 6000? Is that an important driver or not?
Yeah, it is. We've seen good success with the Illumina X machine. We have two of those live. We have eight of the legacy 6000s-
Mm-hmm.
and so there's some replacement still to go. We'll cycle through over the next few quarters. They're not all that CapEx intensive, but we still have room to turn over the fleet. We've just launched a new, larger flow cell in February, and so we'll start to see some benefits from efficiency gains there. And then beyond, it's all things dry lab that we're focused on driving efficiencies across.
Mm-hmm. Interesting. So, what's the latest messaging around the data business right now?
So the data business represents a small portion of last year's revenue and what we anticipate for this year's revenue. However, we're making some really good progress in terms of some of our patient identification work for drug developers in the rare disease space. And as there's a greater focus on gene therapy and rare disease drug development at the FDA, they've been making a lot of comments, particularly in the past month, about the need to get creative about regulatory pathways for approvals. We're seeing more and more engagement and interest in how we might be able to help connect them with patients. So we think that over the next several years, the rare disease data opportunity starts to grow and can become a bigger part of our portfolio-
Mm-hmm.
and our revenue base. You know, we're a few years behind the oncology data business, but some really nice progress in terms of both investment in the space and FDA focus in it as well.
Maybe since we're out of time, what would be the final message you want to leave with investors?
You know, the team, we have a wind at our backs in terms of our ability to really capitalize on a wide-open market and deploy our exome and genome for as many patients as possible, and we're excited about the progress we've made and what's ahead.
Great. Well, thank you for being here. Thanks, everyone in the audience. Appreciate it.
Thank you.
Thank you.
Thanks so much.