All right, good morning. We'll go ahead and get started. Welcome to the Wells Fargo Healthcare Conference. I'm Brandon Couillard. I cover life science tools and diagnostics. Thrilled to have GeneDx with us at the conference this year. Joining us from the company to my left, CEO, Katherine Stueland, and CFO, Kevin Feeley. Thank you both for being here.
Thanks for having us.
Yeah.
Maybe just start out big picture, especially, you know, for those that may be less familiar with GeneDx, sort of given your, you know, circuitous route to the public market and just how much the story has changed in the past year. Just, maybe give us a high-level overview of the business, the value proposition of GeneDx. GeneDx, as an entity, has been around for a really long time, right? Just been really established in the clinical community. But, you know, where are you focused competitively? And maybe talk about the transformation that has been substantial, that you've undertaken the past two years.
Wonderful. Well, as you mentioned, GeneDx has been around for 24 years. We'll be celebrating our 25th anniversary next year since spinning out of the NIH. Over that time, GeneDx has really led the way in terms of diagnosing rare disease, and was an early pioneer of not only multigene panels, but really investing ahead of the market in two critically important technologies that are quickly emerging to be the new standard of care for diagnosing hereditary disease. One is our whole exome sequencing, the other is our whole genome sequencing. So our ability to take a genome's worth of information and distill it into a diagnosis for families is critically important. When we think about rare diseases, one in 10 Americans has a rare disease, half of them are children.
And what is unconscionable to me is the fact that it still takes many years, on average, six to eight years, for a child to be diagnosed with a rare disease, when today, we can provide a definitive answer within weeks, if not days. So what we are aiming to do is really put an end to that diagnostic odyssey for the many families that are suffering from these unresolved diagnoses. And being able to not only provide the accurate diagnosis through whole exome and whole genome sequencing, but then importantly, to be able to connect them to a clinical trial or an FDA-approved therapy.
I think there are, in many ways, there's never been a better time, in this space because there is, to quote Peter Marks from FDA, "A tsunami of gene therapies and rare disease therapeutics that are really becoming, part of the pipeline for FDA approvals." That's giving these families tremendous hope in terms of what can happen once they have a diagnosis. What we've done over the past three years, since I joined the company, we have really focused the entire team on being able to open up and expand utilization of exome and genome testing. Our revenue path over the past several years has been a steady growth from $116 million in 2021.
This year, we're on track to do $255 million-$265 million in revenue. We've been able to put tremendous efforts in terms of improving our overall operations and scaling those operations, so we can continue to drive meaningful gross margins. Our exome product, in particular, has gross margins of north of 70%. So as we reported in the last quarter, our gross margins came in over 62% across the company. Importantly, we have been able to, over the past nine quarters, consistently reduce our cash burn.
And so we are now in a position where we are sitting on the doorstep of profitability, which is something that is tremendously important, I think, particularly given the backdrop of the space, to be able to have a financially healthy organization that continues to invest in the future of diagnosing all genetic diseases as early as possible.
Maybe just to close the book on this one question, Kevin. So you've still been booking some legacy Sema4 financials. It's really complicated, a little simpler now, but when will we see all that roll off? When will the cash outlays related to Sema4 finally be behind us, and you'll sort of be clean of, I guess, that separation or, you know, wind down of that business?
Yeah, at least from a P&L perspective, down to immaterial amounts running through the P&L related to that legacy business. The shutdown's been complete. Obviously, there'll be a period of time where prior year comparisons will have to have the split to show the difference between what we consider to be the core and the growing part of GeneDx, that being the legacy GeneDx business, but substantially complete with everything running through the P&L related to the legacy Sema4 business. There's some liabilities on the balance sheet that need to be serviced, but after two years of hard work, really pleased with how that legacy GeneDx business has withstood massive transformation as we went through the shutdown of Sema4.
In many ways, it's made us stronger coming out of the other end with a real focus on driving profitable growth and financial discipline along the way.
... Kevin, you mentioned the gross margin focus. I mean, the improvement has been remarkable, right? You've gone from 40%, I think, in the first half of 2023, you're now north of 60% overall. A lot of pieces behind that. You kinda unpack those, you know, the buckets that have been the most important. You've been really focused on the wet lab. ASPs are certainly benefiting too. And what's still in front of you in terms of more room for efficiencies on the dry lab side, be it in terms of how you run the tests that you're focused on the next 12 months?
Yeah, I mean, certainly we're pleased with the revenue trajectory underlying exome, genome volume growth, nearly double year- over- year. What I think I'm most proud of is we doubled gross profit year- over- year. And as you noted, second quarter came in 62% gross margin. We certainly believe there's more room to run to improve that. The improvement's really coming from a full trifecta of mix shift into more unit economic favorable products, that being exome and genome. Together, the exome and genome portfolio operating around 70% gross margin. There's some legacy tests on our menu, hereditary cancer and multigene panels, servicing rare disease. Those operate at some lower gross margins to get to that blend of 62. So one, mix shift into exome and genome, and we'd expect to continue that over time.
We've been able to meaningfully improve average reimbursement rates by taking down denials, getting paid more fairly for the exome and genome portfolio, and at the same time, the team's been working hard to drive unit COGS efficiencies across exome and genome. The focus, as you mentioned, for the last couple of years, within wet lab processes, so processes in the laboratory, some input costs, reagent costs, savings have been unlocked as we've moved to newer generations of machines and processes. Where I think we are absolutely most excited is unlocking the potential for new technologies, whether it's automation, large language models, AI, to assist in bringing down labor costs on what I'll call the dry side of the laboratory. So, analysis, interpretation, abstracting medical records, scraping data, creating the actual report that is delivered to physicians.
Still very much manual, but we think very much automatable over time, and that'll be our focus to continue to drive margin expansion from this point.
Yeah, where can gross margins, you know, ultimately go? And I think, you know, even the exome test has improved maybe a thousand basis points in the past year. I think you were talking 60% for that product, and 70%, you know, if you look across the landscape, it kind of seems like a ceiling where most companies kind of top out. Exact Sciences is there, Myriad Genetics is there, but how much more runway is there, if any, for, you know, exome in particular? Obviously, mix of benefit denial rates will continue to come down out a bit too, but can exome be an 80% gross margin test?
Yeah, I don't know if I'm ready to commit to that eight handle, but to say we're convicted that they can go higher from today's point. Extremely satisfied with the early work we've done to explore the ability to drive down labor costs, like we said, on the back end of the lab. There's a large workforce, and what we're looking to do is how do we get to the point where we can double, triple, quadruple volumes and not have to add extra labor in a linear fashion as we go? Beyond economics, there just isn't a large enough talent pool for us to keep pace. We expect to continue to service more and more patients over time. We wanna be talking about
We wanna be talking about hundreds of thousands of patients a day versus the few thousand a day that we service today, and the only way to do that is to find more scalable solutions, and that'll be our focus and think that we'll get benefits of unit cost improvements, but also reduction in turnaround time. It's really important that we deliver these tests in a quick manner to get answers in the hands of physicians and patients, and the solutions we're looking at are aimed at driving both cost efficiencies and lowering turnaround time. Ultimately, think that that helps us drive also top-line revenue growth as a better product continues to come out into the marketplace.
You've been really exclusively focused on exomes, as you said, for a really long time. It was only 13% of the volume mix at the beginning of 2013, and it's doubled in twelve months. It's kinda like, what is facilitating that growth now? Not just converting gene panels over to exome, 'cause it's growing in excess of any degradation in the other panel tests. But why now is it really hitting an inflection?
So taking a step back, when I joined three years ago, the company had invested in the clinical and technical excellence of our exome and genome. Where I believed there had been an underinvestment was on the commercial side of things, as well as on operations and scale. So part of my my personal mandate when I arrived, was to expand utilization of exome and genome, having spent the past decade in genomics, knowing that there were more efficient and more comprehensive ways to satisfy these families who desperately need diagnoses through an exome and genome. So growing this market was expressly the reason that I joined the company. And when we first started taking a look at how that strategy might unfold, we had sequenced 270,000 clinical exomes.
Today, we're nearing seven hundred thousand, three years later. So the reason for that growth, one, is commercial expansion, and really being able to ensure that people are aware of GeneDx. Prior to three years ago, I think if you were a medical geneticist, you were very aware of the benefits that we were able to provide and the confidence that you could have in us. But we're now starting to introduce GeneDx to new clinician types. So think pediatric neurologists who are seeing children who have epilepsy, autism, and other related disorders. So we're focused on continuing to introduce the company and our exome and genome services to a growing group of providers. That accounts for part of it. That's the work that we're putting into the marketplace to really educate clinicians.
We're generating data, we're publishing data, but importantly, there's a surround sound of other aspects that are influencing clinician behaviors. So one, guidelines, ACMG, NSGC, the American Epilepsy Society, all recommending exome and genome as a first line for children who have. There's a concern about whether or not they may have epilepsy, autism, or other missed milestones, intellectual delay or developmental delay. So guidelines help really provide some additional support in terms of the way that clinicians are thinking about it. Payers are also shifting their attention from multigene panels to exome and genome. And that's clearly a hugely important part of not only prescribing behaviors, but also our commercial strategy.
So we take a look at where we are putting our efforts, and we want to make sure that the volume we're driving is volume that we can get paid for. And I would say the next factor has to do with another element of the ecosystem, which are the biotech companies who are being incentivized to invest in rare disease therapeutics. And as I mentioned, FDA has really been commenting on this pathway for approvals to ensure that, quote, "the tsunami of rare disease therapeutics and gene therapies" that they're going to be taking a look at have a clear path to being able to open up access for more and more patients. So you have these other factors that are pointing more providers towards the need to diagnose these patients.
What we're able to say to clinicians, and in particular for those who have been ordering multigene panels, let's look at epilepsy, for example. There are 768 genes associated with epilepsy, today. We're continuing to find new gene-disease correlations, thanks to our data asset, that continues to grow and inform more of these discoveries. Multigene panels only cover, say, 180 of those genes. And so you're leaving behind so many patients by starting with a multigene panel, you're just going to have to reflex to an exome.
We're able to go in and say, we're able to provide you with the most comprehensive view of whether or not your patient has an underlying genetic cause for epilepsy, and based on that outcome, we're also going to be able to ensure that your patient knows what the pathway is from a clinical trial or FDA-approved therapy standpoint. The value proposition as it pertains to exome compared to other testing, we're able to do it today in a matter of weeks. Most of our testing is done in 4 weeks, which is essentially a parity to multigene panels. Most payers are paying for it. A growing number of state Medicaids are paying for it. 29 states are now covering exome in that outpatient setting. 14 states are covering whole-genome sequencing in the inpatient setting, so reimbursement is there.
But most importantly, you're able to get the right answer most efficiently upfront, with a high degree of confidence, thanks to the clinical expertise and excellence that our team provides.
Yeah, I think if you look at, you know, if you roll the clock back 10 years, science and the medical community knew the promise of whole genome and whole exome, and what we're starting to see is we're just in the extreme early innings of fulfilling that promise of the power of these tests. But 10 years ago, it was a reality that these tests cost tens of thousands of dollars and not hundreds, that they took months and not a matter of weeks and days, and that a physician would get a report that was complex, confusing, hard to understand. And GeneDx has spent the last 10 years trying to solve for those three, three things to bring the promise of whole genome sequencing to the market, to replace multigene panels and individual targeted tests that are leaving patients behind.
So the answer is, well, why now? It's been a long journey to get here, but we think we're just at the onset of really fulfilling what has always been the promise of the power of sequencing the exome and genome.
Who's your number two competitor? How much is it, academic medical centers?
... do it in-house. Has the competitive landscape changed at all in your view, given rising rates and some companies exit the market? You know, before we started, you were telling me an example of, you know, another public company that tried to build this themselves, and it didn't work. Unpack, you know, why that is and why the data is so important as a barrier to entry for this type of testing, as opposed to just being able to order all the components off the shelf and run the sample. It's actually a lot more complicated than the interpretation element of it, right?
Yeah. So one, I would say that the biggest detriment right now is the lack of awareness of the benefits of genetic testing and the underutilization of these technologies for so many patients. We're aiming to shift that, and we can talk about that more later, but I would say in terms of competition, yes, there's academic medical centers who are doing this testing in-house, but there's a few really reputable players out there, including Baylor, Rady Children's. Baylor focuses on exome and genome. Rady focuses in the NICU, and my hope is that a continued focus, I think GeneDx is shedding light on the massive patient opportunity that is out there for us to be able to serve.
And the more companies that are focused on also shedding light on this only helps to ensure that more patients are getting diagnosed, and that we're able to more rapidly address this ever-growing patient population. But what really set us apart, you mentioned the data asset, and I said when I joined three years ago, we had 270,000 exomes. Today, we're sitting on a data asset that's informed by about 700,000 clinical exomes. For every patient that we're running through, we're continuing to amass that data asset that's enriched for rare disease. It includes not only the child, but oftentimes we're also sequencing one or two of the parents. And so, it is an extremely rich data asset that's very difficult to recreate.
It would require literally continuing to recreate the number of patients and the types of patients that we have in that data asset. And I think one of the things we're very proud of, compared to other companies, our data asset and our patient population is very reflective of the U.S. population. And so it has a diverse group of patients that are represented in there that only helps us better think through not only the diagnostic side of things, but the connection to biopharma companies and gene-specific therapies across different patient populations.
But when we think about the commercial strategy and driving as many exomes and patients into that data asset, it really creates a virtual cycle, where we have a strong data asset, we're driving more volume into it, it's informing more future diagnoses. So it is the fuel for our interpretation platform. I think if a company is starting today, they're gonna have to race us. I think with every patient that we're adding to that database, we're setting a new standard for what is required to get that confidence interval and the diagnostic yield that we're able to drive patient by patient that improves.
For every patient that we're running, we're upgrading or downgrading a variant of unknown significance, which is part of the reason why when somebody introduces a new exome or genome to the market, a clinician may try them, but they usually come back to us because they realize that they have the highest level of confidence in the answers that we're providing. So the richness of that data asset can't be underestimated. You can't just turn on an exome. You can't just plug in a sequencer. You need to actually get to that number of patients, to that diversity of patients, to the types of patients, as well as the moms and dads who are also being sequenced as a part of that data asset in order to have that same level of confidence moving forward.
And that requires time and investment and commercial might. So that's why others have failed in the past. I think it's why we see 80% of clinical exomes that come through GeneDx. We're clearly the market leader. I think the patient population is only going to continue to expand. We're gonna continue to be that leader over time, both in exome and in genome, because of that ever-growing data asset that fuels everything that we do.
Kevin, be helpful just to get an update on the commercial versus Medicare payer mix. I think you said that your commercial payers were... You have commercial coverage for 80% of U.S. lives. What do those two numbers look like, and how do I reconcile those two with a really high denial rates or no pay rates still, for exome?
Yeah, so it's a great question, and we've got a hard team focused on it every day. So maybe just looking at volumes, but about 15% of the business is institutional pay, that's a B2B relationship, cash pay from a hospital system, collectible 100%. So then you take the other 85% of volume, split fairly equally between third-party commercial payers and patients with Medicaid across the country. Each of those cohorts, commercial insurance and Medicaid, have a roughly 50% denial rate, give or take. It's a coincidence those numbers are the same, it's a vastly different environment and story with each.
On the Medicaid population, and particularly with a patient cohort in pediatric, it's a really important payer dynamic for us to ensure that there's Medicaid access across the country. The 50% denial rate is purely a function of states that have yet to enact or put out coverage for whole exome and whole genome. Tremendous progress has been made in that regard. When I first started at the company, there were zero states covering exome and genome, and GeneDx continued to service those patients, taking a nearly 100% denial rate, in order to build that data set and service that population in need. What we expect over time is a pretty steady drumbeat of states picking up additional coverage.
29 states now covering whole exome in the outpatient setting. 11 states covering rapid whole genome in the inpatient setting. That's primarily a use case in the NICU. So that's great progress. The first state to actually launch coverage in the inpatient rapid whole genome setting was Michigan, about three years ago. So to get to 11 in that short period of time is great to see, but there's no doubt our denial rate will continue to come down as the overwhelming clinical and economic evidence gets to policy and decision makers. Really, it is a state-by-state decision process, you know, subject to their own fiscal realities, rules, regulations, and policymakers.
We, of course, are playing our part to advocate as hard as possible, across the country for access, but overall, really pleased with the pace that we've seen there. On the commercial side, the 50% denial rate, to your point, we're contracted with over 80% of commercial lives in the United States. Most do have policy coverage for exome and genome, all vastly different medical criteria, and the denials we see, I'd characterize more as administrative and process-related denials, less around overall medical necessity.
But ensuring that upfront order intake and claims submission processes are designed bespoke to meet an ever-growing web of complex rules that are different payer by payer by payer, and pretty proud of the work the team's put in over the last year to take what was a high-water mark of close to 65% of all tests in that channel being denied, down to roughly 50%. We still have a long way to go, but certainly optimistic that there's compelling data that over time will make it clear to payers that it's in everyone's best interest, including theirs, to cover these tests.
Kevin, you talk about the commercial organization. I think headcount's been flat for a year or two, still putting up huge growth numbers. It's a relatively small group, you know, compared to, you just look at other diagnostics businesses and how scalable or lack thereof they are. What's the number of call points that you're targeting? Can you service that market with 60, 70 reps? Do you need to grow that base to grow top line, look out next year or two? Are they maxed out? Let me just think about those two things, and maybe the scalability of the commercial organization compared to other models.
Sure. So the sales team today is 54 individuals, focused predominantly on the outpatient opportunity. There's about five enterprise sales reps who are focused on the inpatient opportunity, where we have a rapid whole genome product. So we'll focus mainly right now on the outpatient opportunity. They are complemented by nine medical science liaisons, and we feel like that is the right size for a commercial and medical affairs effort, more or less, over the next year or so. So we think that they can continue to drive meaningful growth as we think about the path forward. We may add some additional heads in 2025, but, unlike my previous experience, we're not gonna be doubling the size of the sales force every year.
What we've really been able to do that I think is unique to the space. We're not driving just volume. We've really attuned our sales reps to understand. Kevin just talked about where there are pathways for reimbursement. Our reps are attuned to where volume is gonna get paid, and so that's a really important element of the way that they're structuring the clinicians that they're calling on. They call on medical geneticists, who classically have ordered genetic testing, but what's really important is starting to shift our focus into the pediatric neurology segment, into pediatric behavioral specialists. Those who, if you think about a family with a rare disease, they're starting at the pediatrician, and then they're getting referred out into a pediatric neurologist or another specialist. So we're focused in that next rung of clinicians, and we're just getting started there.
Up until probably about five, six years ago, those clinicians were not ordering any genetic testing. They're ordering it today, in part because of our efforts, in part because of the new therapies that are coming to the market. They're really being educated about the importance of diagnosis. You can't treat it if you can't diagnose it. So, anyone who is seeing a child with an unexplained symptom should be coming to GeneDx. But rather than go directly into the pediatrician setting, where we went last year, we're really focused on that next rung of clinicians and pediatric specialists. And we think that they, as I said, we're just getting started in that segment.
As we think about the next eighteen months, that'll be our main area of focus, and we have plenty of runway to continue to grow our exome utilization in that segment moving forward.
Yeah. You haven't talked really much about pipeline or kind of adjacent markets, rightfully so, been focused on profits and growth in the core. Will that messaging or strategy evolve as you move into profitability? Why bother to go into an area like newborn or, you know, where the value proposition may be less obvious and more competition? How do you think about those trade-offs, and, you know, is there a pipeline story in adjacent markets like that?
So the total addressable market that we've been talking about is conservative, and that's a $3 billion market. That's what we would call a go-get number. That's based on utilization of testing today. That's not based on the shift that we want to make. So that $3 billion market still contemplates a six to eight-year diagnostic odyssey. I will view us as being successful once we start getting the diagnostic odyssey to sub a year, and that means shifting behaviors of clinicians to be able to focus on a symptom and be able to diagnose based on that symptom using one of our exomes.
So we need to really educate clinicians about taking a look at a child who's having a seizure and think to order a genetic test rather than go through the trial and error that is detrimental to the child's health. It's costly. And so when we think about the runway, that $3 billion market opportunity, I think, completely underestimates the actual total patient opportunity that exists. We hear every day about rare disease. It's so much more common than its name really, I think, implies. You hear celebrities who are talking about it. Colin Farrell has talked about Angelman syndrome. We were at Pearl Jam, Eddie Vedder talking about a rare skin disorder because somebody that he cares about has a child who has that, and the need to diagnose these families and support these families.
So, the market that we're focused on is going to really continue to grow, and we're going to continue to be able to drive exome utilization in meaningful ways that go far beyond that $3 billion opportunity. However, that newborn screening opportunity, what we're doing in New York State with the GUARDIAN study, we're actually showing that if you intervene at birth, if you do newborn screening using whole genome sequencing on healthy newborns, we're finding a positive diagnosis in 3%-4% of these children, where there is a medical intervention immediately. So we're looking at 450 conditions, all of which are medically and clinically actionable. And we looked back in our historic database. For those children that we're now diagnosing at birth, they would have had to wait to be 7-11 years old for a diagnosis.
That's seven to 11 years of disease progression, of massive harm to the child, to the family, cost to the healthcare system. And so we're putting a stake in the ground in terms of not just diagnosing the symptomatic children that are being ignored today, but we want to really change the paradigm and be the leader in newborn screening, so we can prevent progression of disease moving forward.
We're running out of time. I have so many more questions. Maybe just squeeze one in. Are you spending money today to prepare for LDT reality? Number two, what would you say, you know, investors are still underappreciating or still misunderstood kind of about the GDX story in general, if anything?
We are preparing for LDT. We have been compliant with CLIA, CAP, New York State for many, many years. We've got just a ton of experience on the quality systems, and so we're well-prepared to be able to comply with this new reality with FDA. I think what's really underappreciated. I talked about that total patient opportunity. There are far too many families that are going through that diagnostic odyssey, and we can provide answers, as I said, within weeks, if not days, to be able to really put these families on a healthier path moving forward. We can help healthcare systems save dollars and fundamentally diagnose genetic diseases as early as possible. We have the potential to do that today. It's an ever-growing market, and we're well positioned to continue to be the leader.
Super. We'll have to leave it there. Katherine, Kevin, thank you so much for being here. Everybody, have a great day.
Thank you.
Thank you so much.